Editor's note: Liu Chunsheng, a special commentator on current affairs for CGTN, is an associate professor at the Beijing-based Central University of Finance and Economics. The article reflects the author's opinions and not necessarily the views of CGTN.

In her annual State of the Union address to the European Parliament, European Commission President Ursula von der Leyen highlighted the China-EU trade imbalance, saying it had reached a tipping point. She raised the notion of a "second China shock," claiming that the EU registered a daily goods trade deficit of 1 billion euros ($1.15 billion) with China last year and warned the EU would deploy all available policy instruments to rebalance bilateral economic ties should trade talks fail to deliver outcomes.

Beneath the rhetoric of redressing trade gaps lies a clear political agenda: advancing the EU's "de-risking" strategy against China under the pretext of fixing trade deficits.

'Second China Shock': A politically construct, rather than economic reality

Von der Leyen's deficit figure draws on Eurostat data showing that the EU recorded a goods trade deficit of 359.8 billion euros with China in 2025. This narrow merchandise-only accounting doesn't capture the EU's surplus in services trade with China or profits repatriated by European multinationals, serving domestic political mobilization and industrial protection goals.

The so-called second China shock refers to surging Chinese exports of new energy vehicles, photovoltaic products and lithium-ion batteries, which the EU portrays as threats to its high-end manufacturing base. The shifting bilateral trade patterns stem from structural economic forces rather than unfair dumping. The surge in European energy costs triggered by the Ukraine crisis has squeezed domestic output of chemicals and basic materials and boosted import demand for affordable foreign intermediate and finished goods.

Meanwhile, China's industrial upgrading has fostered competitive large-scale green manufacturing. Conversely, long-standing EU high-tech export controls on items such as lithography machines constrain the potential of Europe's own exports to China.

Crucially, the EU maintains a surplus in service trade with China. Profits earned by European multinationals operating in China flow back to European headquarters yet escape customs-based goods-trade statistics. Roughly half of China-EU trade consists of intermediate inputs: European companies process Chinese-sourced components into high-value final products for global markets and capture value along global value chains. Attributing Europe's manufacturing strains solely to Chinese exports amounts to externalizing domestic structural problems, including rigid labor costs, fragmented internal markets, low innovation conversion and heavy green-transition burdens.

Unilateral pressure will backfire on Europe's own industrial interests

The EU's policy toolkit comprises anti-subsidy probes, tariffs, the Carbon Border Adjustment Mechanism, the Critical Raw Materials Act and public procurement restrictions. These tools possess inherent limitations and risk inflicting self-harm.

Tariffs and trade remedies cannot totally eliminate market demand but pass higher costs on to European consumers and downstream industries. For example, duties on Chinese electric vehicles may offer short-term relief to local automakers yet slow Europe's green-vehicle rollout, raise consumer purchase prices and hurt domestic component manufacturers dependent on Chinese suppliers. Tariffs do not resolve basic issues: Europe's high manufacturing costs and restricted high-tech export opportunities.

Under the Critical Raw Materials Act, the EU aims to build stockpiles and diversify supplies of rare earths and lithium to reduce reliance on China. However, China's processing advantages rest on decades-long technological progress and industrial clustering. Supply chain reconfiguration demands massive capital and long lead times. Forced "de-Sinicization" would raise input costs for European battery and photovoltaic producers and delay net-zero goals.

Furthermore, the Foreign Subsidies Regulation and "Europe-first" public procurement clauses securitize ordinary commercial competition. Such discriminatory measures may violate the WTO's non-discrimination rules and invite retaliation.

Divergent interests divide EU member states. Southern Europe depends on inexpensive Chinese imports, while Central and Eastern European countries value Chinese investment. Germany, France and other industrial powers face tensions between guarding against Chinese green-sector competition and preserving access to China's large consumer market. Internal disunity weakens policy implementation. Ultimately, the costs of unilateral protectionism fall on European businesses and consumers.

Managing differences through dialogue, co-creating rules instead of bloc confrontation

Against the backdrop of sluggish global growth and eroding multilateral governance, politicizing trade deficits and erecting barriers risk escalating China-EU frictions and fragmenting global value chains. Unilateral pressure cannot fix structural imbalances; dialogue, fair rulemaking and industrial coordination represent viable solutions.

As key economic partners with overlapping interests, China and the EU should assess bilateral relations holistically, incorporating global value chains, services and cross-border investment returns rather than fixating narrowly on goods trade deficits. Platforms such as the China-EU High-Level Economic and Trade Dialogue enable candid exchanges on market access and fair competition. Disputes ought to be addressed through negotiation instead of prejudged punitive investigations.

Both sides should uphold the rules-based multilateral trading system and make full use of the WTO dispute settlement mechanism. China-EU relations are not zero-sum. Europe's strengths in technology and brands complement China's complete manufacturing ecosystem. Collaboration in new energy, energy storage and recycled materials can lower global green-transition costs. Chinese manufacturers establishing facilities in Europe can create local jobs, while European firms can expand sales in China's vast market.

Strategic competition should not descend into bloc confrontation, nor should "de-risking" morph into wholesale disengagement. Given the deeply interconnected global industrial chains, no nation can achieve green transition or industrial upgrading in isolation. By practicing mutual respect and mutual benefit, and containing competition within market rules and rejecting protectionism, China and the EU can mitigate bilateral uncertainties and their trade ties can be a stabilizer for the world economy.

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