No real rebalancing in EU’s trade deal with China
By Alicia
García-Herrero
Chief economist for Asia Pacific at Natixis Bank
European Union Commissioner for Trade Maroš Šefčovič returned from the October 8–9 EU-China Trade and Investment Consultations in Beijing with three ‘shared understandings’ and a declaration: “This is far from the end.”
The EU’s headline gain is a ‘shared understanding’ with China on reducing Chinese exports of hybrid and plug-in hybrid-electric vehicles. However, Europe’s bilateral trade deficit with China is €360 billion, and Chinese automotive exports to the EU are worth around €15 billion. Much of the imbalance derives from increasingly large EU imports of machinery, chemicals, metals, solar panels, batteries and ICT products. A marginal reduction in automotive exports will hardly make a difference.
The second ‘shared understanding’ reached is even less impactful: China will lower tariffs on some European products, including car parts, olive oil and footwear, saving some €225 million in duties — again, marginal compared to the overall trade deficit.
The third ‘shared understanding’ is the creation of a ‘green channel’ to facilitate licences for rare earths and permanent magnets. Leaving such an agreement to China’s discretion does not guarantee the provision of rare earths when needed, as Washington and Brussels discovered in October 2025.
Beijing’s own readout of the meeting spells out the lack of Chinese concessions more clearly than the joint statement published by the EU. In particular, the Chinese readout makes it clear that the softening of export controls must be reciprocal. Even the EU-issued joint statement mentions potentially softening European export controls on dual-use sectors, which could refer to Dutch export controls on ASML’s exports of advanced lithography, a critical component for advanced AI chips. This could limit the EU’s most important leverage in trade with China.
Beijing also secured a technical dialogue on the EU Foreign Subsidies Regulation (Regulation (EU) 2022/2560), which can be deployed to block or penalise foreign companies that receive trade-distorting state subsidies. This is one of the key tools the EU has to protect the single market from Chinese subsidies. Finally, China has also managed to reopen the EU’s block on the use of solar inverters in EU-funded projects, put in place due to cybersecurity risks from certain ‘high-risk’ suppliers (mainly Chinese companies).
In sum, it is difficult to say whether the EU received more than it gave. It got trade relief in one sector and goodwill on rare earth exports. But China still has the opportunity to up the pressure on technology controls, subsidy screening and cybersecurity measures. Regardless of any ‘final score,’ Europe’s gains are too small to address the stated aim of rebalancing the trade relationship.
Beyond the tactical wins, what really matters to Beijing is that it may have managed to influence the October 15–16 European Council meeting. China’s main interest is preventing the European Council from implementing its trade tools, and the agreement in Beijing, made just before the summit, is designed to do exactly that. If European leaders consider this deal to be a good start and thus postpone additional measures, this will be China’s most important gain.
Yet a joint letter sent on October 5 by German Chancellor Friedrich Merz and French President Emmanuel Macron to European Commission President Ursula von der Leyen states that the existing trade-defence toolbox is no longer fit for purpose. They propose an instrument akin to Section 301 in the United States, capable of restricting or cutting off access to the European single market if a partner causes severe and systematic trade distortions. They also want a diversification tool to reduce dependence on single suppliers of critical inputs, and trade investigations by sector rather than by product.
This is a U-turn for Germany, which opposed duties on Chinese electric vehicles in the European Council in October 2024, thus avoiding retaliation against its carmakers. But German industry is now on the receiving end of the same overcapacity it once thought it could manage through exports to China.
Beijing did not wait for Macron and Merz’s letter to be officially sent. One week before the letter was published, China’s Ministry of Commerce called the proposed instrument ‘protectionist and unilateral’ and warned it would respond firmly to any discriminatory restrictions.
The reality is that Europe does not need another dialogue that produces shared understandings and a negligible change in the trade trajectory. It needs instruments that give it real leverage. The outcome from Šefčovič’s trip to Beijing is simply not enough — especially on balance with what China gained — to justify the European Council not taking stronger measures to mitigate the EU’s trade imbalance with China.
The article was first published by Bruegel.