Investing.com — The European Union faces mounting pressure to rebalance trade with China as rising Chinese exports threaten European manufacturers, prompting policymakers to consider tougher trade measures despite the risk of retaliation.
The two sides reached an initial understanding on Friday to curb Chinese hybrid and plug-in hybrid car exports to Europe, reduce duties on some European goods and streamline Chinese export licences for rare earths and permanent magnets.
However, the agreement is only a first step towards addressing a trade imbalance exceeding €1 billion ($1.16 billion) a day, according to European Trade Commissioner Maroš Šefčovič.
In an October 7 report, Deutsche Bank economist Marion Muehlberger described relations as being at “crunch time”, highlighting the need to address Chinese competition while improving Europe’s industrial competitiveness.
Germany is particularly exposed as its traditional export model, built around automobiles, machinery and capital goods, faces growing competition in China and third markets. China’s share of global car exports rose from 5% in 2013 to 11% in 2023 and 15% in 2025, matching Germany’s share, Deutsche Bank said.
Machinery, transport equipment, electrical machinery, green technologies and industrial intermediate goods face the greatest competitive pressure. The share of EU exports directly competing with Chinese exports has more than tripled in 30 years to about 7% of EU gross domestic product.
Including products where China’s advantage may be emerging lifts exposure above 10% of GDP, more than twice the 1996 level. Europe retains advantages in selected chemicals, pharmaceuticals, precision instruments and specialised industrial niches.
The Beijing agreement could reduce Chinese hybrid and plug-in hybrid car exports to the EU by several million vehicles over four years. China also agreed to improve access for around €4 billion of EU exports and streamline licences for rare earths and permanent magnets, although implementation details remain undisclosed.
Chinese exports to the EU reached $560 billion in 2025, against $268.3 billion in European exports to China, Reuters reported, citing UN Comtrade data. Deutsche Bank said cheaper Chinese imports benefit consumers and downstream industries but risk eroding European manufacturers’ margins and investment.
If concessions prove insufficient, the EU could investigate Chinese plug-in hybrid vehicles for subsidies, potentially introducing provisional tariffs in early 2027.