WANG Jiankun, GUO Kai
CF40 Institute
Abstract：The widening China–EU trade imbalance has become one of the main concerns in bilateral economic relations in recent years. The dominant explanations point to spillovers from excess capacity in China, trade diversion caused by China–US trade frictions, a price advantage stemming from a weak renminbi, and weaker Chinese domestic demand reducing EU exports to China. This article finds that these explanations are not supported by the sectoral and trade data.
On the EU import side, the rise in China’s exports to the EU has not been broad-based. It has been highly concentrated in the “new trio” (electric vehicles, lithium-ion batteries and photovoltaic products) and in chemicals. Volume and price data do not support the assessment that Chinese goods have been dumped at low prices. The export growth of the new trio and chemicals reflects, to a greater degree, structural changes within the EU itself. The green transition has raised demand for new energy products, while the energy crisis has increased production costs in sectors such as chemicals and strengthened reliance on external supply.
On the EU export side, Chinese domestic demand in the sectors where EU exports are concentrated continued to expand between 2021 and 2024. The weakness in EU exports to China was not primarily due to an overall contraction in the Chinese market. The main driver was faster import substitution in a context of declining import dependence.
The widening EU trade deficit with China is essentially the combined result of China’s industrial upgrading and Europe’s energy constraints. Trade protection measures such as tariffs alone are unlikely to address its structural roots.
I. Why has the China–EU trade deficit widened sharply over the past five years?
In 2025, the EU’s goods trade deficit with China widened to EUR 359.3 billion, up by nearly 15% from EUR 312.2 billion in 2024, and more than double the deficit of EUR 165.0 billion recorded in 2019. In fact, the rapid widening of the deficit is mainly a recent development rather than a long-running trend over the past decade. Between 2016 and 2019, the EU’s trade deficit with China remained broadly stable at around EUR 160 billion (Figure 1). The turning point came after 2020, when the deficit began to widen rapidly and persistently, driven by both imports and exports. This has made the China–EU trade imbalance a main concern in bilateral economic relations.
On China’s export side, exports to the EU rose markedly after the pandemic in 2020. In 2022, against the backdrop of the Russia–Ukraine war, they surged to a record high of EUR 628.9 billion (Figure 1). Exports fell temporarily to EUR 520.5 billion in 2023, but that did not alter the broader upward trend. In 2024, China’s exports to the EU recovered to EUR 525.7 billion. In 2025, they rose further to EUR 558.8 billion, up by about 6% year on year and about 54% relative to 2019.
On China’s import side, EU exports to China continued to weaken. They peaked at EUR 231.0 billion in 2022 and then declined for three consecutive years. In 2025, EU exports to China fell to EUR 199.5 billion, down 7% from EUR 213.5 billion in 2024 and 14% below the 2022 peak. The pace of decline also accelerated year by year.
This pattern of rising Chinese exports and falling EU exports is even clearer in market shares (Figure 2). China’s share in the EU’s extra-EU imports rose from 18.7% in 2019 to 22.2% in 2025, showing that China’s position among the EU’s external suppliers continued to strengthen. Over the same period, the share of EU exports going to China fell from 10.5% in 2020 to 7.5% in 2025, indicating that the Chinese market became less important for EU exporters.
It is also worth noting that, from China’s own export perspective, the EU’s share in China’s total exports declined from 17.2% in 2019 to 14.8% in 2025. This suggests that China’s export destinations have become more diversified and that its export dependence on the EU market has also fallen.
The widening gap between exports and imports shows that the China–EU trade imbalance is no longer a short-term fluctuation. It has become increasingly structural.
Figure 3 shows that the EU as a whole continued to record a trade surplus and a current account surplus vis-à-vis the rest of the world. Both weakened temporarily during the 2022 energy crisis, but then recovered quickly and returned to high levels. This means that the widening bilateral deficit with China did not coincide with a broader deterioration in the EU’s external trade and current account position. The widening deficit with China is therefore a specific bilateral imbalance, rather than part of a general weakening in the EU’s external position. To understand why it widened, we need to look at the bilateral trade relationship more closely.
In current European policy debates, four explanations are most often used to account for the widening China–EU trade imbalance.
The first argues that Chinese industrial policy has led to large-scale capacity expansion, with overcapacity flooding overseas markets, including the EU, with low-priced goods.
The second holds that, after China–US trade tensions escalated, goods originally destined for the US market were redirected to the EU, amounting to low-price dumping.
The third points to the renminbi, arguing that its persistent weakness has given Chinese manufacturing a systematic price advantage in export markets.
The fourth focuses on the demand side in China. Since 2021, the property downturn has weighed on domestic demand more broadly, weakening China’s capacity to absorb imports and directly reducing room for EU exports.
This article finds that sectoral and trade data do not support these explanations. China’s exports to the EU have not expanded across the board, nor has low-price competition been the main feature. Export growth in recent years has been concentrated in a small number of sectors. Meanwhile, the weakness in EU exports to China has reflected lower Chinese import dependence and faster import substitution, rather than an overall contraction in the Chinese market.
This article argues that the widening trade imbalance reflects the combined effect of changes in EU demand and changes in China’s supply structure. On the one hand, the EU’s energy transition has raised industrial costs and increased demand for China’s new trio and chemicals. On the other hand, China’s industrial upgrading has accelerated import substitution, reduced demand for imported products and narrowed room for EU exports to China. At the same time, the widening bilateral imbalance has not altered Europe’s broader external surplus position. As the EU’s deficit with China increased, its surplus with other trading partners also rose.
