Ursula von der Leyen

Published on
27/08/2026 – 14:10 GMT+2

European Commission President Ursula von der Leyen said on Thursday that if negotiations to reduce the record-high trade deficit with China did not produce a breakthrough, the EU should make use of all its trade defence mechanisms.

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Tensions have remained high between Brussels and Beijing since the talks were launched last June. Over the summer, China moved to ban Chinese firms from participating in EU antitrust probes, while the Commission has continued opening trade defence investigations into the suspected dumping of Chinese products into the European market.

“Dialogue with China remains necessary. But it must produce results. And when dialogue is not enough, we must be ready to make full use of our instruments,” von der Leyen said in remarks to Medef, the French business organisation.

The EU is facing a wave of cheap imports coming from China, which have increased by 45% in five years, the Commission’s President added, pointing out that 30 trade defence investigations have been opened over the last year – “almost three times more than the historical average”.

“We are stepping up investigations significantly,” she said.

Von der Leyen’s remarks come as the EU’s trade deficit with China reaches €1 billion a day. The Commission has set October as a deadline to reach a deal with Beijing to rebalance the trade relationship.

“China is a key economic partner. And our approach is clear and consistent: derisking without breaking ties. But being a partner does not mean accepting permanent imbalances,” von der Leyen said.

Beijing and Brussels have been on the verge of a trade war in recent months, with China threatening several times to retaliate against proposed EU regulations that could reduce market access to Chinese firms.

On Thursday, von der Leyen recalled that all EU member states now record a trade deficit with China.

In June, EU leaders gave her a mandate to act to rebalance the relationship through dialogue as well as the use and review of defence mechanisms. Among these is the EU’s so-called anti-coercion instrument, which can be triggered in case of pressure from a foreign country on the EU to change its policies.

This tool, sometimes referred to as the “trade bazooka”, allows the EU to adopt strong measures such as restrictions on access to public procurement or the removal of intellectual property rights.

However, it requires the support of a majority of the bloc’s member states. It is unclear whether this could be achieved while EU countries continue trading with China on a bilateral basis, seeking access to its market or investments from Beijing.

As the European Union tries to fight its record-high €1 billion deficit per day with China, the bloc’s leaders are increasingly pointing to the problem of currency manipulation, which they say Beijing is using to make products even cheaper on the EU market – which is already flooded with Chinese imports.

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“An artificially low currency is an advantage for those who want to improve their economic competition positions,” German Chancellor Friedrich Merz said after the European Council summit on 19 June.

The matter of the Chinese currency and its management was also high on the agenda of last week’s G7 summit in France.

The signs are that this is a new front in Europe’s trade battle against Beijing. To understand why the devaluation of the yuan (or renminbi) matters, here are three things to know.

What’s wrong with the Chinese currency?

According to a report by the Haut Commissariat à la Stratégie au Plan, a French government advisory body, the undervaluation of the yuan is estimated at around 20-25 percent.

“While there is no universally recognised method for determining unequivocally whether a currency is significantly overvalued or undervalued, the assessment that the renminbi (RMB) is significantly undervalued is now widely shared, including among international institutions,” the report said.

In theory, China’s trade surpluses should naturally create demand for the yuan, leading to an appreciation of the currency, but it is not the case.

However, the devaluation of the yuan might not be the direct result of central bank intervention. Alicia Ferro Herrera, an expert at the Brussels-based think tank Bruegel, told Euronews that China prevents its currency from appreciating faster by not bringing all of its export revenues back to the mainland.

“They stay in Hong Kong and they are not converted into RMB,” she said.

How does it impact trade between China and the EU?

The EU deficit with China hit a record-high €359.9 billion in 2025. That same year marked the first time that all EU member states had a trade deficit with Beijing, including Germany, the EU’s largest economy.

“This is simply not sustainable,” European Commission President Ursula von der Leyen said last Friday.

According to the Haut Commissariat au Plan report, the undervaluation of the yuan plays a large part in keeping Chinese products competitive; as things stand, they are assessed by EU industry to be around 30-40 percent cheaper than European equivalents.

However, Ferro Herrera pointed out that the inflation differential also plays a great part.

“My estimate is that the inflation differential and its accumulation in Europe since the invasion of Ukraine explains about three quarters of the loss in external competitiveness,” she said.

What can the EU do?

In his remarks last Friday, Merz suggested the EU begin dialogue with China on the currency issue.

“We have to talk about this topic with each other,” he said. “It is in the interest of both sides.”

The German chancellor cited the 1985 Plaza Agreement, which saw the US, Japan, West Germany, the UK and France agree to depreciate the US dollar against the Japanese yen and the Deutsche Mark. The goal was to head off a protectionist turn from the US as its trade deficit deepened.

Merz also referred to the European Monetary System, which before the adoption of the euro relied on exchange-rate bands to limit currency fluctuations.

“That was a system where countries could coordinate through exchange-rate corridors,” he said.

Conversely, Ferro Herrera points out that the US did not push for any such negotiation when economic imbalances were discussed during the G7 last week.

In her view, Europe should monitor China’s export prices for major sector-by-sector deviations, since this is an important sign of overcapacity, as negative price growth occurs when goods cannot be sold.

European Commission President Ursula von der Leyen, European Council President Antonio Costa and with South Korean President Lee Jae-myung celebrated the signing of new a digital trade agreement at a ceremony in Brussels on Wednesday.

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The event marked the EU and South Korea’s 11th summit, with everything from security and defence to trade on the agenda.

“Korea is one of Europe’s closest partners in the Indo-Pacific region and on the global stage,” von der Leyen said. “In today’s uncertain world, stable and trusted partnerships like ours are more precious than ever.”

The trio released a joint statement extolling the value of the talks and committing the two sides to a firm and friendly relationship.

“We reaffirm our shared commitment to effective multilateralism, and to a stable and predictable rules-based free and fair economic order,” the statement reads.

The semiconductor factor

Both sides have an interest in diversifying their trade relationships at a time of growing tensions with both China and the US, and the EU-South Korea digital trade agreement comes more than a decade after a landmark free trade deal.

Since 2015, trade between the EU and South Korea has doubled, with goods trade reaching approximately €124.25 billion in 2025, according to figures from the European Commission.

“The European Union-Korea Free Trade Agreement remains one of the European Union’s most successful trade agreements since its entry into enforcement in 2011,” European Council António Costa said on Wednesday.

South Korea is becoming an increasingly important investor in Europe, particularly in strategic sectors such as batteries, electric vehicles and semiconductors.

For the EU, a key objective is to secure semiconductor supply chains while attracting further investment from Korean companies into Europe.

“Korea has a global leadership position in semiconductors,” an EU official said. “This is clearly an area with significant potential for cooperation that would benefit both sides.”

The digital trade agreement concluded on Wednesday is expected to complement the broader trade partnership by reducing “unnecessary barriers to digital trade” and providing greater “legal certainty” for businesses operating across the two markets, according to another EU official. It will facilitate cross-border data flows while prohibiting the mandatory transfer of source code.

The deal is also designed to establish robust online consumer protection rules, though both partners intend to maintain their respective levels of protection for personal data and privacy.

Economic security was also high on the summit agenda, with the two sides agreeing to establish a high-level dialogue on supply chain resilience.

Supply chains came under pressure last year following China’s restrictions on exports of strategic materials, including rare earths – essential for green technologies and the defence sector – as well as products linked to the chip industry, which are critical to automotive manufacturing.

Security and defence

One thing that did not get over the line was a security of information agreement, which had been touted by EU officials prior to the summit as a means of strengthening the flow of classified information between Brussels and Seoul.

“I hope that the security of information agreement will be adopted soon, so that Korea and the EU can share confidential information safely, which will allow the two sides to engage in industrial and research cooperation actively through information exchange exchange,” President Lee said on Wednesday.

The agreement would build on the Security and Defence Partnership agreement that South Korea and the EU signed in 2024. That deal was designed to facilitate cooperation in areas spanning maritime security, countering hybrid threats, fighting foreign information manipulation and interference, and more besides.

In the run-up to this week’s talks, a senior EU official said a key topic of the discussions will be nuclear non-proliferation, as North Korea continues to hold a small but concerning stockpile of nuclear-armed warheads.

North Korea (the DPRK) and Russia were considered “big questions” at the summit, the source said, with Brussels ready to share information on its support for Ukraine with Seoul.

The joint statement from the summit reiterates this, with words of condemnation directed at North Korea and other nations who enable Russia to sustain its war of aggression against Ukraine.

“We urge Russia and the DPRK to immediately cease all such activities and abide by the UN Charter and all relevant United Nations Security Council resolutions,” the statement reads.