Hsien-Ming Lien, President of the Chung-Hua Institution for Economic Research (CIER), stated that the second Trump-Xi summit resulted in the United States and China exchanging views on trade, tariffs, rare earths, AI, and other issues, achieving limited interim progress. However, significant divisions persist regarding core issues, and mutual trust remains low. In the near term, stability is more likely to be maintained through ongoing negotiations and managed competition rather than through comprehensive resolution of all differences.
Shift in Chinese Exports toward Europe Intensifies Bilateral Trade Friction
China-Europe trade relations continue to face significant pressure. While recent intensive consultations have produced some consensus on issues such as hybrid vehicle trade, export controls, intellectual property rights, and World Trade Organization (WTO) reform, the effectiveness of these efforts in addressing the trade imbalance remains uncertain. Guo-Chen Wang, Associate Research Fellow at CIER’s China Economic Research Institute, noted that China’s overcapacity and weak domestic demand, together with U.S. tariffs and export controls, have redirected Chinese exports toward Europe. These factors have generated structural trade pressures that are unlikely to be resolved through negotiations alone. As a result, China-Europe trade friction is likely to escalate further.
Wang observed that inventories of finished goods at large-scale Chinese industrial enterprises continue to increase, indicating an imbalance between weak domestic consumption and expanding industrial production. Given the limited capacity of the domestic market to absorb these goods, and the restrictions imposed by U.S. tariffs and export controls, China is compelled to seek overseas markets for its surplus capacity and products. As a result, Europe is experiencing heightened competitive pressure.
Meanwhile, Chinese exports to Europe are increasing while European exports to China face growing barriers. Sectors such as electric vehicles pose direct challenges to the interests of traditional automotive manufacturing countries, including Germany, France, and Italy. Consequently, the European Union has adopted a more assertive trade policy toward China.
EU Trade Defense Tools Develop, but Effective Implementation and Coordination Remain Essential
In response to increasing pressure from Chinese exports, the European Union has actively considered trade defense measures, such as the Anti-Coercion Instrument, minimum price mechanisms, and policy initiatives targeting overcapacity and supply security. Wang stated that while the EU has proposed several tools, their effectiveness will ultimately depend on the ability of member states to achieve consensus and implement measures promptly and efficiently.
China may take advantage of the European Union’s complex decision-making processes and the divergent industrial interests among member states to gain time and expand its exports. Therefore, beyond pursuing bilateral negotiations, the EU should strengthen coordination and implementation of its common trade policy to ensure that defensive measures are effectively enacted rather than remaining at the level of policy statements.
Chinese Countermeasures Serve as Warnings, but Foreign Trade and Economic Considerations Impose Practical Constraints
With respect to China’s antidumping investigations into certain chemicals imported from the European Union, Wang indicated that these measures are primarily intended to serve as warnings and exert pressure, rather than to result in immediate substantive sanctions. China has previously employed tools such as the Unreliable Entity List and export controls in response to trade disputes. The actual impact of such measures will depend on the specific companies involved, the scale of trade affected, and the degree of enforcement.
China must continue to consider its foreign trade and economic development requirements when implementing countermeasures. For instance, rare-earth export controls may serve regulatory and coercive functions but do not necessarily imply a total suspension of exports. Governments and businesses should therefore prioritize monitoring actual export data and supply chain developments over relying exclusively on policy announcements.
U.S.-China Truce Does Not Eliminate Risks as U.S.-EU Cooperation May Drive the Next Phase of Trade Friction
Wang stated that the U.S.-China trade truce can only temporarily reduce uncertainty and cannot resolve the fundamental differences between the two countries regarding industrial competition, technology controls, and supply chain security. Should the United States gradually establish alternative rare-earth supply chains and collaborate with the European Union and other economies to address overcapacity, Chinese exports may encounter increased external pressure, which would have implications for China-Europe trade relations.
Regarding the possibility of China easing tensions by increasing investment in Europe, establishing manufacturing facilities, or adjusting automotive trade policies, Wang noted that China has incentives to promote overseas expansion by its companies to mitigate domestic overcapacity. However, such capital outflows may exacerbate domestic employment and financing pressures, thereby constraining China’s policy options and limiting its ability to make significant concessions.
Overall, Wang expressed caution regarding the likelihood of a substantive breakthrough in China-Europe negotiations. The trade imbalance extends beyond issues of tariffs or market access and is rooted in structural factors such as weak domestic demand in China, production capacity allocation, and industrial policy. In the absence of concrete implementation mechanisms and ongoing negotiations, additional trade friction appears likely.
Beyond negotiating for fair and reciprocal market access, the European Union should enhance internal policy coordination and collaborate with the United States and other economies to develop a more consistent and enforceable trade defense framework. Such measures would help mitigate the spillover effects of excess capacity and protect both European industrial competitiveness and the global trading order.
Author: CIER Editorial Team
Date: October 13, 2026