Goldman Sachs: The EU's Real Problem Is Losing Market Share to China, Not the Trade Deficit

A French government-commissioned report titled "The Chinese Steamroller" (February 2026) found "an acceleration of Chinese competition" with Chinese players gaining share both in European markets and in third markets where Europe competes, extending into industrial sectors at the "heart of Europe's specialisation" — employment, productivity, and high-value manufacturing .

Goldman's earlier November 2025 modeling estimated that China's upgraded GDP forecasts would imply a 0.6% hit to euro zone real GDP by 2029, while euro zone imports from China would rise by about 0.4 percentage points . Crucially, Goldman noted that any EU response would likely stop short of U.S.-style blanket tariffs, favoring more targeted measures .

Germany's Acute Vulnerability

Germany is the hardest-hit major EU economy. The Centre for European Reform (CER) described this as "China shock 2.0," warning that China has "already eaten much of German industry's lunch and is preparing to start on dinner" .

German car exports to China plunged by roughly one-third in 2025 alone, halving from their 2022 peak, according to the German Economic Institute (IW) . Data from the Rhodium Group shows an even steeper decline of 66% between 2022 and 2025, bringing exports to their lowest level since 2009 . German manufacturers in core industries — cars, machinery, chemicals, aircraft — are being squeezed out of China, out of foreign markets, and increasingly at home . Goldman identified Germany as among the worst-off European countries from China's aggressive export model .

The legacy of "Made in Germany" is fading in China's auto market. Local EV brands now lead on technology and appeal to younger buyers, pushing German brands toward an "for the parents" perception . The market share of German carmakers in China collapsed by 33% on average between 2022 and 2025 .

Political Paralysis in Brussels

The CER notes that the EU has responded with only a "scatter of product-specific trade defences and a piecemeal buy-European industrial policy" — falling well short of a coordinated strategic response . While the European Commission has acknowledged Chinese competition is "becoming acute in industries like clean tech and electric vehicles," its recent competitiveness report offered diagnosis more than decisive action .

Trade Commissioner Maroš Šefčovič said bluntly: "China's exports to the EU keep rising, while our market share in China keeps shrinking. This trend is not sustainable. The status quo is not an option" . Yet internal divisions among member states — particularly between free-trade-oriented northern economies and protectionist-leaning southern ones — have blocked a unified, aggressive response.

China's trade surplus with the EU hit 360.6 billion euros ($411bn) in 2025 — the equivalent of 1 billion euros a day and up 15 percent from the previous year .

Targeted Trade Policy Actions: Steel Quota Cuts

The EU's most concrete policy shift came on June 30, 2026, when it unveiled sweeping new steel import restrictions :

• Tariff-free import quotas slashed to 18.3 million tonnes per year — a 47% reduction compared with 2024 levels .
• Above-quota customs duties doubled from 25% to 50% .
• Half of the reduced quota is reserved for countries with which the EU has free-trade agreements, effectively squeezing China and other non-FTA suppliers .

The measures, taking effect July 1, 2026 and running through July 2031, are explicitly designed to protect EU steel plants and jobs from "the damaging impact of global overcapacity" — overcapacity that overwhelmingly originates in China . The mechanism also introduces "melt and pour" rules designed to prevent Chinese steel from bypassing tariffs through third countries .

The EU also rolled out new e-commerce regulations targeting small parcels, removing a customs duty exemption called 'de minimis' for parcels valued at under 150 euros and imposing a €3 charge on each small parcel entering its territory . This targets another channel through which Chinese exports (via platforms like Temu and Shein) have been flooding the European market .

Summary Assessment

Goldman Sachs's framing — that the EU's core problem is structural market share displacement, not a trade deficit figure — reflects a deeper strategic anxiety. China is no longer just a low-cost assembly platform; it is a direct competitor in the high-value manufacturing sectors Europe depends on for employment and innovation. Germany, with its outsized reliance on autos, machinery, and chemicals, is the canary in the coal mine. The EU's policy response has been piecemeal and politically constrained — targeted steel quota cuts and e-commerce limits rather than a comprehensive industrial strategy — reflecting the difficulty of forging consensus among 27 member states with divergent interests. The risk, as the CER put it, is that by the time Brussels acts decisively, "China may already have eaten dinner" .