EU–China trade tensions set to sharpen further in 2026, report warns

Trade tensions between the European Union and China are likely to intensify in 2026 as Brussels continues to diversify away from Beijing and strengthens its trade defence mechanisms, even as China shows little inclination to alter its approach, according to a new report.

An analysis published by Politico suggests that EU–China trade relations have effectively reached an impasse. This comes despite expectations that German Chancellor Friedrich Merz may travel to China next month in what would be his first official visit since taking office.

Economists remain sceptical about any near-term improvement in trade balances. Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis and a senior fellow at the Bruegel think tank, said expectations that China would increase its consumption of European products were unrealistic, warning that the EU’s trade deficit with China is unlikely to narrow any time soon.

Tensions escalated in December last year when Beijing announced provisional punitive duties on European dairy products, a move widely seen as retaliation for EU tariffs imposed in 2024 on Chinese-made electric vehicles. China has also expressed displeasure over attempts by Germany’s Volkswagen to seek exemptions from the EV duties.

Complicating matters further is the shift towards protectionism in the United States under President Donald Trump, which has disrupted global trade flows and made it harder to resolve long-standing disputes over market access and state subsidies. While Chinese exports to Europe are rising again, European exports to China continue to decline, widening an already significant imbalance.

French President Emmanuel Macron has warned that Europe may be left with little choice but to adopt tougher trade measures if cooperative rebalancing fails. Writing recently in the Financial Times, he argued for a genuine partnership involving China, the US and the EU, while cautioning against unchecked protectionism.

However, analysts note that there has been little response from Beijing to such calls. Francesca Ghiretti, director of the China Europe Initiative at the Rand think tank, said the underlying dynamics point to a further escalation. She warned that 2026 is likely to amplify the tensions already evident this year, setting the stage for a more confrontational phase in EU–China trade relations.

With IANS inputs