Standard Chartered analysts Christopher Graham and Carol Liao report that the European Union is actively seeking to rebalance its trade relationship with China, which has become increasingly lopsided. According to Eurostat data, the EU’s 12-month rolling trade deficit with China reached EUR 376 billion in May, marking an 8% increase compared to the previous year and intensifying concerns among European leaders about the sustainability of the current trade dynamics [1].
Both the EU and China have agreed to spend the next three months discussing ways to rebalance their relationship as part of the broader Trade and Investment Consultation, which was launched in late June [1]. In parallel, the EU is developing new trade tools, including diversification and overcapacity instruments, to address these concerns. If the ongoing talks do not yield tangible results, these tools could be activated as early as October [1].
The report highlights that more EU trade defence measures are likely to materialise, but stresses that these will be carefully calibrated to avoid a tit-for-tat escalation. The overall risk of escalation is described as moderate, with the EU expected to focus on supporting domestic industry rather than pursuing aggressive trade restrictions [1].
CONCLUSION
The EU is facing a significant and growing trade deficit with China and is preparing new trade tools to address the imbalance. While the risk of escalation is moderate, the EU’s actions are likely to be measured and aimed at supporting domestic industry. The outcome of ongoing negotiations will be crucial in determining whether these tools are activated later this year.