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EU-China trade relations: Where do we stand, where should we go
IFW
2024.06.14
· In the aftermath of the Covid-19 pandemic, China’s share in European trade has fallen continuously. Nevertheless, the country remains the EU’s largest source of imports (20.5 percent in 2023) and its third largest export destination (8.7 percent).
· This apparent dominance of China is put into perspective when incorporating intra-EU trade. For example, Germany - Europe’s largest economy - sent 6.1 percent of its ex-ports to China, but 55 percent to EU members states. For imports, the Chinese and Euro-pean shares are 11.5 percent and 52.7 percent, respectively.
· Decoupling the EU from China (i.e. almost eliminating bilateral trade) would permanent-ly reduce European real income by 0.8 percent in the long-run. In terms of gross domes-tic product in 2023, the EU would forego 136 billion EUR of value added every year. Short-term effects are likely to be stronger.
· China dominates global production of important products such as laptops and mobile phones as well as raw materials including Germanium and Gallium that are critical for the green energy transition. A trade disruption might thus both delay the energy transi-tion and increase its costs.
· To reduce specific dependencies, the EU should intensify its efforts to diversify procure-ment by increasing the attractiveness of alternative suppliers. Finding the courage to move forward in the negotiation of free trade agreements with potential strategic part-ners such as Australia and the Mercosur countries would strengthen the EU’s geopolitical position and increase prosperity among partners.