A complex trade agreement is developing between Europe and China, though it’s uncertain how much it will alter the continent’s challenging economic landscape.
In October, representatives from the European Union (EU) reached an initial, broad agreement with Beijing, which aims to reduce exports of Chinese hybrid vehicles by half, as reported by Reuters. However, this deal may feel more like a partial win for Europe, given that many sectors, including automotive and vital mineral mining, remain closely linked to China.
David Blackmon, an energy consultant, noted, “While the EU is promoting this as a significant achievement, 350,000 hybrids entering the EU market is still quite substantial. Sure, European car manufacturers are likely to welcome any relief, but this deal doesn’t really safeguard them from ongoing competition with Chinese firms in their own market.”
China continues to dominate the battery and critical mineral supply chains, while Europe struggles to keep up with production levels. Ursula von der Leyen, the European Commission President, pointed out in her September State of the Union Address that the EU is heavily reliant on China for raw materials—over 80% for many essential resources and 90% for certain rare earth elements.
Felipe Munoz from Car Industry Analysis commented, “This might complicate things for the Chinese a bit, but it’s not going to halt their progress, like what we’re seeing with electric cars.”
Europe has increasingly relied on Chinese hybrid vehicle exports, with figures showing that China’s hybrid exports to EU member states surged to $7.5 billion in the first half of 2026, up from $2.5 billion the year before. That’s quite a leap from the $845 million seen in 2021.
Jacqueline Neal, President of the Long Term Strategy Group, indicated that the primary goal of the Chinese Communist Party is to amass power, with dependence flowing solely toward Beijing. She explained that deindustrializing other nations is one method to achieve this goal, making them reliant on Chinese products and creating leverage for the Party.
The EU did not respond to a request for comments on this situation.
The EU trade chief gives the public the rosy half of a possible agreement with China that will appeal to European voters and businesses. For the whole picture, including the possibility of more “dual use” military-capable tech exports to China, read the joint statement published by the European Commission: https://t.co/n9jANcwpQ8
— Anders Corr, Ph.D. (@anderscorr) October 11, 2026
The impact of dependence on China is particularly evident in Germany.
Once a leader in the automotive sector, Germany is now grappling with American tariffs and fierce competition from China—a country that was previously a significant export market. Since the mid-2010s, the number of cars produced in Germany has decreased as manufacturers have established factories in Hungary, China, and Mexico. By the first half of 2026, BMW noted a 20% production decline, while Mercedes reported a 28% decrease.
Previously, China accounted for 37% of all Volkswagen sales in 2019, but this figure had fallen to 30% by 2025. There seems to be waning interest in Western vehicles among Chinese consumers, as domestic brands like BYD and Geely Auto are delivering cars faster and at lower prices, thanks to Chinese government support.
“Even with better products, we can’t compete with the pricing of Chinese export models,” Volkswagen CEO Oliver Blume remarked to employees in July.
Additionally, Chinese companies have begun acquiring significant shares in German auto manufacturers, with BAIC, a Chinese state-owned auto firm, holding almost a 10% share in Mercedes.
According to Munoz, Europe faces a choice between adopting approaches similar to the US, which has imposed restrictions on Chinese-made cars, or allowing its industry to be largely acquired by Chinese interests.
The deal does not appear to slow down China’s momentum. Zhao Fei, president of Changan, a Chinese automaker, expressed little concern and mentioned the potential for establishing production facilities in Europe to get around the export limits.
“This actually opens doors for Chinese companies like Changan to break into the European market,” Fei stated, revealing plans to begin manufacturing its initial cars in Europe by early 2027.
The EU-China agreement also includes provisions for China to eliminate tariffs on auto parts and to expedite the licensing process for exporting rare-earth elements to the EU.
