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EU Growth Hit by China's Market Share Loss, Not Deficit
4 Jul
Summary
- China's competition, not trade deficit, is harming EU growth.
- Manufactured goods like transport equipment are most affected.
- EU may adopt assertive but targeted trade policy against China.
The European Union's economic growth is experiencing a significant drag, primarily due to losing market share to China rather than its widening trade deficit with the Asian nation, according to Goldman Sachs. This competition is intensified as Chinese manufacturers seek international markets amid weak domestic demand and excess capacity.
The impact is most pronounced in manufactured goods, especially transport equipment and industrial machinery, where China's cost advantage is a key factor. Europe's share of global capital goods exports has declined, while China's has surged, including a substantial increase in machinery exports to Europe.
In response, EU leaders are considering tougher measures. Goldman Sachs anticipates a shift towards a more assertive, though still targeted, trade policy. However, broad, U.S.-style tariffs are considered unlikely, as the EU aims to maintain access to critical materials like rare earths from China. Policy actions are expected to initially focus on sectors exhibiting the strongest evidence of trade diversion and industrial drag, such as steel, machinery, and basic chemicals.
