Should Europe really worry about its trade deficit with China?

In Europe criticism of China’s rising clout in the global economy, of its undervalued currency, and of Europe’s rising bilateral deficit has become shriller by the day. It has been used by European leaders for more or less overt threats to use protectionist measures against Chinese imports. Europe’s trade deficit with China has been described as a “policy time bomb”. But are there reasons to be worried? Is Europe’s bilateral trade deficit with China essentially explained by an artificially low exchange rate?

In a new paper ECIPE’s Senior Fellow Andreas Freytag has analysed trade data to get a better understanding of what has happened in EU-China trade relations over the last decade. The result is surprising and challenges the established view that the soaring bilateral deficit is explained by currency manipulation. Furthermore, a closer look at the macroeconomics of EU-China economic relations gives further reasons to avoid using trade deficits as a material ground for protective measures.

ECIPE cordially invites you to a lunch discussion on EU-China trade and economic relations, lead by Dr. Freytag.

Power Point presentation by Andreas Freytag>