EU seeks trade reforms as US-China tariff truce offers brief respite

[EUROPE] Senior European Union officials are breathing a sigh of relief following a US-China tariff agreement that may stave off a potential shift of Chinese exports toward Europe. However, they have been cautioned that the EU must implement swift reforms or risk becoming a "shock absorber" for the upheavals caused by global trade imbalances.

The temporary ceasefire between Washington and Beijing comes after months of rising tensions, including threats of broader tariffs on electric vehicles (EVs), semiconductors, and critical minerals. Analysts argue that while the deal alleviates immediate pressure, it does little to address the structural imbalances that have fueled disputes between the world’s two largest economies. For the EU, the agreement offers a vital opportunity to reconsider its own trade strategies and industrial policies.

The easing of superpower tensions, following intense negotiations in Geneva last weekend, has resulted in a mutual reduction of tariffs and a temporary reprieve from the market turbulence that has plagued global trade since US President Donald Trump's return to office in January.

Behind the scenes, European policymakers are scrambling to prevent their region from becoming collateral damage in the ongoing US-China trade war. The EU’s trade deficit with China has surged in recent years, reaching €291 billion in 2023, raising concerns over Europe’s increasing reliance on Chinese imports in crucial sectors such as green technology and pharmaceuticals. Experts warn that without stronger safeguards, Europe could face an influx of Chinese goods diverted from the US market.

At the same time, Brussels is under growing pressure to accelerate its own trade reforms, notably the long-awaited Anti-Coercion Instrument (ACI), which aims to counter economic pressure from foreign powers. Once finalized, the ACI would enable the EU to impose retaliatory measures—an essential tool in preserving leverage within an increasingly fragmented global trading environment.

The Geneva agreement also underscores the delicate balancing act facing the EU. While the de-escalation of tensions is a relief, officials remain wary of China’s long-term strategic ambitions, particularly its support for state-backed industries. “This isn’t just about tariffs—it’s about unfair competition,” said a senior EU trade official, who requested anonymity. “If we don’t act now, we’ll be left behind.”

As the EU closely watches the implementation of the US-China deal, all eyes are now on the upcoming G7 summit, where leaders are expected to discuss coordinated responses to trade distortions. For Europe, the stakes are high: failure to present a unified front could leave individual member states vulnerable to economic coercion or market disruptions.