EU-China trade tensions: The slow burn accelerates

Research evidence excerpt

EU-China trade tensions: The slow burn accelerates

Global Markets Research

13 July 2026Asia Insights

Economics - Asia ex-Japan

Research AnalystsEU-China trade tensions: The slow burn

Asia Economicsaccelerates

Harrington Zhang - NIHKIn December 2025, we highlighted EU-Chinatradetensionsasakeyriskfor2026 that the

harrington.zhang@nomura.commarket appeared to be underappreciating, arguing that the second China shock would

+852 2252 2057

push Beijing-Brussels frictions to the foreground. Since then, these tensions have

Ting Lu - NIHKworsened more quickly than we expected. The EU-China bilateral imbalance has

ting.lu@nomura.comcontinued to widen, and the Commission's policy posture has visibly hardened. We now

+852 2252 1306

expect the dispute to enter a more consequential phase: Europe is increasingly

confronting China on its own, without the transatlantic coalition it once assumed it could

rely on, and with October set as the next checkpoint over whether dialogue can deliver

results or whether stronger instruments will follow. The pattern we expect is not a US-style

tariff spiral but a slow-burn accumulation of EU sector-level pressures and calibrated

Chinese retaliation, with rare earths licensing still Beijing's real deterrent.

The widening imbalance and ineffective existing countermeasures

China's goods surplus with the EU rose to USD291.8bn in 2025 from only USD132.4bn in

2020 and have reached a further USD143.8bn in the first five months of 2026, up 23.0%

y-o-y. We do not believe this is primarily due to US tariff-driven rerouting of Chinese goods

into Europe. In our view, the dominant driver remains the second China shock, which is a

structural expansion of manufacturing capacity in higher value-added sectors, with trade

diversion only an aggravating overlay.