China recorded a trade surplus exceeding $1 trillion in 2025 — a staggering figure that tells only part of the story. While US imports from China have dropped sharply following the Trump administration's escalating tariff regime, Chinese exports have not slowed. They have simply found new buyers. And Europe is at the top of the list.
The EU's trade deficit with China widened to €26.8 billion in December 2025, up from €24.5 billion a year earlier, as Chinese goods from solar panels to electric vehicles to machinery arrived in ever-greater volumes. The European Central Bank estimates that eurozone imports from China could increase by up to 10% in 2026 as a result of trade diversion, with significant implications for European producers, consumers, and policymakers alike.
Why Europe?
The mechanics are straightforward. US tariffs on Chinese goods have reached effective rates of approximately 135% in some product categories, making it economically unviable for many Chinese manufacturers to sell to American buyers. But production capacity has not decreased — in many industries, it has expanded. Those goods need to go somewhere, and Europe, with its 400 million consumers and relatively open trade regime, is the natural destination.
A second factor is currency movement. The Chinese yuan has depreciated significantly against the euro in recent years, a combination of very low inflation in China (and in some categories, outright deflation) and rising prices across Europe. This makes Chinese goods comparatively cheaper for European buyers, even before accounting for the direct price competition.
Two Categories of Impact
Economists divide the incoming Chinese goods into two categories with very different implications. The first consists of cheap, disposable consumer items and e-commerce goods — products that arrive via platforms like Temu and Shein, often in small packages that until recently escaped customs duties altogether. The EU has moved to address this gap by imposing fees on small imported packages starting in July 2026.
The second category is more concerning: advanced manufactured goods that directly compete with European core industries. Electric vehicles, batteries, chemicals, and industrial machinery from China are arriving at prices that European manufacturers struggle to match. Chinese solar panels, for example, are being sold below cost due to massive overproduction — a situation that benefits European consumers but devastates any domestic solar manufacturing ambitions.
"On goods like batteries, electric vehicles, chemicals, or machinery — those are real threats to Europe's production model."
— Jay Shambaugh, economist
Europe's Divided Response
The European response has been inconsistent, reflecting deep divisions within the bloc. France and Italy have pushed for more aggressive trade defence measures, while Germany — which remains deeply intertwined with the Chinese market as both a buyer and seller — has been more cautious. Chancellor Merz's forthcoming China Action Plan, expected in February, is being closely watched as a signal of whether Berlin will pivot toward a more restrictive stance.
At the EU level, the European Commission has imposed countervailing duties on Chinese electric vehicles and is preparing new economic security measures to limit Chinese companies' access to public funding. The bloc has also doubled tariffs on foreign steel. But critics argue these measures are too slow and too narrow, given the scale and speed of the Chinese export offensive.
A Structural Challenge
The flood of Chinese goods into Europe is not merely a trade story — it is a structural challenge to the continent's economic model. For decades, Europe has exported high-value manufactured goods while importing raw materials and cheaper consumer products. If Chinese manufacturers can now compete in the high-value segment as well, Europe must either find new competitive advantages or accept a diminished industrial role.
The EU-China Summit, if confirmed for 2026, will be a critical test of whether Europe can present a unified front. The risk, as always, is that Beijing exploits internal divisions through a classic divide-and-rule strategy. For now, the goods keep arriving — and Europe is still debating what to do about them.