China and EU: Trade Frictions, Strategic Dependencies, and Economic Recalibration

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CWA # 1906

State of Global Politics 2025

China and EU: Trade Frictions, Strategic Dependencies, and Economic Recalibration

The World This Week #338, Vol 7, No 52, 31 December 2025

Femy Francis
31 December 2025

What happened?
In 2025, China-EU relations oscillated between de-escalating tensions and taking coercive actions against each other. Europe focused on de-risking from China carefully, without wrecking its ties with its largest trading partner. China focused on retaliatory measures against EU member states to maintain parity.

This year, China and the EU celebrated the 50th anniversary of the establishment of diplomatic ties in 1975. In July, China and the European Union held their 25th China-EU Summit in Beijing. Both countries emphasised the importance of their relationship for the advancement of their shared interests. They discussed the Russia-Ukraine war and urged China not to provide any material support to Russia. On trade, the EU expressed concerns about its large trade deficit with China and called on China to grant European businesses access to its market. The EU also affirmed the One-China policy while expressing concern about rising tensions with Taiwan.

In December, China imposed 42.7 per cent tariffs on EU dairy products as it completed its first phase of anti-subsidy investigation starting in 2024. It found that EU farm subsidies, such as the Common Agricultural Policy, unfairly benefited EU exporters, thereby affecting China's domestic industry. This imposition is in retaliation for the EU’s 2024 EV tariffs against Chinese companies. The tariff will range from 21.9 per cent to 42.7 per cent. The European Commission spokesperson Olog Gill said: “The commission’s assessment is that the investigation is based on questionable allegations and insufficient evidence, and that the measures are therefore unjustified and unwarranted.” This year also saw antidumping duties on Chinese tinplate and European brandy and pork products.

A series of high-level visits was conducted as several European leaders visited China and vice versa. Prime Minister of Portugal, Luís Montenegro, visited in September to discuss economic cooperation between the two countries. King Felipe VI of Spain visited in November on the invitation of China’s President Xi Jinping and to attend the China International Import Expo. German Foreign Minister, Johann Wadephul, held talks with China’s Foreign Minister on the supply chain issue and bilateral trade. French President Emmanuel Macron had a three-day visit to China, where he met Xi and discussed the war in Ukraine and global economic imbalances.

In October, the Dutch Ministry of Economic Affairs announced that it had acquired ownership of the Chinese firm Nexperia. Under this, the Dutch government granted itself the power to intervene in the company’s decision-making, and during this period, Nexperia could not transfer assets or hire executives without the approval of the Dutch government. The government said its actions were based on the shortcomings of the company, which “threaten the continuity and safeguarding of crucial technological knowledge and capacity on Dutch and European soil.” This was soon overturned as China also lifted export control on chips produced by Nexperia.

In April, China’s Ministry of Commerce informed that China and the EU have agreed to kickstart their talks on establishing minimum price commitments on Chinese EVs to provide conditions for fair competition. In December, China’s EV giant BYD signed an agreement with Deutsche Bahn (DB), which is Germany’s largest public transport operator. DB placed an order for 200 pure electric buses as part of their zero-emission bus procurement program and the larger mission to reduce carbon emissions. This deal was heavily criticised by German Finance Minister Lars Klingbeil, who stated that public companies should favour domestic and European manufacturers.

What is the background?
First, China-EU trade relations. The European Union’s largest trading partner is currently the US, with USD 739 billion worth of trade in 2025, this is followed by China at USD 538 billion and the UK at USD 339 billion. While overall US is still the largest trading partner with most of the EU countries, this year in Germany, China took over with USD 190.7 billion in trade compared to the US’s USD 189 billion. Additionally, there are sectors in which China exports the most in the EU and is the leading supplier of electronics, machinery, automotive parts, and EVs. In 2024, the European Union’s trade deficit with China reached USD 360.02 billion, surpassing USD 349 billion from 2023, which this likely to have ballooned further in 2025.

Second, retaliatory tariffs by China against the EU. The current tariff imposition by China on the EU’s dairy products is not only based on domestic market concerns for China. But it is a retaliation for the EV tariffs of 45.3 per cent imposed by the European Union in 2024. In 2025, the EU imposed tariffs of 66.7 per cent on Chinese imported aerial work platforms, stating that they benefited from government subsidies and lower interest financing. China’s and the EU’s motivation for tariffs differs, as for the former, it is a retaliatory measure to the EU’s actions, and for the latter, it is a protectionist policy aimed at de-risking.

Third, China dominates the European Union’s EV market. China’s EV giant BYD is set to overtake Tesla sales in the European market in 2025. By the end of November 2025, BYD sold 2.07 million EVs 2025, while Tesla is reckoned to have sold 1.65 million, which is 7.7 per cent less than BYD, reports FactSet data. Schmidt Automotive Research reports that the Chinese EV market share will jump to 11.0 per cent this year, a 9.6 per cent high from 2024, which was only 3.8 per cent. This hike is largely attributable to stringent European regulations and the transition to green energy; here, Chinese firms are providing affordable EVs that are priced lower than those of their European counterparts.

Fourth, Europe’s plan to end its reliance on Chinese rare earths. In 2025, tariff tensions between the US and China affected economies worldwide. Even as a trade truce has been established, the tensions revealed the repercussions of dependence on Chinese rare earths. China’s export control measures on the sale of rare earths created panic, as it is the largest supplier. In light of this, the EU developed a plan to reduce dependence on Chinese raw materials. European Commission President Ursula von der Leyen plans to establish “RESourceEU,” aimed at recycling critical raw materials and stockpiling strategies to protect the EU from any immediate aftershocks.

Fifth, anti-dumping and anti-subsidy investigations by the EU and China. Europe accuses China of dumping excess goods in Europe and expresses concerns about China's overproduction capacity. Stating that this has severely affected their domestic industries, which are unable to compete with Chinese prices. Due to this, a series of anti-dumping duties have been imposed by the EU, the recent being on tinplate, and Chinese duties on European brandy and pork. On both sides, anti-subsidy investigations are currently underway into unfair state subsidies. China's recent tariff on EU dairy products is a result of the completion of the first phase of the investigation.

What does it mean for 2026?
First, continued de-risking by the EU. This coming year, the European Union will focus on strategic de-risking from China in a measured manner. It has realised the importance of China as a trading partner and does not plan to isolate itself from China. Especially when it is transitioning to more green technology, China is a vital partner for the EU. It will focus on establishing protectionist policies for its domestic manufacturers.

Second, partners in green transitioning. China and Europe will increasingly collaborate, as China has evolved into one of the largest suppliers of green technologies, and the EU aims to become the first climate-neutral continent by 2025 as part of the European Green Deal. It wants to cut its greenhouse gas emissions by at least 55 per cent by 2030. China currently dominates the green technology market for manufacturing solar panels, wind turbines, and EVs. This makes both countries strategically significant to each other.

Third, China and the EU to recalibrate ties. The global tariff imposition by US President Donald Trump brought the EU and China closer together again. This has led to cautious re-engagement between the two countries. China has expressed a strong interest in deepening economic cooperation with the EU as it criticises the unilateral actions of the US. The EU is re-engaging with scepticism, where it still wants to de-risk but not decouple. For China, it has become more aggressive in taking retaliatory measures when differences arise.

About the author
Femy Francis is a Project Associate at NIAS, Bengaluru.

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