China Forces Reckoning in Europe as Trade Boom Turns Existential

China’s exports are putting it on a collision course with Europe.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — China’s exports are putting it on a collision course with Europe.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.French President Emmanuel Macron has branded the trade imbalance with China “unbearable,” saying what’s at stake now is “a question of life or death for European industry.” European Commission President Ursula von der Leyen believes the bloc’s ties with China “have reached an inflection point.”The scale of the imbalances with the European Union was thrown into stark relief days ago when Beijing disclosed its trade surplus with the bloc had widened to a record approaching $300 billion in 2025. The value of China’s exports to the EU is now more than double its imports, as Chinese sellers divert goods facing levies in the US.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.“The China shock in Europe is really starting to hit,” said Andrew Small, director of the Asia program at the European Council on Foreign Relations. “What you’ve now had in recent months has been much greater levels of urgency, not all of it playing out in public, but serious crisis meetings taking place.”The result could be the biggest rethink of EU policy toward Beijing in at least a decade, according to Small, who previously advised von der Leyen on China. Sidetracked for years by the war in Ukraine and, more recently, by Donald Trump’s tariffs, the EU is finally focusing on China, preparing what Small describes as a “pent-up” mix of measures.The bloc unveiled a plan earlier this month to ensure its industries aren’t overtaken by global rivals, as competition intensifies with the US and China.

The European Commission, the EU’s executive arm, has also proposed setting up an economic security hub to better navigate trade tensions and counter the threat of cheap products flooding the bloc’s single market.And it’s expected to propose setting conditions around inbound investments such as technology transfers and the use of domestic content and value chains.The wake-up call comes as other major economies erect trade barriers: Mexican lawmakers this week gave final approval for new tariffs on Asian imports.Time is short for Europe. Economists at Goldman Sachs Group Inc estimate competition from Chinese exports will cut gains in German, Spanish and Italian gross domestic product by 0.2 percentage point or more from next year through 2029.The fallout from China’s exports might extend to almost a third of euro-area employment, according to economists at the European Central Bank, meaning it could possibly affect more than 50 million jobs. “External hostility toward goods exported by China will escalate, particularly in Europe,” said Stephen Jen, chief executive of London-based hedge fund Eurizon SLJ Capital. “This configuration of explosive trade and a cheap renminbi cannot be sustained.”For China, there is little alternative. The EU’s $20 trillion economy is among the few markets big enough to absorb the goods it used to ship to the US.Over in Brussels, the risks of a confrontation became clear this year, when tensions over trade escalated between China and the US. Beijing leveraged its dominance of rare earths disrupting major industries from electric vehicles to wind turbines and causing numerous production stoppages by European companies.While the EU committed at least €3 billion ($3.5 billion) over the next year to help sever its dependence on China’s raw materials, in reality that’ll take years to have meaningful impact. It’s not just China’s industrial strength that gives it an edge.Propelling its exports is a currency undervalued in the view of many economists, making exports cheaper and imports more expensive. The yuan hit a decade low against the euro earlier this year.“One of the real reasons that Chinese exports are going so fast is that the renminbi is very significantly undervalued relative to the euro,” said EU Chamber of Commerce in China President Jens Eskelund, using an alternative name for the currency. This acts as a “subsidy” for exports and suppresses Chinese consumers’ purchasing power, he said.China’s trade deficit with Europe took off during the pandemic, as people bought more goods to adapt to lockdowns and working from home.Chinese firms simultaneously began to move up the value chain and started competing more with foreign companies in higher-tech sectors such as medical devices and high-end cars. As with China’s imports flat-lining over time, a re-acceleration of its exports has made the trading relationship ever more lopsided.As a result China is now taking 7% of EU exports but supplying almost a quarter of all imports from outside the bloc. China’s deficit with the EU and the UK now accounts for nearly a third of its total trade differential with the world, which exceeded $1 trillion for the first time.The asymmetry means Europe’s firms are losing sales to China, while having to contend with increased pressure at home from cheap goods. What’s more, they also face greater competition in other overseas markets, as Chinese companies rapidly increase their shipments of cars and other goods to the rest of the world.Germany is at the ground zero of the changing terms of trade with Beijing.In 2019, China ran a $25 billion deficit with Europe’s biggest economy. In the first 11 months of this year, that’s flipped to a $23 billion surplus due to the collapse in imports.The result for Germany is an economy stuck in a funk, battered by job cuts and increasing competition from China both at home and abroad. German industry has been cutting more than 10,000 jobs a month this year, according to federal statistics agency Destatis.Combined with high energy prices and challenges such as an aging population, the weakness forced Chancellor Friedrich Merz’s advisers to cut their growth forecast for Germany next year to below 1%.China’s advantage doesn’t just exist in high-tech manufactured goods like electric vehicles, with its firms continuing to dominate in production of cheap consumer goods, clothing and shoes.Shipments of cheap products from e-commerce sites have soared every year since the pandemic, and were up another 56% in the first 10 months of this year compared to the same period in 2024.As pressure builds to mount a response, countries could “not only use existing trade tools, like anti-dumping duties, but also develop new tools and approaches for addressing what is turning into a serious and unsustainable situation,” said Wendy Cutler, a former senior US trade negotiator now at the Asia Society Policy Institute.“We could see the EU and others take further measures to limit Chinese imports during the coming year,” she said.—With assistance from Ran Li, Alexander Weber and Andrew Langley.Postmedia is committed to maintaining a lively but civil forum for discussion. 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