Key facts
- Goldman Sachs estimates that China's competition in third markets, rather than the bilateral trade deficit, is the main cause of reduced European growth.
- China's exports to the EU grew by about 16% in the first five months of the year, while EU exports to China increased by less than 10%.
- The most significant impact has been on manufactured goods like transport equipment and industrial machinery.
- Europe's share of global capital goods exports has decreased, while China's has substantially increased.
- The EU is expected to shift towards a more assertive, but targeted, trade policy concerning China.
- Blanket tariffs similar to those in the U.S. are unlikely for the EU.
Goldman Sachs has indicated that the European Union's growth is being more significantly hampered by losing market share to China in third countries, rather than by a widening trade deficit with China itself. The brokerage noted that Chinese manufacturers, facing weak domestic demand and excess capacity, are increasingly competing in markets across Asia-Pacific, Latin America, and Eastern Europe.
According to Goldman's estimates, China's exports to the EU rose by approximately 16% in the first five months of the year, while the EU's exports to China saw an increase of less than 10%. The most pronounced impact has been observed in manufactured goods, particularly transport equipment and industrial machinery, where China's cost advantages are most evident.
Europe's share of global capital goods exports has reportedly fallen to 43% from 54% in 2005, while China's share has surged to 24% from 7%. This includes a notable 50% increase in China's machinery exports to Europe.
In response to these trends, EU leaders have recently discussed implementing tougher measures to address the trade deficit. Goldman Sachs anticipates that the EU will transition from its largely accommodating stance towards China to a more assertive, though still targeted, trade policy. However, the firm views a U.S.-style blanket tariff regime as unlikely, given the EU's reliance on China for critical materials like rare earths. Policy actions are expected to initially focus on sectors with the clearest evidence of trade diversion and industrial drag, such as steel, machinery, and basic chemicals.