A China Shock for Europe: Trade Imbalance, Loss of Market Share, and Risk of Political Dependence

Here is an example of trade between the EU and China: a container ship loaded with 24,000 containers goes to Europe and comes back almost empty. This is how Thorsten Benner, co-founder and director of the Global Public Policy Institute (GPPi) in Berlin, describes Europe’s economic problems in his article for Foreign Affairs entitled The Coming Clash Between China and Europe. The author argues that a trade war is looming.

In 2015, when Beijing published its Made in China 2025 strategy that set the goal of displacing European industrial leadership, few Europeans took these ambitions seriously. European industrial leaders held dominant positions both in the Chinese market and globally – and believed that Chinese competitors would never be able to catch up with their innovative products.

This is how Thorsten Benner describes the origin of the current problems in Europe. As this article was discussed on Reddit, one user justly noted it was some kind of a racial superiority thing.

The current economic reality is quite different. The numbers are staggering. China’s share of global manufacturing has increased from six percent in 2000 to around 30 percent. Meanwhile, the EU’s share has fallen from 30 percent to 17 percent. Since 2015, the value of Chinese exports to the EU has increased by 89 percent to quadruple the trade deficit. Last year, China’s trade surplus with the EU reached approximately USD 411 billion. This year, Germany’s trade deficit alone is expected to reach USD 114 billion.

A China shock is forthcoming. All core European industries will be hit at the same time and undermined by Chinese competitors. Whole industries could collapse. The story of the German and European solar industry, whose share in global manufacturing has fallen from 30 percent in the early 2010s to one percent today, largely due to the rise of Chinese competitors, is a harbinger of things to come.

European industry players are also losing market share in countries such as Brazil, Indonesia, and South Africa, flooded by Chinese imports. And the impact on Europe is already visible. German industry is losing 10,000 jobs a month. The loss of industrial capacity could lead to a vicious cycle of increased dependencies that China would then be able to exploit politically in order to turn the EU into a Chinese vassal. Unless these industries are shielded from Chinese competition, Europe’s rearmament goals would likely be made impossible.

In the discussion on the article, another Reddit user supplements this message by saying that the situation regarding competitiveness in Europe will get worse, because both China and India will get Russian resources even cheaper while Europe buys them expensively from the USA.

Beijing seems to believe that the Europeans will ultimately fold, and offers no serious concessions. Without proper preparation and coordination, the EU faces a very real prospect of being decisively defeated in a trade confrontation with China. The scenario is easily mapped: China could respond to European tariffs by cutting off key inputs for industrial production. This would leave Europe isolated and force its voters, unwilling to bear the costs of escalation, to pressure their leaders to give in. And some European politicians, including France’s Jean-Luc Mélenchon and Germany’s Alice Weidel, will accuse European leaders of recklessness for picking a costly and unwinnable fight with Beijing.

Thorsten Benner argues that a trade war between Europe and China is inevitable. And the EU’s position is being weakened by its conflict with the USA. European Commission wanted to collaborate with Washington on China policy. They were hoping for joint action on Chinese unfair practices, believing that U.S. involvement would induce reluctant EU members to cooperate on tougher measures. But they were rebuffed by Trump, who instead started a trade war with Europe in 2025.

Original publication: https://www.foreignaffairs.com/china/coming-clash-between-china-and-europe