Europe's trade ties with China turn bitter, as tariff pressure opens a new bargaining window

The long-standing close trade relationship between China and Europe has suffered a major deterioration. Trade that was once profitable for both sides has now turned into competition, a battle for markets and mutual resentment.

Analysts say the situation has arisen because of China's excess production, the entry of Chinese goods into European markets, and the shrinking business of European companies inside China's domestic market.

But the United States' tariff policy has increased China's need for alternative markets, giving the European Union some leverage to put pressure on Beijing. European countries now want to use that opening.

According to analysts, one of the main causes of this change is China's 'Made in China 2025' programme, under which Beijing has invested heavily to modernise manufacturing and move towards higher value-added production.

As a result, Chinese firms are now competing directly with European companies. At the same time, production capacity has grown far beyond domestic demand, creating a dependence on foreign markets to sell the surplus.

There was once huge demand in China for European luxury goods and advanced machinery. Car manufacturers in particular saw remarkable growth there.

Between 2003 and 2022, Mercedes sales in China grew by an average of 24 percent a year, BMW's by 20.2 percent and Audi's by 12.6 percent.

But the rise of Chinese competitors has changed the picture in recent times. In the 12 months to the middle of 2026, Mercedes sales in China fell by 30 percent. In the 12 months to the third quarter of this year, BMW sales fell by 25 percent, while Audi sales fell by 12 percent in the first quarter.

Meanwhile, the US tariff policy has narrowed Chinese goods' access to the American market, so Beijing has increasingly turned to Europe. In 2025, the European Union's imports from China rose by 12.5 percent, and they rose by 8 percent in the 12 months to the middle of 2026 as well.

As a result, the European Union's trade deficit with China has grown from 66 billion euros in the first quarter of 2024 to 103 billion euros in the second quarter of this year.

Concern is growing in Europe's political and business circles. European Central Bank President Christine Lagarde has warned that trade with China could weaken mid-technology manufacturing, one of the foundations of Europe's economic strength.

A French government report has described Chinese imports as a threat to Europe's economic prosperity. Germany has now come to the same position as France on the issue.

Yet it is the US tariff policy itself that has created a new bargaining opportunity for Europe. After the European Union imposed tariffs on Chinese electric cars this year, Beijing agreed in talks with the EU to cap its exports of plug-in and hybrid cars to Europe at a maximum of 350,000 a year, rising by 6 percent a year thereafter, according to reports.

Talks are also under way on a similar cap for imports of chemical products. The European Union is also working on building alternative supply chains to reduce its dependence on China.

In the view of Elvire Fabry, director for trade and economic security at the Paris-based Jacques Delors Institute, the window of opportunity for Europe is very short, which is why European countries want to make use of it.