Making concessions

The EU and China have “reached an understanding” that will see a halving of Chinese hybrid car exports to Europe, according to officials who have just wrapped up talks in Beijing aimed at calming an escalation in trade tensions between the two sides.

The core of this dispute is China’s massive trade surplus with the EU, reaching €360 billion ($405 billion) in 2025, more than double 2020 figures. Of particular concern to Brussels is the huge number of hybrid and electric vehicles China has been exporting to European markets. Agreeing to cut the number of cars in half may appear a positive, but from the perspective of European car makers, it could mean that their potential customers may still be enticed away by these more affordable but still high-tech cars—often heavily backed by subsidies. 

China’s trade surplus is not only a problem for the EU, but much of the world is feeling the effects of the huge imbalance as China sells much more than it buys in pretty much all markets. The point of being a member of the WTO was presumably to be part of an interdependent and globally connected world, in which trade it viewed as a win-win for all involved. The question is whether China’s export tsunami is sustainable.