Europe is finally realizing China’s export machine is a flood, not a passing shower
- Europe is waking up to the fact that China’s export surge is not just widening a bilateral trade deficit. The bigger threat is Europe losing industrial market share in third markets, where Chinese manufacturers are steadily taking contracts from European autos, machinery makers, chemical firms and clean-energy suppliers.
- The cost gap is structural. Lower energy and labour costs, state support, industrial scale and an undervalued CNY mean Chinese producers are arriving at global tenders with a lighter cost base before Europe has even opened its tariff toolbox.
- Brussels is unlikely to copy Washington’s blanket-tariff playbook. The more probable path is selective pressure: tighter steel safeguards, wider scrutiny of plug-in hybrids, machinery, wind components and chemicals, plus procurement rules, quotas and supply-chain diversification.
- The trade is becoming an industrial-policy cycle, not a one-off tariff headline. Watch European autos, machinery, chemicals and clean-energy supply chains, but also the political pressure inside Germany and France. The bigger risk is that Europe builds higher fences at home while China continues taking market share everywhere else.
Not a passing shower
For years, Europe treated China’s industrial rise like difficult weather: unpleasant, disruptive, but something that would eventually blow through. Cheap imports kept costs down, consumers benefited, exporters kept selling into China, and Brussels convinced itself that the trade relationship was still broadly manageable.
But the weather has changed.
This is no longer a passing shower of excess Chinese supply. It is a rising industrial tide, and Europe is beginning to notice that the water is coming in through more than one door.
Chinese exports have continued to surge despite the energy shock and despite US tariffs. Imports into Europe are rising faster than European exports to China, widening the bilateral deficit, particularly in transport equipment and capital goods. Yet that headline deficit is only the visible part of the iceberg. The deeper problem is that Chinese manufacturers are taking market share from European firms in third markets across Asia, Eastern Europe and Latin America...
Author
Stephen Innes
SPI Asset Management
With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.
