Europe and G7 brace for 'China Shock 2.0' as surge in Chinese exports threatens manufacturing sectors

Jun 15, 2026

Europe and the G7 are confronting a 'China Shock 2.0' as a record $1.2 trillion Chinese trade surplus floods the continent with cheap exports. Redirected by U.S. tariffs, the surge threatens core European industries like autos and machinery. In response, the EU is considering new tariffs and other protectionist measures, with the issue topping the agenda at the G7 summit in France.

China export surge to Europe

▪China's global trade surplus reached a record $1.2 trillion in the previous year.
▪U.S. tariffs have redirected Chinese exports toward more open markets like Europe rather than reducing them.
▪China's share of global goods exports has risen from approximately 4% in 2000 to 16%.
▪In 2025, for the first time, all European Union member states had a trade deficit with China.

Chinese industrial overcapacity

▪Beijing has historically relied on foreign markets to absorb its excess industrial capacity.
▪The G7 priorities document refers to "non-market policies and practices" that distort trade, interpreted as a reference to Chinese overcapacity.
▪Chinese government policies encourage manufacturing expansion while suppressing domestic consumption, resulting in excess production for export.

Impact on European manufacturing

▪The surge in Chinese exports threatens Europe's core industries, including autos, chemicals, and machinery.
▪European Commission President Ursula von der Leyen called the trade imbalance with China "a force [that is] not sustainable."
▪French President Emmanuel Macron stated that Chinese exports are "literally killing a large part of the European industry."
▪Germany's economy, Europe's largest, has been particularly affected by Chinese competition in sectors like automobiles and industrial machinery.

G7 trade policy responses

▪European leaders hope to persuade the U.S. to work with allies to counter China instead of targeting them with tariffs.
▪G7 leaders expressed concern that "global imbalances have been persistent and widened in recent years," a reference seen as targeting China.
▪France, as the G7 president, has made "global economic and financial imbalances" a central part of the summit's agenda.

EU tariff measures

▪The European Union is considering imposing harsher tariffs and other import restrictions on Chinese goods.
▪The EU applies relatively low tariffs on most Chinese goods under WTO rules, but has duties up to 35% on specific products like electric vehicles.
▪EU policymakers are developing an "overcapacity" instrument to target sectors flooded with subsidized imports.

Comparison with first China Shock

▪Research indicates the first China Shock contributed to the loss of approximately 2.4 million American manufacturing jobs.
▪The first "China Shock" in the 2000s followed China's entry into the WTO and primarily affected low-tech industries like textiles and furniture.
▪The current "China Shock 2.0" is distinct because it targets high-tech, high-value industries such as electric vehicles, advanced machinery, and robotics.