In late September, China's Ministry of Commerce warned that Beijing would firmly respond if the European Union introduced new trade restrictions against Chinese companies or products. Less than two weeks later, the two sides moved to ease tension. On October 9, following two days of talks in Beijing, the EU trade commissioner Maroš Šefčovič announced an interim trade deal with China. The agreement reduces immediate tensions, but it does not resolve the dispute. The deal still requires the approval of EU leaders, who are weighing whether it goes far enough.
The dispute centres on a persistent trade imbalance. The EU's goods trade deficit with China reached about €360 billion last year, equivalent to roughly €1 billion a day. All 27 EU member states now record a deficit with China. Brussels argues that this imbalance results from uneven competition. It points to Chinese state subsidies that have expanded production capacity well beyond domestic demand. Particularly in electric vehicles, batteries and steel. China exports the surplus at low prices, putting significant pressure on European manufacturers.
European companies also report barriers in the Chinese market, including restricted access to public contracts and limits on food and agricultural exports. In addition, Beijing tightened export controls on rare earth minerals in 2025. These minerals are essential for cars, electronics, and defense equipment, and the measures exposed Europe's heavy reliance on China's supply.
Moreover, the EU has addressed trade disputes with China on a case-by-case basis. It investigates a specific industry, establishes harm, and then imposes duties. Through this process, it introduced tariffs up to 35.3% on Chinese electric vehicles in 2024. German carmakers, facing growing competition from China, have described the process as too slow. And in early October, France and Germany backed a new instrument similar to Section 301 of US trade law, which Washington used to launch its trade war against China in 2018. The instrument would allow the European Commission to respond to trade pressure within days and across multiple sectors.
China's Ministry of Commerce had already described the proposal as protectionist and unilateral. It warned that applying pressure during negotiations would seriously undermine mutual trust. Tensions rose further in the days before the talks. On October 3rd, China launched an anti-dumping investigation into a European chemical used in dyes and medicine. Shortly afterward, Germany blocked the sale of a Hamburg port logistics company to Cosco, the Chinese state-owned shipping group and citing security concerns.
According to EU Trade Commissioner, the deal could reduce Chinese imports of electric and plug-in hybrid vehicles to the EU by up to half of projected levels. China also agreed to work towards lower tariffs on several European products, including car parts, olive oil and footwear. These account for almost €4 billion in current exports. In addition, Beijing said it would continue fast-tracking export licences for rare earths and permanent magnets.
However, the outcome remains limited relative to the scale of the problem: tariff reductions covering €4 billion of exports have little effect on a €360 billion deficit. China's commerce minister also maintained that China is not the root of Europe's economic problem, indicating that the two sides continue to disagree over the causes of the imbalance.
Europe faces pressure from two directions: a United States that has raised tariffs on its allies, and rising volumes of Chinese imports. EU member states have often been divided on China policy, but these divisions are narrowing. Germany now supports tougher trade tools alongside France.
On the other hand, China depends on the European market. With US tariffs still high, the EU remains one of its most important export destinations. The two sides traded about €880 billion in goods and services last year. This mutual dependence explains why both continue to negotiate.
The dispute carries direct implications for the Gulf states. China is the GCC's largest trading partner. While the EU remains a key partner in trade, investment and technology. The UAE has been negotiating a free trade agreement with the EU while expanding its economic ties with Beijing.
A trade war between Europe and China would present both risks and opportunities. If Europe restricts Chinese goods, they could be redirected to the Gulf market, increasing competition for local industries. At the same time, both China and Europe will likely seek reliable partners to diversify their supply chains, which could reinforce the Gulf's role as a trade and logistics hub.
The Beijing deal buys time, but it leaves the central issues of subsidies, overcapacity, and market access unresolved. If Chinese exports continue to rise, pressure for Europe's new trade instrument will return, and China has already pledged to respond. For Gulf states, the most effective approach is balance. Maintain strong relations with both sides, closely monitor shifts and trade flows, and position themselves as stable partners in an increasingly divided global economy.
