One of the most significant trade disputes in recent years is unfolding between the European Union and China. Against the backdrop of growing economic tensions, German President Frank-Walter Steinmeier visited China in late October 2026. One of the main objectives of his visit was to address economic disagreements, the growing trade imbalance, and the conditions governing European companies' access to the Chinese market.
Why Is Berlin Raising the Alarm?
Although China remains one of Germany's key trading partners, the latest figures for 2026 reveal a serious imbalance in bilateral trade. While German exports to China are declining, imports of Chinese goods continue to grow.
In the first six months of 2026 alone, German exports to China fell by more than 12% year-on-year, while the trade deficit reached approximately €55 billion.
To understand this economic mechanism, it is worth briefly looking at how Chinese manufacturers gain their competitive advantages:
- The state provides exporters with tax incentives, including VAT refund schemes.
- China's state-owned banks provide businesses with large loans on favourable terms. Moreover, in some cases, problematic debts can be restructured or written off with government support.
- Factories receive access to land, electricity, and other resources on preferential terms.
Unlike China, government support for private companies in the European Union is not such a widespread practice and is more strictly regulated by legislation. As a result, European manufacturers do not always enjoy the same financial advantages as their Chinese competitors, who can rely on extensive government support. This gives Chinese products an additional price advantage in the European market.
This issue is increasingly being raised by European politicians.
In response, the EU has agreed on restrictions limiting imports of Chinese hybrid vehicles to 350,000 units per year under a new trade protection mechanism. Its introduction is expected on December 1, 2026. The quota is also expected to increase by 6% annually starting next year.
At the same time, the European side is considering broader measures to protect its own industry. In particular, the European Commission plans to present new trade initiatives in December aimed at reducing dependence on Chinese suppliers of critical products.
It is worth noting that Germany and France are among the main supporters of a tougher approach towards China's trade policy in Europe.
However, despite this rhetoric, the German side stresses that Europe does not seek to completely sever its economic ties with China. Instead, it demands fair conditions of competition and reciprocal access to markets.
For his part, Chinese leader Xi Jinping has called on Berlin to pursue a "rational and pragmatic" partnership without protectionism. During the talks, both sides also discussed ways to resolve trade disputes. In particular, agreements were reached on limiting Chinese hybrid vehicle exports to Europe, while market access and critical raw materials were also discussed.
It is also worth mentioning that back in 2021, China ranked second among the largest markets for German exports. These primarily included automotive products, industrial equipment, and chemicals. However, the situation has changed dramatically over the past five years. In the first half of 2026, China had already fallen to ninth place among the largest destinations for German exports.
And in my opinion, this is one of the most interesting aspects of the entire situation. Chinese manufacturers are not simply expanding their production capacity. They are also gradually mastering technologies and manufacturing processes in which German companies had maintained a competitive advantage for decades. As a result, Germany is increasingly importing products and components from China that were once primarily associated with its own industry.
This is actually a very interesting topic that deserves separate attention. I have already published an article about one of Germany's automotive giants, in which I discussed how China is creating additional challenges for the European engineering and manufacturing industry.
The current situation further demonstrates that Europe is no longer willing to turn a blind eye to economic imbalances and competitive pressure from China.
New negotiations and discussions on trade initiatives at the European Union level lie ahead. And here it is worth considering whether the era of unrestricted cheap Chinese imports into Europe is gradually coming to an end.
But the most interesting question is how this entire trade policy will affect European automotive companies such as BMW, Mercedes-Benz, and Volkswagen Group.
