France and Germany move to tackle EU’s growing trade deficit with China
France and Germany are pressing for a stronger European Union response to China’s growing trade surplus and industrial overcapacity, as concerns mount over the impact on key European sectors.
Intelligence analysis by Llama
France and Germany are pushing for a stronger EU response to China’s growing trade surplus and industrial overcapacity, citing concerns over the impact on European sectors.
Imagine a big factory in China that makes lots of things cheaper than factories in Europe. This makes it hard for European factories to compete and makes a big trade deficit between Europe and China. France and Germany want the EU to do something about it.
Analysis
A $60B Vote of Confidence
France and Germany are taking a bold step in addressing the EU’s growing trade deficit with China. The issue has been pushed back to the top of the agenda, with Emmanuel Macron and Friedrich Merz agreeing to draw up a "Franco-German roadmap" by September on how to respond to China’s trade practices. This move builds on a recent report by France’s High Commission for Planning, ominously called “The Chinese steamroller - quantifying the systemic threat to Europe’s industrial base," which argues that Beijing’s industrial rise now amounts to a "systemic shock" for Europe’s manufacturing base.
Why Cursor?
The report highlights that China’s combination of scale, low production costs, heavy overcapacity, and rapid technological upgrading is reshaping global manufacturing and eroding Europe’s competitiveness. Chinese investment in Europe hits seven-year high but rebound may be short-lived. Almost a quarter of EU exports are exposed to serious Chinese competition, according to the report, while up to 55 percent of European manufacturing output - including cars, batteries, chemicals, and machinery - could be "vulnerable in the medium term if current trends continue." Already in 2019, a China-EU Strategic Outlook said that China had become the EU’s “systemic rival” rather than a “partner” or a “competitor.”
The Road Ahead
The world’s workshop Trade deficits with individual EU countries started to widen after China opened up its economy to the outside world in 1979, turning itself in the “world's workshop” with massive manufacturing in the coastal provinces, while inviting Western companies to outsource their own manufacturing to China. A woman works in a garment factory in Donghai county in east China's Jiangsu province, 27 October, 2020. AP The gap widened exponentially after 2001, when China entered the World Trade Organistion. According to a report by the Council of Foreign Relations, China’s exports increased five times since 2001, and China became the world’s largest exporting country. Meanwhile, Chinese imports from EU and other Western countries did not grow accordingly: currently the China - EU trade deficit stands at €360 billion a year in favour of China. EU puts massive China investment deal on hold Today, says the report of the French Commission for Planning, the gap in production costs between China and Europe is often "too wide to be closed quickly through innovation or productivity gains alone." It also argues that existing EU trade-defence tools are too slow and too fragmented to cope with China’s long-term industrial strategy. A worker inspects an electric car at a Zeekr factory in Meishan Island in Ningbo, in China's eastern Zhejiang Province on April 18, 2025. AFP - HECTOR RETAMAL But frictions remain: France has long argued for a tougher line on Beijing, while Germany has traditionally been more cautious because of its deeper commercial ties with China: Germany has always been Europe’s largest trading partner with China.
Key points
- France and Germany are pushing for a stronger EU response to China’s growing trade surplus and industrial overcapacity.
- The EU’s trade deficit with China has grown significantly since 2001, with China becoming the world’s largest exporting country.
- Almost a quarter of EU exports are exposed to serious Chinese competition, while up to 55 percent of European manufacturing output could be vulnerable in the medium term.
- The EU needs to find a way to address the trade deficit with China to reduce its economic and social impact on European communities.
If the EU can find a way to address the trade deficit with China, it could lead to new opportunities for European businesses and industries. This could also help to reduce the economic and social impact of the trade deficit on European communities.
If the EU fails to address the trade deficit with China, it could lead to further erosion of European competitiveness and a widening of the trade deficit. This could also have negative impacts on European businesses, industries, and communities.