EU–China Trade Deficit: Merz Pushes Yuan Talks as €360B Gap Rises
German Chancellor Friedrich Merz says Europe must address the trade deficit with China, after the EU’s goods trade deficit hit €360B in 2025 (+~20% YoY). Germany accounts for about €90B of the trade deficit with China, up 33% YoY.
Merz argues the root cause is China’s currency. He estimates the yuan is undervalued by up to 30% (vs. an IMF estimate near 16%). He is pushing for coordinated international talks on currency valuation, drawing comparisons to the 1985 Plaza Accord.
The auto sector is already under strain. German car exports to China are down ~66% from 2022 peaks, amid Chinese EV overcapacity. The EU is moving toward tougher measures targeting China’s industrial subsidies, especially for EVs. German automakers warn of retaliation risk, including potential restrictions on European brands.
Merz took office in May 2025 and visited Beijing in Feb 2026, but that trip did not fully align Germany with wider EU trade-protection plans. EU leaders will debate protective instruments at a summit in June 2026, with Germany’s role likely influential as Europe’s largest economy and China’s biggest partner.
For markets, any escalation could pressure European stocks tied to China demand and squeeze margins in industrial and tech supply chains. If coordinated yuan intervention gained traction, a ~30% yuan revaluation—even if gradual—would be a major currency event. The June 2026 summit is the key catalyst for how aggressive the EU response becomes.
Bearish
This is primarily a macro/trade policy escalation risk. The article centers on the EU’s trade deficit with China rising to €360B and Chancellor Friedrich Merz pushing for coordinated yuan valuation talks. If the EU shifts toward stronger protection measures (especially around EV subsidies) and/or China retaliates, the likely market reaction is risk-off: weaker sentiment for export-heavy European equities and higher uncertainty for global supply chains.
Crypto typically trades as a high-beta macro asset. In past episodes where major economies signaled currency/industrial-policy confrontations (e.g., phases resembling trade-war rhetoric), traders often reduced risk quickly, favoring liquidity and stable assets. That can weigh on BTC and the broader market in the short term.
However, the news is not an immediate, confirmed market shock like an emergency tariff announcement or a sudden capital-control event. It is a policy direction ahead of the June 2026 EU summit, which means the bearish impact could be more “gradual pricing” than an instant crash. Over the longer term, if negotiations prevent full retaliation or lead to a managed yuan adjustment, the initial pressure could fade. For traders, expect headline volatility around EU-China policy updates and FX/currency-related narratives, which can spill into crypto risk sentiment.