EU-China Trade Dynamics: Unveiling the Opportunities and Challenges

Bilateral relations between China and the EU are undoubtedly complex. China is perceived simultaneously as a partner, competitor, and systemic rival by the EU, a stance articulated in the ‘Strategic Outlook’ Joint Communication from the European Commission and the High Representative of the Union for Foreign Affairs and Security Policy of 2019.

The complexity of the relationship is even more evident considering that in 2022, China was the EU’s third-largest export partner for goods (9 per cent), and the largest import partner for goods (20.8 per cent). Despite these numbers, China remains the trading partner with the highest number of trade and investment barriers registered in 2022 (38), according to the European Commission’s Report on the Implementation and Enforcement of EU Trade Policy adopted on Nov. 15, 2023.

Read on to learn more about how EU officials have approached trade relations and business with China in the current administration, and strategies for maintaining a balanced approach in the future.

Background: Navigating EU-China Trade Relations

Since 2019, the EU has adopted several measures to enhance economic security and create a level playing field that could impact EU-China trade relations. These general measures include the foreign direct investment screening mechanism, the foreign subsidies Regulation, and the anti-coercion instrument.

In September 2023, Commission President Ursula von der Leyen announced during her annual State of the Union speech, that the Commission was about to launch an anti-subsidy investigation on imports of electric vehicles (EV) from China. Von der Leyen indicated that, although the EV sector is a crucial industry for the clean economy, the dominant presence of state-subsidised Chinese electric cars is distorting the EU market.

Trade Defence Proceedings

Recent years have seen several other salient trade defence proceedings. The 41st Annual Report from the Commission on the EU’s trade defence activities, released in 2022, initiated four new anti-dumping investigations, of which three concern products originating in China. In addition, one provisional anti-dumping duty, out of three, and five definitive duties, out of 11, concern products originating in China.

Throughout 2022, the Commission initiated 24 expiry reviews of anti-dumping measures and three concerning anti-subsidy measures, of which 18 concern products originating in China. The Commission also reimposed 10 anti-dumping duties on Chinese products.

Furthermore, the EU launched two World Trade Organisation (WTO) disputes against China in 2022, concerning discriminatory trade practices for goods and services from Lithuania and measures affecting the protection and enforcement of intellectual property rights.

Continuing into 2023, the Commission initiated further trade defence proceedings concerning products originating in China, such as electric vehicles, erythritol, mobile access equipment, and titanium dioxide.

Agreement amid the Scrutiny

Despite this intense scrutiny, EU-China trade relations also entail two agreements:

• The agreement according to Article XXVIII of the General Agreement on Tariffs and Trade (GATT) 1994 modified concessions on tariff rate quotas due to the UK’s withdrawal from the EU

• The Comprehensive Agreement on Investment (CAI) — Although negotiations were concluded in 2020, the ratification of the CAI is currently frozen due to the sanctions China imposed on members of the European Parliament

Exploring Recent Developments in EU-China Affairs

The European Council reaffirmed the EU’s multifaceted approach to China in its conclusions of June 30, 2023. The European Council emphasised that both sides share an interest in pursuing stable and constructive relations.

Roughly paralleling the European Council's sentiments, the European Parliament adopted a Resolution on EU-China on Dec. 13, 2023. This document highlighted China's dual role not only as an important partner but also increasingly becoming a competitor and systemic rival. Echoing this sentiment, MEP file Hilde Vautmans (Renew Europe, Belgium) emphasised that the EU should cooperate with China where possible, but also strengthen its strategic autonomy and de-risk its relations.

EU-China Summit: Rebalancing Trade Relations

The Parliament's Resolution came just days after the 24th EU-China summit in Beijing on Dec. 7, 2023, where European Commission President Ursula von der Leyen, European Council President Charles Michel, and High Representative/Vice President Josep Borrell, met President Xi Jinping and Premier Li Qiang.

During the summit, the leaders discussed bilateral relations, including trade and investment, climate, environment and digital, and human rights, as well as international issues and global governance. However, the EU's main concern involving commercial matters was undoubtedly the growing trade deficit with China. President von der Leyden attributed it to the lack of market access for European companies, China’s preferential treatment for domestic companies, and production overcapacities. She called for restoring a balance based on fair competition and explained the EU's approach to de-risk and not decouple its relations with China, focused on bolstering resilience and reducing excessive dependencies.

An Aim for More Balanced and Reciprocal Economic Relations

Echoing von der Leyden's sentiment, European Council President Charles Michel emphasised that the EU and China share an interest in a stable and constructive relationship. Despite the EU’s trade deficit of nearly €400 billion, the two global powerhouses still traded goods worth over €2 billion daily.

While calling for more balanced and reciprocal economic relations, Michel indicated that the EU intends to continue diversifying its supply chains and tackle its dependencies without decoupling, but within a rules-based trading system — with the WTO at its core — where the EU and China can continue to engage based on transparency, predictability, and reciprocity.