EU and China face an October choice: a real trade rebalance or the first shots of a trade war

A German Marshall Fund analysis published on 25 September, signed by former Commission official Gunnar Wiegand, frames the next three weeks as the moment Brussels and Beijing must choose between a substantive trade deal and a slide toward a trade war.

Ursula von der Leyen put the numbers on the table in her State of the Union speech: Europe’s goods deficit with China now runs at €1 billion a day. From €306 billion in 2024 it rose to €360 billion in 2025 and is on course for as much as €400 billion this year. The Commission president called it a tipping point that is already hollowing out industrial heartlands. The Foreign Affairs Council labelled the imbalance a “strategic challenge.” The European Parliament is preparing a similarly hard resolution for 7 October. The decision that matters, however, sits with the European Council on 15–16 October.

That date is no accident. On 29 June Brussels and Beijing launched Trade and Investment Consultations after years of deadlock. Trade Commissioner Maroš Šefčovič and Commerce Minister Wang Wentao are due to meet again in Beijing in the second week of October. Leaders gave the Commission a mandate in June to produce “tangible results” on the deficit and Chinese overcapacity by then. Anything less than a method of rebalancing – concrete first steps across product lines, not a single symbolic concession – will look like a second “Turnberry deal”: trade continues, Chinese commercial interests stay intact, European factories keep losing ground. Hybrid-car exports are one of the few items that could actually swing Council votes.

The alternative is escalation. The EU could activate the Anti-Coercion Instrument for the first time, pairing tariff hikes with quantitative restrictions. China would retaliate by targeting chokepoints. Both sides say they want to avoid that lose-lose outcome. Both also face their own dilemmas. Europe must choose between modest relief from limited Chinese self-restraint and stronger protection that invites pain in return. China must choose between keeping its largest export market open while domestic demand stays weak, or watching the EU close the door and then hitting back.

Chinese export strength is not a mystery. Industrial production is still rising even as consumption stagnates, property investment slumps and urban unemployment ticks up. Subsidies estimated at around 5 percent of GDP, cheap state-bank credit and a savings rate of 45–50 percent of GDP keep factories running for foreign markets. China already accounts for nearly 30 percent of global manufacturing and aims for 35 percent by 2030. European officials privately ask how long partners are expected to absorb that output while their own capacity is replaced. Beijing’s public line remains that Europe is scapegoating China to delay its own reforms.

Member-state interests still diverge. Germany and Czechia feel the pressure most in machinery and transport equipment. China has spent years cultivating those differences. October will test whether the Commission can convert a summer of talks into something the Council can live with – or whether Europe decides that words about a level playing field now require instruments that actually change the numbers.

Caption: Maros Sefcovic, European Commissioner for Trade and Economic Security, Interinstitutional Relations and Transparency, speaks during a press point on EU-China relations in Brussels, Belgium, 29 June 2026, following a meeting with Chinese Commerce Minister Wang Wentao. EPA/OLIVIER MATTHYS