China and the European Union have reached a broad initial agreement to ease escalating trade tensions, with the deal including lower tariffs for some European goods to China as well as measures to stabilize rare earth supply chains. According to Reuters, the agreement could cut up to 50% of Chinese electric and plug-in hybrid vehicle imports to the EU and could lower tariffs on products benefitting 'almost every' EU nation. The deal, described as a 'shared understanding' by European Trade Commissioner Maros Sefcovic, would moderate China's export of hybrids and plug-in hybrids to the EU and would cut the imports of several million cars over four years. The agreement requires agreement from leaders across the 27-nation EU and comes after two days of talks between top trade envoys in Beijing.
China's exports surged 36.3% in September from a year earlier, significantly accelerating from the 25% growth in August, according to the country's customs agency. The strong export performance was better than what economists had expected, with high-tech goods such as semiconductors and automobiles helping fuel the rising shipments overseas. Imports climbed 31% in September year-on-year, also accelerating from August's 28.2% rise. This resulted in a $133.5 billion trade surplus for China last month, widening from $119.1 billion in August. The latest data underscores the urgency behind the trade rebalancing efforts as China's export momentum continues to outpace import growth.
European Trade Commissioner Maros Sefcovic announced the development on Friday after two days of talks with Chinese officials in Beijing, including Commerce Minister Wang Wentao. As reported by Reuters, the understanding marks a potential step towards easing a trade dispute that has strained relations between Beijing and Brussels for years, particularly over China's growing exports of automobiles and other manufactured goods. The talks this week were the culmination of three months of intensive work, with Sefcovic having set an October deadline for meaningful results on trade rebalancing. According to EU's estimates, the difference in projected exports could amount to several million vehicles over four years, with the EU comparing projected exports under the proposed measures with what exports would otherwise have been if existing policies remained unchanged. China wants the agreed outcomes to be implemented as soon as possible, while the EU's proposed arrangements would first need to be submitted to EU leaders for assessment, potentially as early as October 15. If approved, the EU hopes to begin relevant procedures quickly, with the first common understanding expected to be under implementation by the time the two sides meet again in January 2027.
The agreement addresses China's growing trade surplus, which hit 360 billion euros ($410 billion) last year, and seeks to resolve key factors behind the imbalance. According to Reuters, the EU's ballooning trade deficit with China has swelled to more than €1 billion ($1.12 billion) a day. China has been pushing for the EU to stop blocking its imports of advanced computer chipmaking machines, restrictions imposed on national security grounds at Washington's behest. The deal comes as both sides have been imposing or considering curbs on each other's imports, with the EU moving to limit imports of Chinese-made electric vehicles and EV batteries and enacting measures to protect the European steel industry. The Chinese Commerce Ministry had earlier urged the EU to avoid protectionist measures, warning that such moves could backfire.
Shares of European carmakers, which have slid steadily over the past two years due to US tariffs and soaring Chinese exports, broadly gained on the news of the hybrid car deal. The understanding came after discussions between Sefcovic and Chinese officials over three months, and comes after years of disputes between Beijing and Brussels over soaring Chinese exports, such as cars. According to Reuters, the two sides also reached understandings on reducing Chinese import duties on some €4 billion of EU exports, including car parts, olive oil and footwear, and on smoothing China's granting of export licences for rare earths and permanent magnets. The European Automobile Manufacturers' Association has welcomed the outcome, with Sefcovic describing the arrangement as a negotiated solution where China understood the pressures facing Europe's automotive industry and jobs. The two sides have agreed to hold a ministerial-level video conference in January and convene the third meeting of the consultation mechanism in Europe in March.
