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The EU’s goods trade deficit with China narrowed to its lowest quarterly level in nearly three years, despite fears of a flood of cheap Chinese products to the bloc.
There are also signs of growing transatlantic demand for European products after the EU’s trade surplus with the US rose to a record level in the first quarter, data released by Eurostat showed on Tuesday.
Economists said the improvement in Europe’s trade balance reflected the region’s weak domestic demand and a reversal of a post-pandemic shift in consumer spending from services to goods.
Andrew Kenningham of Capital Economics said much of the shift was “explained by strength in US domestic demand and weak EU demand”.
In the three months to March, the EU’s trade deficit with China narrowed to €62.5 billion, down 10 percent from the previous quarter and down 18 percent from a year earlier. This is the lowest level since the second quarter of 2021, after peaking at €107.3 billion in the third quarter of 2022.
European trade with China has risen to the top of the political agenda amid concerns that Beijing is heavily subsidizing its manufacturing in a bid to gain a dominant share of global markets in strategic areas such as electric vehicles, green energy and semiconductors.
US Treasury Secretary Janet Yellen on Tuesday urged the EU to follow the US lead in imposing additional tariffs on Chinese clean technology exports, warning that a glut of cheap Chinese goods could threaten the survival of factories around the world.
Imports of electric vehicles from China to the EU, including from non-Chinese manufacturers with factories there, increased from $1.6 billion in 2020 to $11.5 billion in 2023. The market share of Chinese brands in the industry increased more than than quadrupled to 8 percent. last year.
Brussels has launched an investigation into allegedly unfair subsidies for Chinese solar panels and electric cars. But European Commission President Ursula von der Leyen said the bloc would not impose the same tariffs on Chinese goods as the US imposed last week, adding that the EU would take a different approach to Washington’s “blanket tariffs”.
Despite concerns about a rise in cheap imports, almost half of the recent reduction in the EU’s trade deficit with China comes from an improvement in the bloc’s trade balance in machinery and transport equipment – including electric vehicles.
Imports of Chinese machinery and transport equipment to the EU have fallen for six consecutive quarters, falling by a quarter during that period, while EU exports to China in this area have been relatively stable.
Pantheon Macroeconomics’ Melanie Debono said the drop in Chinese exports to the EU in the area reflected a pandemic-induced “reversal of growth in 2021” and had been rising since hitting a near three-year low in January.
They also appear to have given European exporters a boost with the US imposing tariffs on many Chinese imports and offering subsidies to producers of green energy projects.
The EU’s trade surplus with the US rose to a new record high of 43.6 billion euros in the first quarter, up 27 percent from a year earlier. EU exports to the US rose by almost 4 percent during that time, while US imports fell by more than 5 percent.
“The very fact that the US shuts down China will undoubtedly benefit the EU if the US remains open to European imports,” said Sander Tordoir of the Center for European Reform think tank. “The EU is ahead of the US in the production and export of green technologies.”
He added that European automakers have been helped by the extension of tax credits under the US Inflation Reduction Act to imported electric vehicles if they are bought by businesses that lease them.