EU-China Relations in 2026: What to Watch

After a turbulent 2025 marked by trade frictions and rare earth disruptions, EU-China relations enter 2026 in a phase of cautious engagement rather than reset. Diplomatic channels have reopened and trade flows remain broadly resilient, providing a degree of stability for businesses. At the same time, structural imbalances, regulatory differences, and economic security considerations continue to shape the relationship and will remain key variables for EU-China ties in 2026.

After a volatile 2025 in which expectations of an EU-China reset briefly rose and then collapsed, relations entering 2026 are defined less by renewed trust than by an effort to avoid further disruption. The rare earth export restrictions imposed by China in the second half of 2025 left a lasting mark on European policymakers, reinforcing the sense that the relationship has entered a “do no harm” phase: that is, one in which engagement continues, but escalation is carefully avoided.

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This cautious posture is unfolding against a more unsettled transatlantic backdrop. US President Donald Trump’s return to office has injected renewed uncertainty into Europe’s external environment, pushing several European leaders to seek diplomatic and commercial reassurance in Beijing. Yet beneath the flurry of high-level visits, the structural issues that have driven EU-China tensions over recent years remain firmly in place.

These include widening trade imbalances, persistent concerns over industrial overcapacity, growing unease over economic coercion risks, and China’s continued alignment with Russia. As 2026 begins, the central question is not whether EU-China relations will stabilize at the surface (they largely have) but whether this stability can endure as economic security considerations increasingly shape policy choices on both sides.

50 years on: Symbolism without resolution

The year 2026 also follows closely on the 50th anniversary of EU-China diplomatic relations, a milestone that underscored both the depth of economic interdependence and the limits of political convergence. Together, the EU and China account for close to 30 percent of global trade, yet the relationship has become increasingly defined by the EU’s own formulation of China as simultaneously a partner, a competitor, and a systemic rival.

While the anniversary encouraged diplomatic restraint and rhetorical moderation, it did little to resolve the underlying frictions. If anything, it highlighted a paradox that is likely to define 2026: the EU and China remain too economically intertwined for confrontation to be cost-free, but too politically and structurally misaligned for a meaningful reset to take hold.

China’s resilience and Europe’s exposure

To understand the trajectory of EU-China relations in 2026, it is necessary to start with China’s economic position. China enters the year more resilient than many expected after renewed tariff pressure and external headwinds in 2025. However, this resilience has not been cost-free. Sustained industrial output, supported by credit, subsidies, and policy guidance, has reinforced China’s dependence on exports at a time when domestic consumption remains subdued.

For trading partners, including the EU, this has translated into a phenomenon increasingly described as “exported deflation”: compressed prices, intense competition, and rising pressure on domestic industries. China’s trade surplus surpassed the US$1 trillion mark in 2025, and Europe’s share of that imbalance has become politically salient. The concern in Brussels is no longer limited to volume, but increasingly focused on composition, particularly the growing weight of advanced manufactured goods that compete directly with Europe’s own reindustrialization ambitions in clean technology, automotive supply chains, and advanced machinery.

In this sense, Europe is not merely observing China’s resilience; it is absorbing part of its cost.

EU-China trade in 2026: Scale, imbalance, and tightening political constraints

Based on the latest full-year data available, China remains the EU’s second-largest trading partner for goods and its third-largest trading partner overall when goods and services are combined, after the US and the UK. In 2024, bilateral trade in goods reached approximately EUR 732 billion (US$785.8 billion), reflecting the continued depth of economic interdependence between the two economies.

At the same time, the aggregate figures mask a relationship that European policymakers increasingly describe as structurally imbalanced. The EU’s trade deficit in goods with China amounted to EUR 305.8 billion (US$350 billion) in 2024, widening from EUR 297 billion in 2023, though still below the record EUR 397.3 billion (US$468 billion) reached in 2022. In volume terms, the imbalance has continued to deepen: between 2015 and 2024, the EU’s trade deficit with China quadrupled by volume while only doubling in value, underscoring the growing weight of high-volume, low-margin imports.

The composition of trade has become central to the debate. In 2024, manufactured goods accounted for 96.7 percent of EU imports from China, dominated by machinery and vehicles, which made up 55 percent of total imports, followed by other manufactured goods at 34 percent and chemicals at 8 percent. EU exports to China are similarly concentrated in manufactured products, which accounted for 86.9 percent of total exports, led again by machinery and vehicles at 51 percent, chemicals at 17 percent, and other manufactured goods at 20 percent. This overlap has intensified competitive pressure, particularly as the EU seeks to rebuild industrial capacity in sectors that increasingly mirror China’s export strengths.

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While goods trade remains the most politically sensitive dimension of the relationship, services and investment flows provide a more differentiated picture. The EU has long maintained a surplus in services trade with China, which stood at EUR 21.7 billion (US$25.59 billion) in 2024, and China remains the EU’s fourth-largest services trading partner. Investment ties also remain significant in both directions.

The EU’s investment stock in China stood at EUR 232 billion (US$273.64 billion) in 2023, with EU foreign direct investment (FDI) flows reaching EUR 10.1 billion (US$11.91 billion) in 2024, concentrated primarily in the automotive, basic materials, and information and communication technology sectors. Chinese foreign direct investment into the EU rose to EUR 9.4 billion (US$11.08 billion) in 2024, increasingly driven by greenfield projects rather than mergers and acquisitions.

Although comprehensive full-year trade data for 2025 has yet to be released, developments over the past year suggest that the underlying structure of the relationship has remained broadly intact. Trade volumes have proven resilient, but concerns over reciprocity, market access asymmetries, and the spillover effects of China’s industrial policy have moved further to the centre of EU trade policy debates.

For 2026, this combination of scale and imbalance sets clear constraints on policy choices. Trade volumes remain too large, and investment links too embedded, for disengagement to be economically viable. At the same time, the size and composition of the imbalance make political inaction increasingly difficult to sustain, ensuring that trade relations remain a central pressure point in the broader EU-China relationship.

Also read: China’s Import-Export in 2025: Full-Year Data, Trends, and 2026 Outlook

Managing interdependence: Trade talks without a reset

A deep relationship shaped by recurring friction

Trade between China and the European Union has developed over several decades into one of the world’s most consequential economic relationships, spanning manufacturing, agriculture, technology, and consumer goods. This depth reflects genuine interdependence between the two economies, but it has also ensured that periods of economic slowdown or geopolitical tension tend to translate quickly into trade friction.

Historically, EU-China trade relations have oscillated between pragmatic cooperation and cautious rivalry, shaped by divergent regulatory systems, industrial structures, and strategic priorities. These differences have not prevented sustained engagement, but they have consistently limited the scope for durable alignment, particularly during periods of stress.

Recent adjustments and the Brussels channel

The renewed focus on bilateral trade entering 2026 follows a series of targeted policy recalibrations by Chinese authorities affecting select European exports, alongside intensified diplomatic engagement in Brussels. While neither side has framed these developments as concessions, market observers widely interpret them as pragmatic adjustments aimed at stabilizing trade flows in a more fragile global environment.

Brussels has emerged as the focal point for this engagement. Discussions involving EU trade officials, policy advisors, and industry representatives have centred on tariff structures, regulatory transparency, and dispute-resolution mechanisms. Diplomats familiar with the talks describe them as technical and measured, underscoring a shared interest in managing friction rather than redefining the relationship.

Economic pressure, domestic priorities, and regulatory limits

The cautious tone of engagement is shaped in part by economic pressures on both sides. Slowing growth, rising production costs, and shifting consumer demand have increased sensitivity to trade disruptions, prompting policymakers to reassess how existing trade tools are deployed.

From Beijing’s perspective, trade policy adjustments are closely linked to domestic priorities, including employment stability, industrial upgrading, and consumer price management. Measures affecting European imports are therefore best understood as part of a broader effort to balance domestic production with demand for higher-quality foreign goods, rather than as signals of strategic realignment.

At the same time, regulatory divergence remains a structural constraint. Differences in certification standards, environmental requirements, and compliance procedures continue to generate friction even in the absence of tariff changes, limiting the scope for materially smoother trade relations.

Stability without certainty

European industry has responded cautiously. Manufacturers and exporters acknowledge incremental progress but continue to emphasize the need for predictability to support long-term planning and investment. Uncertainty surrounding regulatory treatment, market access, and compliance requirements continues to weigh on decisions related to production capacity, supply chain configuration, and market expansion.

Against a volatile global trade backdrop marked by supply chain realignments and geopolitical uncertainty, both the EU and China appear to view stability as preferable to renewed confrontation. This does not eliminate the risk of escalation, trade remedies, investigations, or political disputes could still alter momentum quickly. For 2026, however, the prevailing approach is one of cautious management: preserving channels, containing disputes, and avoiding decisions that would be difficult to reverse.

De-risking in practice: From principles to enforcement

If previous years were defined by conceptual debates around “de-risking versus decoupling,” 2026 is shaping up to be a year of implementation. The EU’s policy trajectory suggests a move away from new slogans and toward the enforcement of existing tools, particularly in sectors exposed to overcapacity and state support.

This enforcement-driven approach reflects both political reality and institutional constraint. Rather than pursuing sweeping trade restrictions, Brussels is increasingly focused on measures that are legally defensible, procedurally grounded, and compatible with the EU’s broader regulatory framework. These include trade defense actions, subsidy scrutiny, and targeted customs interventions.

A notable example is the decision to introduce a fixed customs duty on low-value parcels from July 1, 2026, aimed at addressing the surge of inexpensive e-commerce imports. While framed as a consumer protection and compliance measure, it also reflects growing concern about the cumulative impact of low-cost imports (many linked to China) on European retailers and manufacturers.

For businesses, the signal is clear: regulatory friction is likely to become more granular, more technical, and more persistent, rather than dramatic or headline-driven.

Carbon Border Adjustment Mechanism: Climate policy meets industrial competition

Another regulatory development likely to shape EU-China trade in 2026 is the implementation and planned expansion of the EU’s Carbon Border Adjustment Mechanism (CBAM). Having entered into force on January 1, 2026, the mechanism applies carbon pricing to imports of steel, aluminium, cement, fertilizers, electricity, and hydrogen, with proposals under consideration to extend its scope from 2028 to downstream steel- and aluminium-intensive goods such as machinery and household appliances.

For China, which remains a dominant supplier of steel, aluminium, and manufactured goods incorporating these materials, CBAM introduces a new layer of compliance and cost exposure. Chinese authorities have criticized the EU’s use of baseline carbon-intensity values and have framed the proposed expansion as carrying protectionist implications. At the same time, the mechanism aligns in part with China’s own industrial decarbonization trajectory, reinforcing pressure on exporters to improve emissions reporting, adopt cleaner production processes, and accelerate green upgrading.

In this sense, CBAM encapsulates the evolving character of EU-China economic engagement: formally grounded in climate objectives, but carrying significant implications for competitiveness, market access, and industrial policy alignment. As implementation progresses, its practical impact will depend less on rhetoric than on how verification standards, default values, and sectoral coverage are operationalized.

Rare earths and critical materials

The rare earth episode of 2025 remains one of the most consequential developments shaping EU-China relations in 2026. China’s ability to impose, expand, and suspend export controls on materials essential to Europe’s digital, defense, and green industries exposed a vulnerability that diversification efforts have yet to resolve.

In response, the EU continues to anchor its long-term strategy in the Critical Raw Materials Act, which aims to diversify imports, support strategic projects, and improve monitoring of supply risks. However, progress has been slow, and recent assessments suggest that Europe’s dependence on external suppliers (particularly China) will persist well into the second half of the decade.

This reality has tempered the EU’s appetite for escalation. Even as policymakers emphasize the need to reduce strategic dependencies, the experience of 2025 has reinforced a preference for stabilization where critical inputs are concerned. For China, meanwhile, rare earths and other critical materials have proven to be effective leverage, tools that can be adjusted without fully severing trade ties.

Global competition and the Global South

Beyond Europe, China’s expanding footprint in the Global South adds another layer of complexity to EU-China relations. China’s deepening engagement in regions such as Latin America and Africa (particularly in critical raw materials) directly intersects with Europe’s own diversification ambitions.

Latin America, for example, is central to the global supply of lithium and copper, materials that are critical to Europe’s energy transition. Chinese firms have secured significant stakes in mining assets across the region, positioning China as both a supplier and an intermediary in value chains the EU is seeking to diversify.

This competitive dynamic complicates Europe’s external strategy, as efforts to reduce dependence on China increasingly run up against China’s growing presence elsewhere.

Geopolitics and the Russia factor

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Geopolitics continues to cast a long shadow over EU-China relations. China’s relationship with Russia remains a central source of tension, particularly as the EU maintains sanctions and monitors circumvention risks linked to the war in Ukraine. For European policymakers, the issue is not only legal compliance but credibility: China’s claim to be a responsible global actor sits uneasily alongside its economic and diplomatic alignment with Russia.

In 2026, this dynamic is unlikely to disappear. Even if diplomatic rhetoric softens, sanctions enforcement and reputational concerns will continue to limit the scope for political rapprochement. For Beijing, managing this balance (maximizing strategic benefits while containing reputational costs) will remain a delicate task.

Impact on European businesses in China

For European companies operating in or with China, the cumulative effect of these trends is an environment defined by uncertainty rather than crisis. China remains a critical market and manufacturing base, but geopolitical risk is increasingly treated as a structural feature of doing business rather than an episodic disruption.

Surveys suggest that while expectations for China’s technological progress (particularly in areas such as AI) remain high, confidence in stable EU-China relations is considerably lower. This divergence has practical implications. Companies are placing greater emphasis on localization, supplier diversification, and regulatory monitoring, particularly in sectors exposed to trade defense actions or critical input constraints.

Rather than exiting China, many firms are recalibrating their exposure, embedding geopolitical risk more explicitly into long-term planning and investment decisions.

Outlook: Stability without convergence

EU-China relations in 2026 are unlikely to deliver either a reset or a rupture. The more plausible outcome is managed competition: continued engagement constrained by economic security logic and geopolitical risk. While diplomatic stability may offer businesses breathing room, the underlying drivers of tension remain close to the surface.

For companies, the implication is clear. Even in periods of relative calm, EU-China relations will continue to shape market access, supply chains, and investment strategies in ways that require sustained attention and careful risk management.

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