Standard Chartered economists Christopher Graham and Carol Liao discuss the EU’s widening trade deficit with China, highlighting the autos sector as a key example of the imbalance. They note EU efforts to expand its trade policy toolkit and industrial strategy, while expecting China to maintain a restrained, pragmatic approach that preserves trade ties but leaves room for targeted actions.

EU weighs broader trade policy response

"EU officials are growing increasingly concerned with the bloc’s widening trade deficit with China. Although largely due to higher import volumes, it is also being driven by weakening export volumes to China."

"The autos sector has become symbolic of this trade shortfall, with EU vehicle imports from China increasing 10-fold since 2019, while EU exports to China have fallen sharply in the past few years."

"EU officials have cited overcapacity in China’s manufacturing sectors as a key driver of this growing imbalance. This has played a significant role in the Commission’s efforts to expand its trade policy toolkit and develop a broader industrial strategy."

"A Commission-led debate at the end of May may be used to discuss new trade measures, potentially focused on dealing with China’s perceived overcapacity."

"We expect China’s strategy towards the EU will remain restrained and pragmatic amid persistent tensions with the US. It will likely aim to avoid full escalation, preserve trade and investment ties, and keep the EU engaged as a counterweight to US pressure, but targeted actions against specific products or entities cannot be ruled out."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)