The European Union is scrambling to formulate countermeasures as the Chinese yuan strengthens against the dollar but continues to weaken against the euro, amplifying concerns over China's export offensive.
With China's aggressive export push expected to drive the EU's trade deficit with China to a record high this year, the yuan's weakness against the euro threatens to intensify Beijing's "low-price assault" on European markets. Some officials are calling for stronger measures, whether sector-specific or blanket tariffs, though significant obstacles remain to implementing such actions.
The yuan-euro exchange rate stood at 8.26 yuan per euro as of Thursday, surging more than 10% from 7.49 yuan on January 2, according to Nikkei. The rate hit 8.45 yuan in July, the highest level in 11 years since July 2014. The yuan has depreciated 8.2% against the euro on a nominal basis over the past year, according to consulting firm Rhodium Group.
The weaker yuan enhances the price competitiveness of Chinese goods, potentially expanding China's already massive trade surplus. The EU Chamber of Commerce in China projects the EU's trade deficit with China will exceed 400 billion euros ($430 billion) this year, surpassing the previous record of 397.3 billion euros set in 2022. China's global trade surplus, including with the EU, has already topped $1 trillion through November, an all-time high.
Chinese exports riding the weak yuan are neutralizing the EU's tariff measures. Of seven Chinese import categories hit with anti-dumping duties by the European Commission in 2023-2024, four actually saw increased import volumes. Rhodium Group noted that total Chinese electric vehicle exports to the EU have recovered to pre-tariff levels, roughly a year after the EU imposed final duties of up to 45.3% on Chinese EVs in October 2023.
"A significantly undervalued yuan is tantamount to a subsidy for Chinese exporters," said Jens Eskelund, president of the EU Chamber of Commerce in China.
International Monetary Fund Managing Director Kristalina Georgieva recently warned that China "has lowered inflation relative to trading partners, causing a significant decline in real exchange rates, which will further exacerbate external imbalances and global trade tensions."
The Financial Times analyzed that "China's excessive trade surplus is increasing the need for the West, particularly Europe, to establish long-term trade and industrial strategies." Given rising demand for Chinese products ranging from rare earth elements essential for advanced industries to electric vehicles and electronics, combined with China's growing technological capabilities, the EU's sense of crisis is intensifying.
"If not tariffs, what else is there to block Chinese goods?" said Camille Boullenois, a researcher at Rhodium Group. "If tariffs are not raised, it would be better to simply rely on Chinese manufacturing."
Brad Setser, senior fellow at the Council on Foreign Relations, went further: "Whether sector-specific or blanket tariffs, stronger measures than current ones are necessary."
EU political leaders have echoed these concerns. European Commission President Ursula von der Leyen said the "trade imbalance with China is serious," while French President Emmanuel Macron declared China's trade surplus "unsustainable."
However, analysts widely expect the EU will struggle to impose high tariffs immediately, given the dilemma of needing China as a strategic card to counter Russia in Ukraine ceasefire negotiations and to respond to tariffs from the Trump administration in the United States.
