European Union’s trade measures could impact 27% of China’s exports, Goldman Sachs warns

Goldman Sachs estimates that the EU’s emerging trade measures against China could affect roughly 27% of China’s annual exports to the bloc, a figure that underscores just how much economic firepower Brussels is willing to consider as its trade deficit balloons.

The investment bank’s July 2 analysis paints a picture of a European Union that’s increasingly uncomfortable watching Chinese goods flood its markets. China’s exports to the EU climbed approximately 16% during the first five months of 2026, and the goods trade deficit with China widened to €98 billion in Q1 2026, the highest level since Q3 2022.

A scalpel, not a sledgehammer

The EU is not about to go full Washington. Goldman Sachs views blanket tariffs, the kind the US has embraced, as unlikely for one straightforward reason: Europe depends heavily on Chinese critical materials, particularly rare earths that underpin everything from electric vehicle batteries to wind turbines.

Instead, the firm expects Brussels to deploy a more surgical approach, targeting specific sectors where Chinese goods are most visibly displacing European producers. Steel, machinery, and basic chemicals sit at the top of that list.

EU leaders opened the door to these measures during mid-June 2026 debates, where the growing trade deficit and its corrosive effects on European industrial competitiveness dominated the conversation.

Why the deficit matters more than the headline number

The 16% surge in Chinese exports during the first five months of 2026 tells a story of trade diversion. As US tariffs have made the American market more expensive for Chinese exporters, many have redirected goods toward Europe. European producers, particularly in sectors with thin margins like steel and basic chemicals, are absorbing the impact.

The EU’s trade deficit with China had been gradually narrowing after peaking in late 2022, when energy prices and post-pandemic supply chain disruptions distorted trade flows. The return to those Q3 2022 levels suggests a structural shift rather than a temporary blip.

The sectors Goldman identified as most vulnerable are not random. Steel has been a perennial flashpoint in global trade disputes, with overcapacity in Chinese production a complaint stretching back more than a decade. Machinery represents a higher-value segment where Chinese competitiveness has grown significantly. Basic chemicals, meanwhile, is a sector where scale advantages and lower energy costs give Chinese producers a significant edge.

What investors and markets should watch

Germany, with its deep export ties to China, has historically acted as a brake on aggressive trade measures. France and southern European economies, which compete more directly with Chinese manufacturing, tend to push harder.

China has shown in past disputes that it is willing to restrict exports of critical minerals when it feels targeted, a card that gives European policymakers genuine pause.

Anti-dumping duties on specific product categories are the most likely near-term tool, followed potentially by safeguard measures or quotas.

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