China and EU hurtle toward a trade war

Mark O'Neill May 22, 2026 12:06

As the European Union’s trade deficit with China reaches a record one billion euros a day, the bloc is losing patience with Beijing and preparing measures to block this attack on its industrial base.

According to Chinese customs, Beijing’s trade surplus in the first four months of this year reached US$113 billion, up from US$91 billion in the same 2025 period. The surge was largely fuelled by Chinese exports of electric vehicles, high-tech components, electrical machinery and green tech.

For the full year of 2025, China’s trade surplus with the EU was €359.9 billion, with the EU exporting €199.6 billion and importing €559.4 billion.

“The widening gap is simply unsustainable,” said the European Commission.

At a conference last week in Beijing, tempers flared with neither side listening to the other. It was a dialogue of the deaf. One panel was entitled “EU-China trade relations, partnership or sinking ship”.

The European participants looked on in exasperation as Chinese speakers insisted that their market was as open as Europe’s.

This was the comment of Jens Eseklund, president of the EU Chamber of Commerce in China: “It is neither a sinking ship nor a partnership. It is a 400-metre-long loaded with 24,000 containers going to Europe and coming back almost empty.

“Of all the shipping containers coming into Europe, 43 per cent were from China and Chinese container shipments to the bloc rose by 17 per cent last year,” he said.

Jorge Toledo, the EU ambassador to China, said that the EU was being attacked on all fronts by the Chinese press and government over its Industrial Accelerator Act, its first major industrial policy.

It would place stringent conditions on Chinese companies investing in Europe’s hi-tech sectors, force them to establish joint venture with local companies, hire local employees and transfer technology to local partners.

For its part, China says that the EU has only itself to blame. “The EU’s economic stagnation is now impossible to ignore, and many of its problems have little to do with China, but its own policies,” the China Daily said on Monday in an opinion piece.

“Former European Central Bank president Mario Draghi’s report on European competitiveness warned that the continent suffered from chronic underinvestment, fragmented capital markets, high energy costs, regulatory overcomplexity and technological dependence on the U.S.,” it said. Draghi’s report was published in September 2024.

In an editorial on Tuesday, the China Daily said that the country’s exports are a result of its own success. “China’s industrial upgrading has proceeded faster and more coherently that in many advanced economies. Its preparation for the AI era, including its integration across industrial production, logistics and services, is advancing at remarkable speed,” it said.

“The tragedy is that parts of the developed world still interpret China’s rise as a ‘threat’ instead of an opportunity. Interconnected growth can enlarge the economic pie can enlarge the economic pie for all,” it said.

Neither the articles nor the Chinese speakers at the Beijing conference addressed the complaints of the EU side – policies that provide subsidies, cheap land and loans to favoured industries and cut-throat competition in the domestic market that forces firms to export to survive. The EU also asks for policies to stimulate domestic consumption.

China produces more than 30 per cent of the world’s manufactured goods but consumes only about 15 per cent.

To address the Chinese threat to its industry, EU Commissioners will meet on May 29. One option before them would force EU companies to buy critical components from at least three different suppliers, with a ceiling of 30-40 per cent from a single one.

In April, the EU countries and European Parliament agreed to impose new quotas and double tariffs on global steel imports, dominated by Chinese over-production.

Europe’s chemical industry is also at a great risk. Over five years, Chinese chemical imports have surged 81 per cent. The Financial Times said that complaints from the chemical industry to the Commission were at record high and that it was at “breaking point.” The EU does not have the time nor human resources to investigate all the complaints.

Adding to the fire are threats from Beijing to retaliate over EU laws that limit access to the single market for Chinese companies. Last Friday Beijing banned the companies with engaging with the EU Commission in investigations by the EU into Chinese subsidies for exports.

Both sides seem to be bracing for a full-scale trade war.

Mark O'Neill

A Hong Kong-based writer, teacher and speaker.