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The EU’s goods trade deficit with China has fallen to its lowest quarterly level in almost three years, despite fears that the bloc is being flooded with cheap Chinese products.
There are also signs of rising transatlantic demand for European products after the EU’s trade surplus with the US hit a record in the first quarter, according to data published by Eurostat on Tuesday.
Economists said the improvement in Europe’s trade balance reflected weak domestic demand in the region as well as a reversal of the post-pandemic shift in consumer spending from services to goods.
Andrew Kenningham of Capital Economics said much of the shift could be “explained by the strength of US domestic demand and weakness in EU demand.”
In the three months to March, the EU’s trade deficit with China fell to 62.5 billion euros, 10 percent less than in the previous quarter and 18 percent less than a year ago. That is the lowest level since the second quarter of 2021, after peaking at 107.3 billion euros in the third quarter of 2022.
Europe’s trade with China has moved to the top of the political agenda amid fears Beijing is heavily subsidizing its production to capture a dominant share of global markets in strategic areas such as electric vehicles, green energy and semiconductors.
U.S. Treasury Secretary Janet Yellen on Tuesday called on the EU to follow the U.S. lead and impose additional tariffs on Chinese cleantech exports, warning that an oversupply of cheap Chinese goods could threaten the survival of factories around the world .
EU imports of electric vehicles from China, including from non-Chinese manufacturers with factories there, increased from $1.6 billion in 2020 to $11.5 billion in 2023. The market share of Chinese brands in this sector rose more than fourfold during that time to 8 percent last year.
Brussels has launched an investigation into alleged unfair subsidies for Chinese solar panels and electric vehicles. However, European Commission President Ursula von der Leyen said the bloc would not impose the same tariffs on Chinese goods that the US imposed last week, adding that the EU would take a different approach to Washington’s “blanket tariffs”. would.
Contrary to fears about a rise in cheap imports, almost half of the recent decline in the EU’s trade deficit with China is due to an improvement in the bloc’s trade balance in machinery and transport equipment – which includes electric vehicles.
EU imports of Chinese machinery and transport equipment have fallen for six quarters in a row, falling by a quarter over this period, while EU exports to China remained relatively stable in this area.
Melanie Debono of Pantheon Macroeconomics said the decline in Chinese exports to the EU in this sector reflected “a reversal of the pandemic-induced surge in 2021” and had risen since hitting a near three-year low in January.
European exporters also appear to have received a boost from the US imposing tariffs on many Chinese imports and providing subsidies to producers of green energy projects.
The EU’s trade surplus with the USA rose to a new record high of 43.6 billion euros in the first quarter, 27 percent more than in the previous year. EU exports to the US have increased by almost 4 percent during this time, while imports from the US have fallen by over 5 percent.
“The fact that the US is already excluding China will undoubtedly benefit the EU as long as the US remains open to European imports,” said Sander Tordoir of the Center for European Reform think tank. “The EU is ahead of the US in producing and exporting environmentally friendly technologies.”
He added that European automakers had been helped by the extension of tax breaks under the US Inflation Reduction Act to imported electric vehicles if they were purchased by companies that rent them out.