Chinese exports weigh on Europe more than deficits: imported deflation takes hold

Beijing isn't just exporting electric cars and solar panels—it's exporting its disinflation. And Europe is absorbing the effects more than it admits.

The Fact

A Goldman Sachs analysis published on July 2, 2026, reveals that Chinese exports are weighing on European growth more than the simple bilateral trade deficit. In 2025, China exported ~$2,900 billion worth of goods globally, with a growing share heading to Europe—EVs, batteries, solar panels, and machinery—at unmatched prices. The combined effect: squeezed margins for European manufacturers, deflation in manufactured goods, and pressure on the automotive, chemical, and steel sectors.

Our Take

The mechanism is more insidious than a deficit: unable to stimulate its domestic demand (~38% of GDP from household consumption vs. ~68% in the US, World Bank 2025), China exports its overproduction at rock-bottom prices—a structural deflationary pressure on European industry since 2023. This complicates the ECB’s actions: service inflation remains high in the eurozone while goods deflation curbs industrial wage growth. Merz’s response (€10 billion, July 2) attempts to address this, but the structural shock far exceeds this scope.

To Watch

• Chinese manufacturing PMI, July 2026
• ECB decision on Chinese EV tariffs (Q3 2026)
• EU-China trade data H1 2026 (Eurostat, July)