China’s slowing economy a greater concern for EU firms than Trump’s trade war

According to the EU Chamber of Commerce in China, China’s economic slowdown is a much bigger concern than the effects of Donald Trump’s trade war.

Adam Dunnett, Secretary General of the EU Chamber of Commerce, told Euractiv that the business outlook for EU companies in China has fallen to its lowest level since the early 2000s due to a “huge overcapacity” in manufactured goods and persistently weak consumer demand.

“The most important issue for our members is the Chinese economy itself,” Dunnett said, pointing to a survey showing that 71% of businesses see the slowdown in Beijing as their biggest challenge.

This unease runs deep. Price wars in China have forced many sectors to cut costs to remain competitive, leading to persistent deflation and declining profitability for both domestic and foreign businesses.

Despite Chinese President Xi Jinping’s efforts to “strongly boost consumption” with monetary and fiscal stimulus, domestic demand and consumption have remained weak.

Highlighting these structural problems, the latest forecast from the International Monetary Fund (IMF) expects the Chinese economy to grow by only 4% this year.

This rate is below Beijing’s 5% target and well below the average annual growth rate of 9% recorded since China opened up to the global economy in the late 1970s.

According to Dunnett, a growing economy once made China’s long-standing regulatory hurdles and “complex” rules manageable, but now they have become much more “painful.”

Trump’s trade war has not entirely disappeared either. Dunnett warned that it poses a “serious” challenge to EU firms’ access to rare earth elements, which are vital for military hardware and high-tech consumer goods, including computers and electric vehicles.

China, which accounts for about 70% of global rare earth mining and 90% of the world’s refining capacity, imposed export restrictions on the minerals shortly after Trump announced in April that he would implement comprehensive “reciprocal tariffs” on US trade partners.

These measures require foreign firms to apply for special export licenses, which can take months to be approved. Despite Ursula von der Leyen’s announcement of an “enhanced supply chain mechanism” at the EU-China summit in July to address rare earth element “bottlenecks,” Dunnett said EU firms are still struggling to obtain the licenses.

“We thought we were moving in the right direction, but some problems arose in August, and in September, we saw a significant increase in the number of companies coming to us. These companies stated that they could not get the approvals they needed and that this was leading to production stoppages,” Dunnett added.

The new export licensing regime has further strained relations between Beijing and Brussels, which were already tense due to China’s close ties with Russia and its global trade surplus, which reached a record €850 billion in 2024.

Von der Leyen also recently cited the export controls as a key reason for the EU to accelerate its “de-risking” efforts from its second-largest trading partner.

Trump, for his part, has pressured the bloc to impose 100% tariffs on Beijing for its refusal to compel Moscow to end the war in Ukraine.

Dunnett acknowledged that the EU is “under great pressure from the US” in its relations with Beijing but stressed that “de-risking from China is not the same as de-prioritizing China, not doing business with China, or giving less importance to China.”

However, he noted that the growing tension between the EU and China has made the business environment for European companies increasingly unstable.

To emphasize this point, he cited Brussels’ imposition of tariffs of up to 45% on Chinese electric vehicles last year and Beijing’s retaliation against EU pork and dairy producers.

“What has changed in the last year? The Chinese economy comes first. But predictability comes second,” Dunnett continued:

“You think you are safe in one sector, and suddenly, some kind of political disagreement arises that you think has nothing to do with you, and suddenly you are affected as a result.”