Europe's China Dilemma: A Record Trade Deficit, a New Tech Sovereignty Package, and a Bloc Still Divided on How Hard to Push Back
The numbers make uncomfortable reading in every European capital. In the first quarter of 2026, China recorded its largest-ever trade surplus with the EU — $83 billion, on $148 billion of exports against just $65 billion of imports, according to Beijing's own figures published by the European Council on Foreign Relations. The annual trade deficit has now surpassed €360 billion, according to PIIE analysis, and the trend line is accelerating: EU exports to China fell by 6.5% in 2025 while imports rose by 6.4%, according to Eurostat figures reported by Euronews. The asymmetry has become, in the words of the Peterson Institute for International Economics, simply unsustainable.
Brussels responded on June 3 with the most ambitious assertion of digital self-reliance in the EU's history. The European Commission unveiled a Tech Sovereignty Package that included the Cloud and AI Development Act and an updated Chips Act, with a stated ambition to triple EU data centre capacity within five to seven years, as reported by EY's Geostrategic Analysis. The initiative was framed in explicitly geopolitical terms by Commission Executive Vice-President Henna Virkkunen, who said that when technology becomes a tool of power, dependence becomes a vulnerability, and pledged to ensure that no cloud provider of critical workloads held what she called a kill switch over European digital infrastructure. The proposals, which must be approved by all 27 member states, would also push homegrown AI and restrict non-European firms from certain sensitive sectors.
Yet the EU's structural vulnerabilities are stark enough to make the ambition feel urgent. The bloc relies on non-European products for approximately 80% of its technology needs, according to figures published by Courthouse News Service. Chinese firms control over 80% of global solar photovoltaic manufacturing capacity, according to a Geopolitical Intelligence Services report cited by Euronews, and the European Commission's own data puts EU reliance on Beijing for magnesium — essential for next-generation batteries and hydrogen storage — at 97%. The European Council on Foreign Relations noted that from major legislative proposals such as the Industrial Accelerator Act to revisions of the Cybersecurity Act, the EU has made a series of moves in which China, though often unnamed, is the main target — an approach officials have characterised internally as say less, do more.
The political challenge is that European unity on China remains elusive. EU leaders gathered in Brussels in June to discuss how to resolve the widening trade deficit, but as the Japan Times reported, they deliberately avoided naming China in their joint conclusions, instead directing the European Commission to develop additional trade-defence tools. German Chancellor Friedrich Merz, whose country remains China's most important European trading partner, told the Bundestag that Europe cannot stand idly by as others shirk global rules, yet declined to name Beijing directly. Spain's Prime Minister Pedro Sánchez, who visited China in April, urged the bloc to reach out to potential partners rather than escalate confrontation. The Peterson Institute noted that EU dealings with China have been marked by lack of unity and conflicting messages — a damaging dynamic as Beijing faces the prospect of Xi Jinping's proposed September visit to Donald Trump.
The EU's strategic dilemma is ultimately one of timing and leverage. Brussels is simultaneously pursuing an ambitious programme of trade diversification — the EU-Mercosur accord entered into force on May 1, and agreements with India, Indonesia, Mexico, and Australia have been concluded and await signature, according to PIIE — while trying to harden its position against Chinese industrial overcapacity without triggering retaliation that could cut off access to the very raw materials and technologies it depends on. The US tech industry has already denounced the Tech Sovereignty Package as discriminatory and protectionist. Whether the European Commission can build the political consensus among 27 governments to implement its most assertive measures, at a moment when transatlantic trade relations remain brittle and the Middle East conflict continues to disrupt global supply chains, will be the defining test of European strategic autonomy in the second half of 2026.