EU, China bet on talks to avoid trade war

BRUSSELS - Europe and China vowed on June 29 to tackle their trade frictions through dialogue despite the EU warning the status quo was not an option, following all-day talks between their top trade officials.

The European Union has turned its attention to China as Brussels frets over increasing trade imbalances between the 27-nation bloc and the Asian powerhouse.

EU trade commissioner Maros Sefcovic made it clear following talks with visiting Chinese Commerce Minister Wang Wentao on June 29 that “the status quo is not an option”.

“China’s exports to the EU keep rising, while our market share in China keeps shrinking, and this trend is not sustainable,” he told reporters.

But the EU commissioner and Wang also agreed European and Chinese officials should maintain dialogue, exchange relevant data and monitor trade flows, and address other issues in hope of avoiding tensions tipping into overt trade conflict.

They include export controls – a sensitive subject after Beijing’s stringent rare earth export curbs in 2025 revealed just how vulnerable the bloc is.

Sefcovic said Wang reassured him that “existing export controls on rare earth and permanent magnets will not disrupt EU supply chains”.

The two men plan to meet again in October in China.

“Not everything will be fixed, but we think that between now and October our teams have sufficient time to deliver the tangible results,” Sefcovic said.

The bloc’s trade deficit in goods with China hit around €360 billion (S$530 billion) in 2025, meaning the bloc imported way more from the Asian giant than it exported there.

Wang’s visit comes less than two weeks after EU leaders tasked the European Commission with tackling the issue through talks with Beijing – while simultaneously preparing beefed-up defence measures to protect key sectors.

The issue is existential for the EU.

Brussels fears it will lose certain industries entirely if it does not act against a glut of inexpensive goods made in China threatening manufacturers in Europe.

Europe insists on the need for a level playing field, pointing out that Chinese firms have an unfair advantage because of massive state subsidies.

The numbers support Brussels’ argument.

Between 2005 and 2024, Chinese companies received around three to eight times more government support than businesses in countries belonging to the Organisation for Economic Cooperation and Development (OECD).

The EU already has an arsenal of trade defence tools it can use.

These include imposing higher tariffs if investigations prove that companies are selling goods at unfairly low prices or if there is state support that gives an unjust advantage to the manufacturers.

Brussels could also set restrictions known as safeguard measures – including quotas – if there is a sudden surge in imports.

New measures could be on the way.

The commission, which leads EU trade policy, is working on an instrument that would force businesses to diversify their suppliers in critical sectors like chips and rare earths.

The balancing act for the EU is how to get tougher without provoking an angry retort from China.

The bloc has taken several measures to confront soaring imports from China including doubling its duties on foreign steel, imposing higher levies on small parcels from abroad and hefty tariffs on Chinese-made electric vehicles.

But it still hopes to avert a trade war with its second-largest trading partner for goods alone, according to the European Commission – with China making clear it will retaliate against actions it views as unfair.

The EU does not view this as empty threats: in previous retaliatory steps China slapped duties on European cognac and conducted anti-dumping probes into pork and dairy products.

The warning weighs on EU capitals.

Germany has until recently been more cautious since it is more exposed to China’s economy, but the biggest supporter of a more pragmatic approach has been Spain as it seeks Beijing’s investment. AFP