China’s booming exports are emerging as a major concern for Europe, with leaders of the Group of Seven (G7) economies discussing ways to address growing trade imbalances amid fears of a new “China Shock” hitting European industry, according to news agency AP.After years of US tariffs aimed at curbing Chinese manufacturing dominance, Beijing has continued to expand exports, redirecting goods from the American market to Europe and other parts of Asia.The shift has fuelled concerns that Europe could face a repeat of the disruption that swept through parts of the United States in the early 2000s, when competition from low-cost Chinese imports contributed to widespread factory closures and job losses, AP reported.China recorded a record global trade surplus of about USD 1.2 trillion last year despite years of trade restrictions and sanctions imposed by the US, according to AP.French President Emmanuel Macron had earlier warned that Chinese exports were “literally killing a large part of the European industry” and acknowledged that Europe had been slow to recognise the challenge.The issue featured prominently during discussions at the G7 summit in France this week. While leaders did not mention China directly in a statement on economic growth, they noted “with concern that global imbalances have been persistent and widened in recent years”, a reference widely interpreted as targeting China’s trade practices.
Europe weighs stronger trade barriers
European policymakers are increasingly considering tougher trade measures against Chinese imports.The European Union currently applies relatively low tariffs on most Chinese goods under World Trade Organization rules, although certain sectors such as electric vehicles face duties of up to 35%.“China’s export surge, unless its leaders rein it in, will provoke a protectionist wave against Chinese imports worldwide,” Maurice Obstfeld, senior fellow at the Peterson Institute for International Economics and former IMF chief economist.“All the more so if the current disruptions around the Iran war persist and cause a sharper global slowdown,” he added.HSBC economist Taylor Wang also warned that escalating trade tensions between China and Europe could threaten Chinese exports, particularly in sectors such as electric vehicles, solar panels and lithium-ion batteries.
A different kind of ‘China Shock’
The first “China Shock” followed China’s entry into the World Trade Organization in 2001, when low-cost Chinese goods gained broad access to Western markets.Research by economists David Autor, David Dorn and Gordon Hanson found that competition from China contributed to the loss of about 2.4 million American jobs, AP noted.But analysts say the current wave differs significantly because China now dominates global manufacturing and exports more sophisticated products.China accounted for only about 4% of global goods exports in 2000. Its share has since risen to 16%, the highest in the world.“The second China shock is characterized by its companies running the board on manufacturing exports — from low-tech, low-wage to high-tech high value-added industries,” Cornell University economist Eswar Prasad told AP.“This is directly hitting advanced economies where it now hurts the most” — industries such as electric vehicles, advanced machinery and robotics that many developed countries had hoped would drive industrial growth, he said.
Germany among hardest hit
Germany, Europe’s largest economy, has been particularly affected as Chinese companies increasingly compete in sectors traditionally dominated by German manufacturers, including automobiles, industrial machinery, construction equipment and chemicals.Partly because of growing competition from China, Germany’s economy contracted in 2023 and 2024 before expanding just 0.2% last year.Meanwhile, Chinese exports to the 27-member European Union rose 16.4% during January-May compared with a year earlier, according to AP. France’s trade deficit with China also widened sharply during the period.Economists cited by AP argue that Chinese policies continue to encourage manufacturing expansion while suppressing domestic consumption, resulting in excess production that is increasingly directed towards overseas markets.Former US trade negotiator Wendy Cutler told AP that Beijing has long relied on foreign markets to absorb excess capacity.“Beijing has been relying on the rest of the world to address its overcapacity problem,” she said.“However, this unsustainable situation may soon change if the EU and others take steps to halt Chinese imports, following the US lead,” Cutler added.
