What comes next for EU-China trade?

EU-China trade tensions could escalate in 2027 as Brussels ponders additional measures to tackle its widening trade deficit, according to Citi analysts. While a full-blown trade war appears unlikely, the recent EU-China deal restricting Chinese hybrid-vehicle exports may lay groundwork for further negotiations, the bank cautioned.

Europe's trade deficit with China remains extreme, exceeding €1 billion daily, prompting officials to consider stronger trade rebalancing measures. China posted a trade surplus of $291.7 billion with the EU in 2025, up 18.1% year-over-year, marking a significant increase from $113.8 billion in 2019. Chinese exports to the EU rose 8.4% in 2025, while EU imports from China fell 0.4%, deepening the imbalance.

This trend intensified through the first nine months of 2026, with China's surplus with the EU rising 26% compared to the previous year. China's share of total EU imports hit 22.4% in 2025, while Europe's share of Chinese imports continued declining. Citi expects the EU to introduce more trade restrictions targeting Chinese goods, potentially heightening friction between the economies.

China might respond with concessions like increased imports, industry-specific agreements, and reduced value-added tax export rebates. Analysts believe substantial economic damage on both sides should deter an escalation like the 2025 U.S.-China trade dispute. However, prolonged trade policy uncertainty could negatively impact economic growth in 2027.

For China, the risks are particularly pressing as policymakers strive to maintain near-4% annual economic growth. The bank warns that trade-related uncertainty will remain a major challenge for Chinese exports and the broader economy next year.