EU’s Curbs Threaten 27% of Chinese Exports to Bloc, Goldman Says

The European Union’s existing and proposed trade measures against China could cover about 27% of its annual nominal exports to the bloc, according to Goldman Sachs Group Inc., showing the stakes involved in the standoff between the two economies.

The range of the EU’s curbs “does not translate directly to export loss, with actual impact contingent on final policy specifics and implementation,” Goldman economists Xinquan Chen and Chelsea Song said in a report Sunday. “Broader restrictions would threaten China’s market-share gains, though cost competitiveness, leverage in critical materials and Europe’s commercial interests should cushion the impact.”

While ties with the US have stabilized after last year’s tariff war, Beijing’s standoff with Brussels is intensifying ahead of an October deadline to address record trade imbalances that EU leaders have increasingly cast as a strategic challenge.

With the bloc absorbing 15% of China’s sales abroad last year and shipments on the rise in recent months, “this has become a growing policy risk for China’s export outlook,” Goldman’s economists said.

Among the EU’s main new proposals are fresh tariffs on plug-in hybrids, according to Goldman. What’s more, an extension of the EU Carbon Border Adjustment Mechanism, or CBAM, “represents a major escalation, with China facing the largest exposure,” the economists said.

Designed to tax cheaper goods produced under weaker environmental rules, the CBAM may be expanded beyond basic steel and aluminum products to include an additional $58 billion of exports, the US bank said. The proposal means electrical and transport equipment, along with machinery, would be primarily at risk, according to Goldman, which estimates the three sectors contributed 4.9 percentage points of China’s 8.5% nominal export growth to the EU last year.

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The threat is likely far off, Goldman said, with the effective implementation expected no earlier than in 2028. “And the actual tax rate on downstream products may represent only a small share of the final export price,” it said.

While warning of a “downside risk” to China’s export outlook from its trade frictions with the EU, Goldman’s economists are relatively sanguine about the dangers ahead.

China’s cost advantages and improvements in product quality “remain a significant buffer,” they said. And with the EU relying on China for more than 90% of its rare earth elements by weight, European officials “have incentives to preserve access to the Chinese market and avoid significant retaliation,” according to Goldman.

“We therefore expect EU policy to become tougher, but to stop short of measures likely to trigger a severe response from Beijing,” the economists said.