China-EU commercial ties too hard to break despite Ukraine war

China surpassed the United States to become the European Union’s (EU) largest trading partner in 2020-21 thanks to strong demand during the pandemic. Despite EU frustrations with Beijing over its stance on the Ukraine war, trade ties will be hard to break, regardless of attempts by EU policymakers to diversify

Trade between China and the European Union (EU) could see some minor strains over Beijing’s stance on the Ukraine war, but decoupling is unlikely given the entrenched commercial relationship and impracticality of diversifying supply chains.

The EU trade in goods with China was worth €587.9 billion (US$637.2 billion) in 2020 and €695.5 billion in 2021, according to Eurostat, the European Commission’s statistics database. The EU trade in goods with the US was valued at €556.2 billion in 2020 and €631.4 billion in 2021.

Despite booming trade, the EU-China relationship has become strained over the past two years, with a long-negotiated investment deal between the two suspended in May last year.
Russia’s invasion of Ukraine on February 24 has renewed EU frustrations with China, which has voiced support for Moscow and opposed sanctions on the country.

China-EU trade will change in the short term not due to China’s stance on Ukraine. But it will be affected by reasons related to the war, such as railway interruption, technical and logistical issues, as well as energy supply. The Ukraine war will not affect trade “in a significant way”, given China remains a major supplier of manufactured products, such as computers, household appliances and mobile phones.

Markets have seen how China’s economic recovery from the Covid-triggered recession in 2020 and 2021 was largely driven by export growth with China running a record-breaking trade surplus in 2021. If trade in services is taken into account, the US remains by far the most important trade partner of the EU. EU imports from China rose to €472.2 billion last year from €385.1 billion in 2020, widening the bloc’s trade deficit with the country to €248.9 billion.