One billion trade deficit per day: EU still fears dispute with China

This fear has been quantified since Tuesday with a number that is difficult to understand: one billion euros per day. That’s how big the EU’s trade deficit with China is – that is, the difference between the value of European goods sold in China and those that Europe imports from the Middle Kingdom.

“A trade war seems inevitable”

In April, this trade deficit reached a new record of 31.9 billion euros, according to the EU statistics agency Eurostat. The number of Chinese goods shipped already suggests that it will be even higher in May and June. The enormous imbalance has concrete consequences for Europe’s economy: Last year, company bankruptcies rose to their highest level since 2015, and in Germany alone more than 140,000 jobs were cut in industrial companies.

Economists are already conjuring up a “China Shock 2.0” – alluding to the People’s Republic’s accession to the World Trade Organization (WTO) in 2001, which led to a wave of Chinese exports to the USA, which hit the industry there hard. The Economist The headline read: “A trade war between China and the EU seems inevitable”.

No agreement in the EU on new China tariffs

But this is exactly where fear comes into play again. EU Trade Commissioner Maroš Šefčovič calls the deficit “unsustainable” and has recently repeatedly called for new punitive tariffs on Chinese goods. However, some member states fear Beijing’s reaction. Germany’s industry is heavily dependent on exports to China and is therefore particularly vulnerable to counter-tariffs. Spain, which exports large quantities of agricultural products (pork) to China, is on the brakes for the same reasons.

Other, weaker measures are more likely: import quotas for certain Chinese products, for example, certain chemicals and hybrid cars are being discussed, the import numbers of which have increased massively since the EU introduced punitive tariffs on Chinese electric cars in 2024. Measures to strengthen European industry are also being considered; for example, the Commission is planning to tie some public contracts to a local value creation effect.

China can’t help but overproduce

The danger is that China’s leadership is unlikely to simply swallow these measures. In the customs dispute with the USA last year, Beijing used its monopoly position in the processing of rare earths as a means of pressure and ultimately forced concessions. This has shown that China is prepared to escalate trade conflicts – even if its own economy suffers in the short term.

One reason for this is that China’s government can’t help but encourage overproduction at home and keep this trade surplus going. According to an OECD study, almost a third of Chinese industrial companies are making losses because domestic consumption is still idle. So the state distributes subsidies, the companies continue to produce – and have to export their products.

If China were to deviate from this course, economic growth would be at risk. And with it the core promise of the communist party. China’s leadership is also driven by fear.