EU-China Deficit Hits €360 Billion

The European Commission used unusually blunt language on May 29, calling EU-China trade and investment relations "not sustainable". It came after the EU's trade deficit with China rose 18% to €359.8 billion in a year, with exports falling and imports rising (Eurostat, Courthouse News). The Commission says 29 million European jobs are exposed to Chinese industrial overcapacity (Le Monde).

For all the hard language, this was still politics rather than law. No binding measures were agreed. Three years after the EU began talking about "de-risking" its relationship with China, Europe is more dependent on Chinese supply chains, not less.

The dependency that deepened

A Friedrich-Naumann Foundation study, published in the same week, put figures on the problem. Germany's dependence on Chinese imports increased in every critical category between 2023 and 2025: lithium batteries from 49.7% to 66.5%, antibiotics from 65.3% to 72.9%, and solar panels from 89% to 92.6% (n-tv). Rare earth import volumes tripled.

The same pattern runs across the continent. Italian imports from China rose 91% between 2019 and 2025, the sharpest increase among the major EU economies (Corriere della Sera). Across the EU, 98% of solar panel imports come from China, while roughly 70% of battery and clean-tech supply chains run through Chinese producers (Bruegel, EU JRC).

That is the bind. Europe wants to reduce dependence on a supplier it still needs for the green transition, from solar panels to batteries and rare earths.

France pushes, Germany hedges

Five countries, France, Italy, Spain, the Netherlands and Lithuania, submitted a joint paper on May 25 calling for faster trade defences (Corriere della Sera). EU Trade Commissioner Stéphane Séjourné then set out a three-part plan: cap any single country's share of a supply chain at 60%, replace slow product-by-product investigations with sector-wide safeguards, and tighten rules on foreign subsidies (Le Monde).

Germany did not sign. Berlin is not opposing trade defence in principle, but it wants targeted, WTO-compliant tools rather than broad supply-chain caps that could provoke Chinese retaliation (Handelsblatt). Economy Minister Katherina Reiche travelled to Beijing in the same week with a 40-person business delegation, seeking "reciprocity" and reliable access to rare earths. She came back without agreements (Deutschlandfunk).

Germany's caution follows its exposure. Bilateral trade with China reached €250 billion in 2025, even as German car exports have halved since 2022 (Euronews, Krone). But the contradictions are wider than Berlin. Italy signed the tougher paper while welcoming Chinese carmaker Dongfeng to co-manage a Stellantis factory in Cassino (Il Fatto Quotidiano).

Hungary is even more exposed. It absorbed 44% of Chinese FDI entering the EU, and now faces a direct clash between its factory-floor strategy and proposed supply-chain caps that could weaken the BYD and CATL plants it is building (Portfolio).

Rhetoric outpaces enforcement

Séjourné's three pillars do not yet have legislative text. A proposed "anti-overcapacity instrument", which would allow the EU to block imports priced below production cost before damage is fully done, remains under consultation. A formal proposal is expected no earlier than Q3 2026 (Atlantic Council).

Another tool is moving, but slowly. An updated FDI screening regulation, meaning government review of foreign acquisitions in sensitive sectors, reached political agreement in December 2025. It will not apply until late 2027 (Consilium).

The one concrete change comes sooner. From July 1, the €150 duty-free threshold on parcels disappears (European Commission). At present, millions of small shipments from Chinese e-commerce platforms such as Temu and Shein enter the EU tax-free, undercutting local retailers. Applying tariffs to every parcel goes straight at the margins of that model.

China is not waiting for Europe to settle its line. Beijing has already imposed 42.7% tariffs on EU dairy (Euronews), delayed Airbus certifications, restricted rare earth exports, and sanctioned seven European defence companies (Radio Free Europe).

The European Council meets on June 18 to set direction. The harder question is practical: Europe needs Chinese solar panels, batteries and rare earths to meet its own climate targets. Protecting domestic industry could slow decarbonisation; leaving imports unchecked could hollow out the industrial base needed for long-term self-sufficiency (CER). Three years into "de-risking", dependence has deepened. Europe now has to decide which cost it is prepared to carry.