EU warns China trade deficit is unsustainable

European Commission President Ursula von der Leyen has warned that the European Union’s trade deficit with China is “unsustainable,” noting that the goods trade imbalance reached €1 billion ($1.15 billion) per day last year. In her State of the Union address, von der Leyen stated that the bloc is experiencing a “second China shock” through deindustrialisation and emphasized that the EU will use all available tools to rebalance the relationship.

The imbalance is driven by concerns over industrial subsidies and manufacturing overcapacity. Beyond trade flows, von der Leyen highlighted the EU’s heavy dependence on China for rare earth elements essential to the electric vehicle, renewable energy, aerospace, and defense sectors.

To mitigate these risks, von der Leyen proposed the creation of a new European Corporation to help the EU secure and stockpile essential raw materials. This initiative would build upon the existing Critical Raw Materials Act, which sets 2030 targets for domestic extraction, processing, and recycling within the Union.