EU pivots trade ties to Asia in the face of U.S. protectionism
As transatlantic commerce ruptures, the EU is reassessing its strategic and economic priorities with the U.S. and leaning toward China and India.
In a nutshell
- U.S. trade protectionism has gone into overdrive
- The EU is preparing for a multipolar world trading order
- Europe will still need to tackle significant challenges
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United States President Donald Trump has repeatedly claimed the European Union has treated the U.S. unfairly and has “taken advantage” of it.
Since 2014, bilateral trade between the EU and the U.S. has practically doubled. According to the European Commission, it reached 1 trillion euros for the first time in 2024.
While trade flows have risen, the trade balance in favor of the EU has ballooned. Last year, the bloc exported 532 billion euros to the U.S., substantially up from 375 billion euros in 2014. It imported 334 billion euros worth of goods and services, reflecting a smaller rise from 254 billion euros 10 years ago.
The result has been a sharply rising American trade deficit with the EU of 198 billion euros in 2024, fueling the fire of President Trump’s accusations about the bloc.
To address America’s rising trade imbalance with the EU, Mr. Trump has introduced a series of punitive protectionist measures. On March 12, 2025, the U.S. imposed 25 percent tariffs on steel and aluminum imports from the EU. The following day, a 200 percent tariff on alcohol imports from the EU was threatened but not enforced.
On April 2, 2025, referred to as “Liberation Day” by Mr. Trump to mark the reduction of American reliance on a broad range of imported goods, the president introduced a so-called “kind reciprocal tariff” of 20 percent on all imports from the EU. A week later, he announced a three-month pause on the planned tariffs, except for those affecting China. Instead, the EU will be subject to the minimum 10 percent tariff rate until July.
If the U.S. proceeds with the measures announced on April 2, the EU may still face 25 percent higher tariffs on cars and car parts, albeit benefiting from temporary reliefs to be announced by Mr. Trump. Pharmaceuticals and semiconductors could also be subject to new tariff rates to be set in late April. The minimum tariff would otherwise affect various manufacturing industries across the bloc.
The commission is urging restraint through negotiation rather than immediately launching countermeasures that could trigger a full-scale trade war. After President Trump’s U-turn, Ms. von der Leyen stated that Europe wants to “give negotiations a chance.”
However, beyond short-term trade weapons, the EU is also setting the stage for a more long-term approach toward stable and growing economic ties with other major trade partners in forging substantive alternative markets to the U.S.
EU rebooting trade ties with giant emerging economies
To deal with the likely enduring effects of mounting U.S. trade protectionism, the EU has begun taking steps to revive flagging trade links in some areas of bilateral trade development with China and India.
In her speech at the 2025 World Economic Forum, President von der Leyen underscored the need to “seize the opportunity to engage with China and, where possible, expand mutually beneficial trade and investment ties.”
In mid-April, Spanish Prime Minister Pedro Sanchez became the first European leader to visit China since Mr. Trump’s “Liberation Day” tariffs were launched. After meeting with Chinese President Xi Jinping, Mr. Sanchez called for Europe to forge closer ties with Beijing. Similarly, France and China will hold high-level talks soon to establish closer ties on strategic, economic and financial issues. In another major development, the 27 EU leaders will also visit Beijing in July for direct talks with President Xi, according to media reports.
The latest rapprochements by European governments come alongside recent phone discussions between Ms. von der Leyen and Chinese Premier Li Qiang, where she emphasized “the responsibility of Europe and China, as the world’s largest markets, to support a strong reformed trading system.” Mr. Li reciprocated, saying, “China is ready to work with the European side to promote the sound and steady development of China-EU relations.”
On a more practical level, both sides affirmed a series of regular dialogues in resolving their trade and investment differences. The talks will kick off with issues on electric vehicles (EVs) where the commission had imposed a range of controversial tariffs on imports from China last year. In this regard, the EU and China said they would promptly resume talks on a minimum price commitment plan regarding the anti-subsidy probe into Chinese EVs. They will also work on enhancing the stability of industrial collaboration between EU and Chinese corporate interests.
In separate talks held between the EU’s trade commission and China’s commerce ministry, both sides discussed improving economic and trade cooperation in response to the U.S. reciprocal tariffs. They also agreed to discuss matters concerning market access, while planning to strengthen joint efforts in promoting World Trade Organization (WTO) reform and upholding the multilateral trading system with the WTO at its core.
In February, President von der Leyen went on a landmark official visit to India, where she held trade talks with Prime Minister Narendra Modi. Both leaders highlighted the importance of intensifying cooperation in trade and de-risking their supply chains, in addition to relaunching negotiations over a stalled free trade agreement.
The economic rationale behind the EU’s recent focus on beefing up relations with both these developing world economic giants, as potential market alternatives to the U.S., is fairly obvious. China and India are the world’s second- and fifth-largest economies, with gross domestic products of $18.3 billion and $3.9 billion in 2024, respectively.
According to the International Monetary Fund (IMF), China was the world’s second-fastest expanding major economy, recording a growth rate of 5 percent last year and a projected 4.5 percent in 2025. India was the world’s fastest-growing major economy at 7 percent in 2024, and it is forecasted to expand at 6.5 percent in 2025. The South Asian giant is also expected to become the world’s third-largest economy within a few years, overtaking Germany and Japan’s slower-growing and increasingly deindustrializing economies.
EU-China trade ties marked by cooperation and rivalry
China has been an important trade partner for the EU for several years. In 2020, it became the EU’s largest trading partner in goods, surpassing the U.S. for the first time. It fell back into second place over the last couple of years as the bloc’s exports to the U.S. surged while those to China declined.
The EU’s exports of goods to China – including sales of machinery, vehicles and chemicals – are still vital for much of China’s manufacturing sector. Meanwhile, the EU imports electronics, textiles and other manufactured products from China. According to the commission, exports to China last year were valued at 213 billion euros, with imports amounting to 517 billion euros, resulting in a near-record trade deficit of 304 billion euros.
In relation to imports, China plays a central role in the EU’s global supply chains. This is especially true in strategic green sectors like EVs, EV lithium-ion batteries, solar panels and wind turbines.
These pivotal Chinese goods are often in direct competition with the EU’s domestic companies. Numerous EU producers have been stifled by intense Chinese competition over the years. China’s economic rise has led to both opportunities and challenges for the bloc.
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The EU’s approach to trade relations with China has also been influenced by broader issues. These include mistrust over China’s Belt and Road Initiative (BRI) in parts of Europe. There have also been concerns over intellectual property rights, market access and human rights.
One of the key tools the EU can use to enhance its trade relationship with China is the Comprehensive Agreement on Investment (CAI), which was agreed upon in December 2020.
The CAI aims to improve access to China’s market for European companies, enhance investment protection and address issues such as forced technology transfers and state subsidies. Although ratification of the CAI has been delayed, it remains a key instrument for strengthening economic ties, one which may be revisited given the current seismic changes in global trade.
EU-India trade grows, but formal agreements prove complicated
In 2023, the total value of goods traded between the EU and India reached 124 billion euros, making India the EU’s ninth-largest trading partner. This was an increase of 90 percent from 65.3 billion euros three years earlier. The EU exported products such as vehicles, pharmaceuticals and luxury items to India, while importing textiles, clothing and agricultural produce.
Their bilateral trade in services has been rising even faster, reaching 59.7 billion euros in 2023, up from 30.4 billion euros in 2020. These robust trade relations have not been affected by geopolitical tensions or rivalries.
Consequently, India’s role in the EU’s global supply chains is expanding rapidly. Moreover, India’s market potential is vast. A growing population of over 1.4 billion and an expanding middle class offer significant opportunities for European companies looking to establish their presence in South Asia.
As mentioned earlier, the EU and India have been negotiating a free trade agreement for several years. Although progress has been slow, both sides have expressed a commitment to conclude the trade agreement by the end of 2025, an intention likely given impetus by President Trump’s looming tariffs.
The EU and India also agreed to establish a new connectivity initiative in the form of the India-Middle East-Europe Economic Corridor. Another program on the backburner, the EU-India Trade and Technology Council, was reset into motion to identify concrete areas of priority cooperation.
Scenarios
Likely: The EU strengthens supply chains with both China and India
The EU’s relationship with China and India seems set to be shaped by broader economic and global power dynamics.
As the U.S. continues to pursue a more transactional and protectionist foreign policy in pursuit of its specific national security and strategic goals, the EU is likely to assert its strategic autonomy by rebalancing economic and political ties with other major powers. It can thereby seek to position itself as a central player in the rapidly evolving global order.
China is also likely to play a more important role in partnering with the EU to address global challenges such as climate change, security and multilateralism.
China’s BRI could increasingly be seen by the EU as a way to connect Europe with not only China but also Asia, the Middle East and Africa. In this context, there may be prospects for the EU to align its own infrastructure investments with China’s BRI. This may be particularly so in Central Asia and Eastern Europe – regions seen as key priorities for EU involvement.
It is even plausible that the EU would invest in trade hubs alongside China to facilitate further access to the Indo-Pacific region, creating more diversified entry points for European exporters. This would allow EU businesses to avoid overreliance on their traditional transatlantic trade routes and networks in the region.
India clearly offers the EU an important long-term strategic platform into the Indo-Pacific, given their broader common interests and shared values. By increasing investment in Indian manufacturing and services, the EU can help India become a key node in its global supply chains, further reducing dependence on the U.S. and, to an extent, China.
The EU can also capitalize on India’s booming digital economy by fostering greater cooperation with Indian technology firms, promoting digital trade and ensuring that data flows between the two regions are seamless and secure.
In light of America’s likely long-lasting shift toward protectionism, the EU can be expected to expand its supply chain linkages with both China and India. The key to success will lie in strategic investments, long-term government-to-government collaboration, and a commitment to building stronger economic ties with two of the world’s fastest-growing economies.
Ultimately, the EU’s approach will be guided by its strategic interest in securing access to these critical markets, which will require a flexible and pragmatic position in the rapidly shifting global order.
Less likely: The EU finds the challenges of dealing with China and India too onerous
Despite the significant opportunities for trade and supply chain linkages with China and India, the EU faces several challenges in strengthening these relationships.
Both China and India have political and regulatory environments that differ significantly from those of the EU. China’s state-led economic model and its approach to trade, intellectual property and market access pose barriers for European businesses seeking to enter the Chinese market. The EU has raised concerns about China’s human rights record, intellectual property theft and lack of market transparency, which could complicate efforts to deepen economic ties.
In recent years, the EU’s growing dependence on Chinese manufacturing has also led to supply chain disruptions, mostly due to the Covid-19 pandemic and various geopolitical tensions.
Before the start of the second Trump administration, these disruptions forced the EU to reduce its reliance on Chinese manufacturing and look for alternatives. While this may not be as urgent as in the past, the issues will likely persist and cause some friction.
India’s complex regulatory environment and bureaucratic inefficiencies can also be barriers to trade and investment. While India offers significant opportunities for EU companies, challenges such as cumbersome import procedures, inconsistent enforcement of intellectual property laws and infrastructure bottlenecks can hinder growth and potential investment.
Geopolitical tensions may also come to the fore, given India’s recent lurch toward political authoritarianism. On some points, this could also complicate the EU’s efforts to develop deeper political and economic ties with the country.
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