Goldman Sachs European Daily - FJElite

Chinese net exports have continued to surge through the energy shock, including to the EL). European policymakers are growing increasingly wary of the competitive pressure coming from Chinese industrial products. At its June meeting, the EL) Council mandated the EU Commission with the task of proposing an appropriate response to China, marking a shift in European policy.

We expect the EU to move from a largely accommodating stance towards China to a more assertive—but still targeted—trade policy response, as rising Chinese exports continue to widen the bilateral deficit and erode European market share in third markets. The pressure is most visible in manufactured goods, where China’s cost advantage reflects lower labour and energy costs, subsidies, and currency undervaluation.

Policy action is likely to focus first on sectors where the evidence of trade diversion and industrial drag is strongest—including steel, plug-in hybrid EVs (PHEVs), machinery, wind-turbine components, and basic chemicals. The Commission will tighten steel safeguards from July 2026 and enforce “melt and pour” rules, and we expect it to extend anti-subsidy duties beyond BEVs, and accelerate anti-dumping investigations into high-volume industrial inputs.

A US-style blanket tariff regime remains unlikely, in our view, given China’s leverage in critical inputs such as rare earths, the limited growth benefit from broad import barriers when the main drag comes from third-market competition, and Europe’s continued interest in preserving export access to China while seeking gradual concessions on currency and market access, and improving supply-chain diversification.