Ursula von der Leyen

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.

Published on 20/05/2026 – 2:31 GMT+2•Updated
2:36

Diplomats and MEPs reached an agreement late on Tuesday to implement the contentious EU-US agreement, which eliminates duties on most US industrial goods imported into Europe.

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The negotiations concluded two weeks after US President Donald Trump threatened to impose 25% tariffs on EU cars if Europeans did not implement the agreement — clinched by Trump and European Commission President Ursula von der Leyen in Turnberry, Scotland, last summer — by 4 July.

The so-called “Turnberry Agreement,” criticised by MEPs as unbalanced, raises US tariffs on EU goods to as much as 15%.

“The EU and the United States share the world’s largest and most integrated economic relationship. Maintaining a stable, predictable and balanced transatlantic partnership is in the interest of both sides,” Cyprus trade Minister Michael Damianos said, adding: “Today, the European Union delivers on its commitments.”

MEPs had kept the deal frozen for several weeks following Trump’s threats over Greenland earlier this year. They also suspended it after the US adopted new tariffs following a Supreme Court ruling that declared illegal the tariffs imposed by the White House since Trump’s return to power.

Demanding clarity from the Americans, EU lawmakers finally agreed to enter into negotiations with the EU Cyprus presidency — representing EU member states — after the Commission assured them that the US would honour its side of the agreement and cap its tariffs at 15%, as agreed.

Fragile EU-US relations

However, EU-US relations remain fragile and there is concern in Brussels that the US administration could still use tariffs to put political pressure on the EU if the bloc does not comply with the White House’s demands on other issues.

Trump’s threats over EU cars two weeks ago also targeted Germany, whose Chancellor Friedrich Merz has criticised the war in Iran launched by the Americans alongside Israel.

Trump has repeatedly called on European countries to deploy ships to help secure the Strait of Hormuz, a move Europeans have been reluctant to make.

Many disagreements also continue to strain EU–US relations over Ukraine — including the recent US extension of a sanctions waiver allowing purchases of Russian oil — and over NATO, which Trump has repeatedly threatened to leave.

On Tuesday night, MEPs tried to secure the deal by attaching conditions, risking US anger with additional provisions to which Washington had not agreed.

Under the Turnberry Agreement, the EU also committed to investing $600 billion across strategic sectors in the United States through 2028 and to purchasing $750 billion worth of US energy.