The EU is experiencing a prolonged 'China shock' as a flood of Chinese electric vehicles (EVs) into Europe helped push Beijing to a record trade surplus with the bloc. New data shows China's trade surplus – where its exports to the EU exceeded imports from the bloc – stood at $83bn (£61bn) in the first three months of 2026.
China sold goods worth approximately $148bn to the EU in the first quarter, but imported just $65bn from the bloc, according to analysis of 2026 customs data by the Mercator Institute for China Studies (Merics). The surplus for the whole of 2025 was €360bn.
Chinese EV Sales Surge
The record was driven in part by Europeans' apparently insatiable appetite for Chinese cars, including BYD, which has declared its ambition to become the world's largest automaker. Sales of Chinese electric and hybrid cars nearly doubled from $11bn (£8.1bn) in the first three months of 2025 to $20.6bn for the same period this year. This accounted for a third of the value of all Chinese EV exports. When the UK, Norway, and Switzerland are included, Europe accounts for 42% of Chinese EV sales, which saw a 50% surge in March following the onset of the Iran war.
Resilience Amid Global Conflict
Merics, which analyzed the data alongside Chinese trade site Soapbox, noted that China's economy has shown resilience in the face of the Iran war, posting its 'largest quarterly growth figures since 2022'. Soapbox figures released last week indicated that exports from the EU to China fell 16.2% in February, with pork shipments notably declining.
Although China imports much of its oil from the Gulf – where traffic through the crucial Strait of Hormuz has nearly ground to a halt – it has been less impacted than other Asian countries and has been able to tap into substantial reserves. 'So far, China's trade with the world has been barely affected by the conflict in the Middle East,' Merics said.
EU's Response and Tensions
In February, the thinktank Bruegel stated that the EU was 'experiencing a severe and accelerating China shock', with Xi Jinping's new five-year plan showing no signs of change in export policy. The bloc has proposed a 'Made in Europe' industrial strategy to protect 'strategic sectors' of European industry. China has warned the EU that it will retaliate with 'countermeasures' if the new laws discriminate unfairly against Chinese exports.
China's Ministry of Commerce stated that the EU Industrial Accelerator Act would result in discrimination that 'runs counter to basic market economy principles such as commercial voluntariness and fair competition'. The UK has also complained that it discriminates against British car exports.
A spokesperson for the European Commission said the proposed legislation complies with World Trade Organization rules, noting that China benefits from access to 'one of the most open markets in the world' and expects 'openness to be mutual'. Commission deputy chief spokesperson Olof Gill said policy proposals 'are carefully calibrated to achieve certain economic and wider goals for our citizens, for our businesses' and that the EU is 'happy to engage' with China on any issue.
Trade Imbalance and Tariffs
Over the last three years, the EU has deployed a 'good cop, bad cop strategy' with Beijing, courting investment while arguing for rebalancing or 'derisking' the trade relationship. In February, German Chancellor Friedrich Merz said the widening trade gap was 'not healthy' and expressed a desire to reduce the trade deficit that had 'quadrupled' in five years.
Brussels has tried to curb imports of Chinese cars, imposing tariffs of up to 35% on some brands in 2024. It has also introduced initiatives to help EU companies reduce reliance on rare earths, such as permanent magnets used in everything from car window locking systems to refrigerator and washing machine doors. New customs data shows China still accounts for 93% of permanent magnets, with import volumes increasing 18% year-on-year.
There are no rare earth mines in Europe, but there are high hopes that LKAB, a state-owned iron ore mine in the Swedish Arctic, could soon make extraction and processing viable.
Industry leaders have noted the ineffectiveness of EU trade measures. The boss of Europe's first plant producing lithium hydroxide, a key ingredient in car batteries, warned that the EU may as well 'be a province of China' due to its reliance on Chinese imports.
