The EU’s Uphill Climb
Days after European Trade Commissioner Maroš Šefčovič met with Chinese officials in an effort to reduce Chinese exports to the world’s biggest trading block, China published statistics for September that illustrate the uphill climb faced by Mr. Šefčovič.
In September, Chinese exports to the EU increased 25% year-on-year to $60.2 billion on the back of heavy sales of electric cars, machinery and chemicals, while imports rose only 1% to $25.4 billion. The EU’s trade deficit with China last year was $424 billion, and this year, it’s on pace to approach half-a-trillion dollars.
European officials do not share the current U.S. obsession with eliminating all trade deficits, but even for economists schooled in comparative advantage orthodoxy, that’s a lot of deficit to swallow. They would like to “rebalance.”
That’s why Mr. Šefčovič negotiated a three-part agreement with China, including Chinese tariff cuts on EU goods worth over $4.5 billion a year, including olive oil, car parts, and ice cream; supplies of critical minerals to the EU; and a cap of 350,000 hybrid electric vehicles shipped to Europe a year.
A Burst AI Bubble Would Hurt China
Total Chinese exports increased 36% in September to $447.2 billion, while imports escalated 31% to $313.7 billion. China’s trade numbers continue to be goosed by trade in goods related to artificial intelligence– and rising prices. The World Trade Organization last week said global trade in the first half of 2026 had increased 3.5% by volume, but 15% by value.
The AI boom is striking. Trade in AI-related goods now makes up around 15% of global trade, up from 8% in 2024, according to the WTO, which now forecast a robust 3.9% growth in global trade for 2026. It warns that number is vulnerable to a shrinking in AI-related investment, and prices retrenching.
Chinese exports of integrated circuits boomed up 137% in September to $44.9 billion, while sales of all high-tech goods rose 64% to $147 billion. Shipments of automatic data processing machines increased 93% to $35 billion.
The supply chain runs both ways. Imports of high-tech goods into China rose 64% to $130.7 billion. Imports of integrated circuits escalated 75% by value to $71.7 billon. In a striking illustration of how inflation is distorting trade numbers, by volume, they rose 1.7% to 56.5 billion pieces.
AI-related trade is especially strong within Asia. Exports to ASEAN nations rose 53% to $81.7 billion. Imports from those Asian neighbors increased 35% to $49.7 billion. That’s why the U.S. now constitutes only around 10% of China’s export mix, compared to around 20% for much of this century.
“A slowdown in the global AI investment cycle could pose a greater threat to China’s export growth than trade restrictions imposed by other countries,” economist Max Zenglein, of The Conference Board told the Associated Press.
China’s total trade surplus increased to $133.5 billion, up from $119.1 billion in August. China’s trade surplus for the year is expected to be well over a trillion dollars.
A Brussels Puzzle
We’re in Brussels this week, and we’re hearing a lot of talk about how the EU might go about reducing the avalanche of Chinese imports. There is concern that the U.S. establishing protectionist barriers is diverting trade to the EU.
However, the trend is correlation more than causation. The driving factor, as the European Central Bank said earlier this year, is what’s happening to the Chinese economy as Beijing attempts to meet a 4.5% to 5% GPD growth target: weak domestic demand and a sleepy real estate market, state-led investment into high-tech industrial manufacturing, and a export-driven trade policy.
In addition, the EU is simply a great market for companies around the world, especially in the high-tech space. EU imports from Taiwan, for example, are up 53%. From Vietnam, they are up 32%, and from Brazil, 29%.
Plugging Cars
Under the deal negotiated by Mr. Šefčovič, China will cap its shipments of electric and hybrid vehicles to 350,000 a year. In the first seven months of 2026, EU imports of hybrid vehicles rose 172% to 379,248, putting it on pace to purchase around 650,000 for the year.
Total EU car imports are expected to top $50 billion for the year. By comparison, the biggest U.S. year for purchasing Chinese automotive goods was 2022, when it imported $17.6 billion worth, and more than half of that was auto parts, not complete cars. Overall, Chinese exports of motor vehicles increased 56% year-on-year to 1.2 million, worth $20.8 billion, while imports fell.
European officials would like to gain more tools to fight trade battles. They see how Washington and Beijing are now operating under a trade truce that appears to have staying power. In September, trade between the two countries continued its recovery. Exports to the U.S. rose 40% year-on-year to $47.9 billion. Imports from the U.S. jumped 21% to $13.9 billion.
Sweet Russian Gas
The EU lacks the unitary authority of a U.S. president, but it can still muster alliances, and its most famous ex-member is not faring any better. China’s imports from the UK fell 3.1% to $1.8 billion. (Chinese exports to the UK rose 29% to $9.9 billion.)
But in a world that is increasingly transactional, for now, like the U.S. it needs China more than vice versa. China is the one with more cards to play. For example, it continues to forge a closer trading relationship with Russia. In September, China increased overall natural gas imports 91% to 10.9 million tons and reduced crude petroleum purchases 21% to 37.1 million tons. Russia is China’s top energy supplier, and in September China increased imports from Russia 41% to $15.7 billion.