EU-China trade tensions are intensifying through a widening structural imbalance and increasingly institutional EU measures

Overview

Nomura updates its July view that EU-China trade tensions are likely to deepen gradually rather than break abruptly. The report finds stronger evidence of a structural trade imbalance, a more institutional EU response, somewhat less German resistance to action, and calibrated but broader Chinese retaliation.

Core views

Nomura argues that the EU-China imbalance is widening for structural reasons—Chinese manufacturing competitiveness and excess capacity—rather than mainly because of US tariff-driven trade diversion. China's goods surplus with the EU averaged around USD30bn per month in January-August 2026, a pace equivalent to roughly USD364bn annually versus USD292bn in 2025. The first eight months already represented 83.1% of the 2025 full-year surplus. Monthly Chinese surpluses with Germany, France, Italy and Spain reached historical highs of USD3.8bn, USD1.0bn, USD2.5bn and USD3.3bn, respectively. Eurostat recorded EU imports from China of EUR153.6bn and exports of EUR50.3bn in Q2, producing a EUR103.3bn quarterly deficit that exceeded EUR1bn per day. The report sees the EU response becoming broader and more institutional while remaining incremental and legalistic. Since 1 July, a temporary EUR3 duty per product category on low-value consignments below EUR150 was associated with an estimated 30-40% decline in small-parcel imports into the EU; reported June-to-July sales-volume declines were 50% for Temu, 37% for AliExpress and 15% for Shein. On 15 July, the Commission reoriented its import barometer toward sustained import pressure tied to industrial overcapacity and state-led support, with quarterly updates intended to identify sectors for targeted protection. Trade-defence activity is also broadening into agriculture: the Commission opened an anti-dumping investigation into Chinese Pekin ducks on 9 July, while more than 30 new trade-defence investigations were reportedly opened over the preceding year, nearly three times the historical average. A proposed Public Procurement Act could allow preferences for EU or covered-country suppliers, origin requirements and, in some cases, rejection of tenders with EU or covered content below 50%; Nomura notes that China would be particularly exposed because it is not party to the WTO Government Procurement Agreement. Autos, particularly plug-in hybrid electric vehicles, remain the clearest illustration of competitive pressure. EU imports of new China-origin petrol PHEVs reached about 167,600 units in H1 2026, up 165% year-on-year and already equal to 98% of the 171,300 units imported in all of 2025. China's share of extra-EU PHEV imports rose to 65.1% from 39.1% a year earlier and reached 67.7% in Q2. China accounted for 109% of the year-on-year increase in extra-EU PHEV imports because imports from other non-EU suppliers declined by about 9%. Nomura argues that existing BEV duties have changed the composition of China-origin auto pressure rather than its overall scale, and that the absence of formal PHEV action does not signal easing pressure. Germany remains a key constraint on the pace and extent of EU action because of its companies' China exposure and automakers' vulnerability to retaliation. Still, Nomura sees Germany becoming somewhat less of a brake. In a 3 September DIHK survey of around 1,300 companies, 83% of industrial respondents reported greater competitive pressure from Chinese rivals; 55% supported stronger EU action against market distortions even if their own businesses faced negative consequences, and 67% called for a united EU China stance. German imports from China rose 6.2% year-on-year to EUR72.4bn in January-May 2026 while exports fell 14.5% to EUR29.6bn, widening the bilateral deficit to EUR42.8bn from EUR33.5bn. China-origin PHEV imports reported by Germany rose to about 24,100 in H1 from around 300 a year earlier, lifting China's share of Germany's extra-EU PHEV imports to 43.5% from 1.5%; Nomura cautions that these data reflect the reporting member state rather than final German retail registrations. On China's side, Nomura expects selective retaliation and negotiation rather than a broad rupture. Beijing's entity-level export controls, restricted-entity measures and procedural challenges to EU Foreign Subsidies Regulation investigations have become more visible, but the report views these as more frequent use of existing tools rather than a fundamental strategic shift. China remains incentivised to retain European market access while domestic demand is weak and exports provide a growth buffer. The JD.com/CECONOMY case illustrates the distinction: remedy negotiations continued while China challenged the Commission's cross-border investigative jurisdiction. Nomura argues that broader use of this approach could make disputes harder to resolve because disagreements would extend from tariffs and market access into regulatory jurisdiction. The EU-China Trade and Investment Consultations, launched in June, remain the main institutional off-ramp. Nomura sees October as an important policy checkpoint but not a plausible deadline for materially rebalancing aggregate trade within a three-month consultation window. The meaningful test is whether the sides can achieve enough sector-level outcomes—such as faster and more transparent rare-earth licensing, specific market-access improvements and progress on auto price undertakings—to slow the accumulation of new measures. Without such outcomes, the Commission would have a stronger case that dialogue has been tested and further measures are justified. Finally, the report identifies Chinese localisation in Europe as a potentially credible way to mitigate direct trade confrontation without reversing the broader competitive challenge. Chinese auto and battery investment, including reported Geely production of electric SUVs at Ford's Valencia plant, could shift China's presence from unconstrained imports toward conditional local production and investment. Nomura argues that local employment, sourcing and European value-added requirements could make this politically more acceptable, even as Chinese corporate presence expands. Overall, the July framework remains intact: the imbalance is larger, EU action is more institutionalised, Germany is somewhat less resistant, and China is using a slightly wider but still calibrated toolkit. October may affect the pace of escalation, but Nomura does not expect it to alter the underlying direction over the next few months.

Analysis framework

Nomura compares China-EU trade data with EU statistics, then traces policy developments across customs, trade-defence, procurement and foreign-subsidy enforcement. It tests the July thesis against sector evidence—especially PHEVs—and assesses the incentives shaping German and Chinese policy responses before identifying the October consultations and localisation as key near-term pathways.

Methodology notes

• Industry AnalysisSupply-demand framework

  Structural manufacturing competitiveness and excess capacity as drivers of persistent trade imbalances.

  The report interprets the widening EU deficit as reflecting China's production capacity and competitiveness rather than primarily a temporary diversion of exports caused by US tariffs.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Trade-policy measures affecting imports, procurement, local production and investment across autos, batteries and e-commerce.

  Nomura explains how EU restrictions may change the form of Chinese commercial penetration from direct imports toward production and investment located inside Europe.

Key data

• China goods surplus with the EUAround USD30bn per month in January-August 2026An annualised pace of around USD364bn, versus USD292bn in 2025.
• EU goods deficit with ChinaEUR103.3bn in Q2 2026Based on EUR153.6bn of imports and EUR50.3bn of exports; more than EUR1bn per day.
• China-origin PHEV imports into the EUAround 167,600 units in H1 2026Up 165% year-on-year and equal to 98% of full-year 2025 imports.
• China share of extra-EU PHEV imports65.1% in H1 2026; 67.7% in Q2Up from 39.1% a year earlier.
• Germany-China trade deficitEUR42.8bn in January-May 2026Up from EUR33.5bn a year earlier as imports rose and exports fell.
• Low-value parcel dutyEUR3 per product categoryApplied from 1 July to consignments below EUR150.

Impact & implications

The report expects EU policy to increasingly channel concerns over Chinese overcapacity into targeted trade-defence, procurement and market-access measures. It sees sector-level concessions and European localisation as the most plausible ways to slow escalation, while a rapid comprehensive solution to the structural trade imbalance remains unlikely.

What to watch

• Whether the October EU-China Trade and Investment Consultations produce sector-level concessions on rare-earth licensing, market access or auto price undertakings.
• Further EU trade-defence investigations, procurement preferences and action affecting China-origin PHEVs.
• Whether Germany continues to become less resistant to Commission-led trade measures.
• The scope of China's use of entity-level export controls and procedural challenges to EU enforcement.
• Chinese auto and battery localisation in Europe and any associated local-content, employment or technology-transfer requirements.