Published on Jan 23, 2026 • Updated on Sep 18, 2026
This article was written by Adem Tumerkan
Content Editor, Dunham | 2025 ThinkAdvisor Luminary Award Winner | 2026 Wealthies Finalist — Thought Leader of the Year | Macroeconomics, markets, geopolitics & global trends
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The world is watching Washington and Beijing trade blows again.
You know the kind I’m talking about - tariffs, export controls, and threats. All the familiar noise.
Because of this, the next day, President Trump threatened a 100% tariff on all Chinese goods.
But while everyone braces for another round of U.S.–China dog fighting - a different front is forming - one that’s been building under the radar.
I’m talking about China vs. the European Union (E.U.).
It’s a trade war most aren’t watching yet - but it looks like it’s coming. And it could be bigger than many realize.
To understand how Europe got dragged into this, you have to see it for what it is - collateral damage from the U.S.–China trade war.
Long story short, the U.S. is trying to rebalance its trade relationship with China - and, by extension, the rest of the world - after running persistent trade deficits for more than two decades. Washington blames Beijing or unfair trade practices like currency manipulation (keeping the yuan weak to make exports cheaper), heavy subsidies, and dumping goods that have gutted U.S. manufacturing and capped American exports.
In truth, both sides want to export more and import less. But the math can’t work that way (for someone to sell more, someone must buy more).
Thus, neither side wants to give an inch - because doing so would negatively affect their economies.
There’s no easy win here. But the trade war results are already showing.
For instance. U.S. imports from China have fallen roughly 30% year over year in September - marking the sixth straight month of double-digit declines after a 33% drop in August.
So, where does Europe fit into all this?
Well, as I mentioned above, China isn’t going to sit back and watch its economy slow.
So, the goods it’s losing in the U.S. are now heading to Europe - flooding E.U. markets and forcing Brussels to absorb the imbalance (basically creating the same dynamic that irritated the U.S.).
To put this into context, Chinese exports to the E.U. rose more than 14% in September - the largest jump in over three years - while shipments to the ten-nation Southeast Asian trading bloc (aka ASEAN) climbed nearly 16%2.In short, China’s exports haven’t slowed down (they’ve actually risen). It’s just that they’ve been rerouted to Europe and other nations.
The frustration in Brussels isn’t just about cheap electric cars competing with their own global auto output.
It’s about something bigger - a flood of Chinese goods revamping Europe’s industrial core.
For years, Europe saw China as a growth engine. German automakers, French luxury brands, and machinery exporters all leaned on Chinese demand to fuel profits.
But that equation has flipped.
Now, China is exporting its economic slowdown. Factories built to feed an endless domestic boom are now producing far more than China can consume - and those excess goods are being dumped abroad.
And this flood of Chinese exports has upset the E.U. economy – for instance:
Europe now sees the same pattern the U.S. did - state-sponsored capitalism dressed as free trade.
That’s why the European Commission has launched waves of investigations - from anti-subsidy probes on Chinese EVs to new carbon border taxes aimed at leveling the playing field.
Still, for all the frustration, Europe’s hands are tied. It depends on China for more than it wants to admit - batteries, rare earths, pharmaceuticals, and components critical to its green transition.
And that’s the paradox - Europe needs China’s supply chain to build the very industries China is taking over.
Clearly, the E.U. doesn’t want to keep absorbing all these Chinese imports – specifically electric vehicles (since Germany is a massive auto producer, it doesn’t want competition).
But that’s not the only problem.
China is buying less from Europe - hurting European firms that once depended on Chinese demand.
Because of this, the E.U.’s trade deficit with China has ballooned past €300 billion and - at the current pace - is on track to hit a record high in 2025.
It’s gotten serious enough that back in July, European Commission President Ursula von der Leyen publicly accused Beijing of “flooding global markets with cheap, subsidized goods," warning that entire Western industries are bending under the pressure.
She further told the European parliament that, “If our partnership [with China] is to move forward, we need a genuine rebalancing: fewer market distortions, less overcapacity exported from China, and fair, reciprocal access for European businesses in China.”
Meanwhile, E.U. and Chinese leaders met in Beijing shortly after she said this to try and cool tensions. But with how wide apart they are on trade, the summit produced little.
If this all sounds familiar, it should. Because the U.S. did and said the same things before its trade war erupted.
Well, it’s been months later, and China still hasn’t given Europe a single inch. If anything, they took another foot (as I detailed above with the exports to E.U. hitting a three-year high).
Now, of course, just like any trade war – it’s not one-sided.
Just as the E.U. is now mounting a defense against China – China isn’t sitting still.
China’s message is the same one it’s sending Washington - if you throw a punch, expect one back.
But so far, Beijing’s hits have been light – more like jabs than haymakers.
It knows it can’t afford a two-front trade war with its two biggest customers, the U.S. and the E.U.
Put simply, it can’t export its way out of a slowdown if both markets shut it out.
This isn’t a smaller economy like Turkey or Brazil that can ramp up exports and the world barely notices - because there’s room for that to be absorbed.
But when China does it, it’s too big for the system to handle. It floods global markets without truly fixing its own slowdown.
Think of it like this. A sink can handle a glass of water, but not a firehose.
I believe the most important thing to watch now is trade flows. They move geopolitics, currencies, and markets long before the headlines do.
For decades, China relied on the U.S. as its main export hub. That relationship is broken.
Now, by flooding Europe with goods, Beijing risks repeating the same mistake — and igniting another trade war.
The problem is, China doesn’t have many options.
Until its domestic economy stabilizes and consumption recovers, it needs global demand to keep factories open.
Without it, Beijing faces layoffs, bankruptcies, deflation, and unrest.
But the E.U. can’t save China without sacrificing itself.
Europe’s leaders won’t hollow out their manufacturing base just to keep Beijing’s afloat.
And that’s the divide.
So who’s better off - the buyer with more demand (Europe) or the seller with excess supply (China)?
Well, history suggests it’s the surplus economies, not the deficit ones, that suffer most when trade contracts.
That’s why, when trade dries up, it’s the sellers - not the buyers - who feel the real pain. And this is what China is worried about.
But regardless, no one truly wins a trade war. They’re a race to the bottom - retaliation meets retaliation until both sides bleed market share.
We’ve seen this before. In the 1930s, tit-for-tat tariffs didn’t fix the global economy - they only amplified the Great Depression.
So while the media replays the U.S.–China feud, keep an eye on the next front - China vs. Europe.
Because all it takes is one spark - one tariff, one retaliation - to turn this ignored tension into a full-blown confrontation.
But as always, just some food for thought.
The numbers have only gotten worse. The EU's trade deficit with China closed 2025 at a record €359.9 billion — up from the €300 billion figure cited when this piece was first published. In the first four months of 2026 alone, Beijing ran a $113 billion surplus with the EU-27, up $22 billion year-over-year. The EU doubled steel tariffs and approved new import quotas in April. China hit back with dairy levies of up to 42.7%. The European Commission has also signaled it will introduce additional tools by September 2026 to protect EU industry from unfair trade policies Euronews — a sign Brussels is done being patient. The two-front thesis is playing out exactly as outlined.
Why can't China afford a two-front trade war with the U.S. and the EU? China depends on export revenue to offset weak domestic consumption after its housing bust. Fighting the U.S. and EU at the same time would close off both of its largest markets simultaneously, leaving no outlet to absorb its manufacturing overcapacity. That's why Beijing's retaliation against Europe has stayed limited to targeted tariffs rather than a full trade break.
What is the "sink versus firehose" problem with China's export overcapacity? Smaller export economies like Turkey or Brazil can ramp up shipments without disrupting global markets, since the world can absorb the extra volume. China's economy is too large for that. When Beijing redirects its excess manufacturing abroad, it floods entire industries at once rather than adding a manageable trickle.
How many European companies say doing business in China has gotten harder? A May 2026 survey by the European Chamber of Commerce in China found that 73% of member companies said doing business there is becoming harder year over year, with business confidence now at its lowest point on record, reflecting deepening frustration with market access and state-subsidized competition.
Is the EU-China trade war following the same path as the U.S.-China trade war? Largely yes, but delayed. The EU is now imposing EV, steel, and solar tariffs the U.S. rolled out years earlier, and facing the same Chinese retaliation playbook: agricultural tariffs, procurement bans, and WTO complaints. The main difference is timing. Brussels is fighting a fight Washington already started.
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