The EU is experiencing a prolonged “China shock” as a flood of Chinese EVs into Europe helped push Beijing to a record surplus with the bloc.
New data showed China’s trade surplus – where its exports to the EU exceeded imports from the bloc – was $83bn (£61bn) in the first three months of 2026.
China sold goods worth about $148bn to the EU in the first quarter, but imported just $65bn from the bloc, according to analysis of 2026 customs data by Mercator Institute for China Studies (Merics). The surplus for the whole of 2025 stood at €360bn.
The record was driven in part by Europeans’ apparent unstoppable appetite for Chinese cars, including BYD which has declared it wants to become the world’s biggest automaker.
Sales of Chinese electric and hybrid cars almost doubled from $11bn (£8.1bn) in the first three months of 2025 to $20.6bn for the same period this year. This accounted for a third of the value of all Chinese EV exports.
When the UK, Norway and Switzerland are included, Europe accounts for 42% of Chinese sales of EVs, which have seen a 50% surge in March in the wake of the Iran war.
Merics, which crunched the numbers along with Chinese trade site Soapbox, said China’s economy had so far shown resilience in the face of the Iran war with the “largest quarterly growth figures … since 2022”.
Soapbox figures released last week showed that exports from the EU to China fell 16.2% in February, with pork shipments notably in decline.
Although China imports a lot of its oil from the Gulf – where traffic through the crucial strait of Hormuz has ground to a near standstill – it has been less impacted than other Asian countries and has been able to tap into substantial reserves.
“So far, China’s trade with the world has been barely affected by the conflict in the Middle East,” Merics said.
In February, the thinktank Bruegel said the EU was “experiencing a severe and accelerating ‘China shock’” with Xi Jinping’s new five-year plan showing no signs of change in export policy in Beijing.
The bloc has proposed a “Made in Europe” industrial strategy in an attempt to protect “strategic sectors” of European industry. China has warned the EU it will retaliate with “countermeasures” if the new laws discriminate unfairly against Chinese exports to the bloc.
Its ministry of commerce said the EU Industrial Accelerator Act would result in discrimination that “runs counter to basic market economy principles such as commercial voluntariness and fair competition”. The UK has also complained it discriminates against British car exports.
A spokesperson for the European Commission said the proposed legislation complied with World Trade Organization rules and China benefited from access to “one of the most open markets in the world” and it expected the “openness to be mutual”.
The commission’s deputy chief spokesperson, Olof Gill, said policy proposals “are carefully calibrated to achieve certain economic and wider goals for our citizens, for our businesses” and it was “happy to engage” with China on any issue.
Over the last three years the EU has deployed a “good cop, bad cop strategy” with Beijing, with EU leaders courting investment but at the same time arguing for a rebalancing or “derisking” of the trade relationship.
In February, the German chancellor, Friedrich Merz, said the yawning trade gap was “not healthy” and he wanted to reduce the trade deficit that had “quadrupled” in five years.
Brussels has tried to dampen imports of Chinese cars, imposing tariffs of up to 35% on some brands in 2024.
It has also introduced initiatives to help EU companies reduce reliance on rare earths such as permanent magnets, used in everything from car window locking systems to fridge and washing machine doors.
The new customs data showed that China still accounts for 93% of permanent magnets with import volumes increasing 18% year on year.
There are no rare earth mines in Europe but there are high hopes that LKAB, a state-owned iron ore mine in the Swedish Arctic, could be close to making extraction and processing viable.
Industry leaders have noted how ineffective the EU’s trade measures can be, with the boss of Europe’s first plant producing lithium hydroxide, a key ingredient in car batteries, warning that the EU may as well “be a province of China” due to its reliance on their imports.
