How can China-EU economic and trade relations strike a new balance?

Editor's note: Zhou Jianjun is an associate research fellow at CEEC Economic and Trade Cooperation Institute, Ningbo University. This article reflects the author's opinions and not necessarily those of CGTN. It has been translated from Chinese and edited for brevity and clarity.

Recently, some EU member states have been urging the European Union to speed up its efforts to develop a so-called "EU Section 301" tool, seeking to equip the EU with more powerful trade policy instruments so that it can address its trade imbalance with China. 

The widening trade deficit has become a major issue in China-EU economic and trade relations and a key consideration behind the EU's push to strengthen its trade policy instruments. In 2025, the EU's trade deficit in goods with China reached 359.8 billion euros ($402 billion), up 15% year on year and equivalent to approximately 47.4% of the total China-EU trade in goods. In the first eight months of 2026, the EU's trade deficit with China reached 242 billion euros, or an average of 1 billion euros a day. 

Ursula von der Leyen, president of the European Commission, said that the "imbalance" in China-EU trade has hit a "tipping point" and that the EU will employ "all available tools" to reduce its unsustainable trade deficit with China and rebalance China-EU economic and trade relations. France and Germany have jointly proposed an "EU Section 301" tool to impose tougher trade-defense measures on China to curb the trade deficit. It can be seen that the central purpose of the proposed "EU Section 301" tool is to expand the levers at the EU's disposal to address the China-EU trade imbalance by unilateral means, at a time when it is felt in Brussels that traditional measures such as anti-dumping and anti-subsidy investigations are no longer sufficient to meet the EU's objectives.

In contrast to the EU's narrative, however, the imbalance in China-EU trade is rooted in complex structural issues and cannot be measured by the goods trade deficit alone. On the goods trade front, the EU claims China has reaped huge gains from the deficit and has cast it as a "€1 billion-a-day" crisis. Yet this figure does not take account of the structural issues in bilateral trade and does not hold up to closer scrutiny. Currently, intermediate goods account for nearly half of China-EU trade. European companies purchase semi-finished products made in China, process them into higher-value-added finished goods, and sell them worldwide, while the value added generated through this process is not reflected in trade statistics with China. In addition, many European companies have shifted their export-oriented production capacity to China, moving from a model of "production in Europe and exports to China" to one of "production and sales in China". In effect, exports to China have increasingly given way to investment there, leaving less room for EU exports. The resulting expansion of the trade deficit, driven by changes in trade structures and models, does not necessarily reflect a bilateral trade imbalance. Rather, it points to new developments in the two sides’ industrial chains and investment cooperation.

In services trade and investment, the EU has consistently benefited from its economic relationship with China. In the field of services trade, the EU has maintained a surplus with China for many years. In 2025, the EU's services trade surplus with China reached 48.3 billion dollars, making it the largest source of China's services trade deficit and accounting for 41.6% of China's total services trade deficit with the rest of the world. In investment, the EU is an important source of foreign investment in China, and about 40% of the products made by European companies in China are shipped back to Europe. This has created a distinctive pattern in which "the trade surplus is recorded in China, while the profits accrue to the EU". Clearly, using the goods trade deficit alone to gauge trade imbalances fails to get at the root of the problem and offers no path to an effective solution. Attempts to tackle the trade imbalance through an "EU Section 301" tool would not only fail to resolve the structural issues in China-EU economic and trade relations but could also backfire on EU businesses and consumers, ultimately leaving both sides worse off.

The key to stabilizing China-EU economic and trade relations lies in finding a new balance of interests. At its core, the China-EU economic and trade imbalance stems from an uneven distribution of benefits. Trade restrictions alone will not solve the problem; only a more balanced distribution of benefits can tackle the root causes of China-EU economic and trade disputes. On the one hand, China and the EU differ significantly in how they compile bilateral trade statistics. Bilateral economic and trade relations are subject to complex factors, such as re-exports, trade in intermediate goods, trade in services, and the shift from trade to investment. Both sides therefore need to account accurately for these different dimensions of exchange in order to see where the real imbalances lie and who gains and who loses. On that basis, they can tailor their solutions and find a trade balance acceptable to both sides. 

On the other hand, China and the EU need to further expand their opening up. Only by expanding the pool of shared gains and consolidating common interests can the two sides gain more room to rebalance their economic and trade relations. China could shift part of its production capacity for EU-bound exports to Central and Eastern European countries, drawing on their locational advantages to serve the EU market more effectively. Meanwhile, it could also expand imports of EU agricultural products to help narrow the EU's trade deficit with China. The EU, for its part, could ease restrictions on high-tech exports to China and encourage more Chinese companies to set up factories in Europe, which would in turn help narrow its trade deficit with China. Only by deepening and expanding economic and trade cooperation, consolidating their common interests, and finding a new balance of interests can China and the EU effectively resolve their current economic and trade disputes.