European Economies Face Challenges from China’s Export Surge
European economies are increasingly vulnerable to the growing competition in global trade, especially as China intensifies its export-led recovery. This warning comes from a series of reports by Goldman Sachs, which has revised its growth forecasts for Europe due to this shift.
Giovanni Pierdomenico, an economist at Goldman Sachs, highlighted that the euro area is particularly susceptible to the negative impacts of increased Chinese goods supply. This situation could lead to a widening trade deficit with China and further weaken Europe’s competitive position on the global stage. The bank predicts that stronger Chinese export competition could reduce euro area GDP by approximately 0.5% by the end of 2029.
Germany is expected to be the most affected, with real GDP projected to be about 0.9% lower over the next four years. Italy is anticipated to see a 0.6% decline, while France and Spain may experience around a 0.4% drop each.
The Shift in Market Share
What makes this shift particularly concerning for Europe is the significant substitution between Chinese and European goods in global markets. Over the past five years, eurozone exports have lost up to four percentage points of market share to Chinese exporters in major global markets. For every one-dollar increase in Chinese exports, European exports typically decline by between twenty and thirty cents.
This substitution effect is gradually eroding Europe’s competitive edge. The question remains whether Europe can effectively counter China’s export threat.
Europe’s Initiatives and Limitations
The European Union has launched several initiatives aimed at strengthening economic resilience, such as the Critical Raw Materials Act and the AI Continent Action Plan. However, Goldman Sachs is skeptical about the effectiveness of these measures. Filippo Taddei, an analyst at the bank, argues that Europe’s ability to respond is constrained by its own vulnerabilities.
Goldman Sachs notes that Europe’s options are limited by its reliance on China for essential inputs. Analysts caution that while targeted actions against Chinese products are possible, broader initiatives to limit Chinese supply in European markets must be weighed against Europe’s dependence on critical raw materials from China.
Despite these programs, the EU continues to face structural dependence on foreign suppliers. The bank also warns that available funding remains insufficient relative to the stated ambitions, raising doubts about the EU’s capacity to restore its export competitiveness against China.
Balancing Response and Risks
A too-timid response from Brussels could accelerate the erosion of Europe’s industrial base, as Chinese firms expand their grip on global markets. On the other hand, an overly aggressive stance, such as sweeping tariffs or broad import restrictions, could backfire by disrupting supply chains on which Europe remains heavily dependent.
A Test of Industrial Resolve
Goldman Sachs emphasizes that defense is the only major policy area where Europe has invested substantial resources. The Readiness 2030 programme (ReArm Europe), supported by €150 billion in loans through the Security Action for Europe scheme, stands in stark contrast to other initiatives that remain underfunded or slow to gain traction.
Even within defense, Europe is not entirely self-reliant. Its defense ambitions still depend heavily on Chinese supplies of critical raw materials, including rare earth elements used in weapons systems, drones, sensors, and advanced electronics.
Final Thoughts
In conclusion, the message from Goldman Sachs analysts is clear: Without a more unified and assertive industrial strategy, Europe risks losing ground in sectors it once dominated. While the economists do not call for protectionism, they leave policymakers with urgent questions. Can Europe achieve the industrial sovereignty it seeks? And how long can it rely on fiscal support and consumer resilience to shield itself from intensifying global headwinds?