The European Union is experiencing a severe and accelerating \u2018China shock\u2019. We predict the EU\u2019s trade deficit with China to reach \u20ac400 billion in 2025 \u2013 more than double the level before the pandemic \u2013 despite the euro area as a whole continuing to run a trade surplus of over \u20ac400 billion with the rest of the world. In this context, the China imbalance stands out.<\/p>\n
The imbalance traces back to pandemic-driven global supply-chain disruptions and the energy crisis price shock following Russia\u2019s invasion of Ukraine, both of which caused producer prices to rise sharply in Europe. During the same period, China entered a prolonged deflationary phase, stemming from overinvestment in manufacturing, creating the overcapacity we see today. This divergence in costs for European versus Chinese producers has given Chinese exporters a decisive price advantage in many sectors, including machinery, chemicals, electric vehicles and green technologies.<\/p>\n
The textbook adjustment mechanism that should have mitigated this gap \u2013 appreciation of the renminbi against the euro in response to increased European imports of Chinese goods \u2013 has not occurred. Instead, the renminbi has remained remarkably stable, even losing some ground against the euro. The result is precisely what economic theory would predict: a loss of European market share in the Chinese market, third-country markets and increasingly its own market. This is particularly surprising given that Europe maintains a trade surplus with the world, which should indicate healthy global competitiveness for Europe.<\/p>\n
EU trade-defence instruments, such as anti-dumping and anti-subsidy<\/a> measures, are useful but do not have the scope for the magnitude of the problem. These tools are slow to be activated, resource-intensive, firm- and product-specific and blind to economy-wide distortions that affect thousands of goods simultaneously. Waiting for case-by-case investigations while Chinese exports flood the market is not a viable strategy when the damage to European industry is becoming structural<\/a>.<\/p>\n Domestically sourced input requirements are sometimes proposed as a countermeasure, but these would further raise production costs for European manufacturers and potentially disrupt international supply chains, ultimately making the EU less competitive internationally.<\/p>\n","protected":false},"excerpt":{"rendered":"The European Union is experiencing a severe and accelerating \u2018China shock\u2019. We predict the EU\u2019s trade deficit with…\n","protected":false},"author":2,"featured_media":275123,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":{"0":"post-275122","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-new-zealand","11":"tag-newzealand","12":"tag-nz"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/275122","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=275122"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/275122\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/275123"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=275122"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=275122"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=275122"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}