You can sort of see why folks talk about a China shock - Very clear...
Brad Setser@Brad_Setser
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Jul 15, 2026
~2 min read
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You can sort of see why folks talk about a China shock -
Very clear swing in Europe's trade balance in autos, engines and batteries with China
The first inflection point isn't the pandemic but rather the summer of 21, the second is in 2024 ...
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Very clear swing in Europe's trade balance in autos, engines and batteries with China
The first inflection point isn't the pandemic but rather the summer of 21, the second is in 2024 ...
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The swing in bilateral trade in autos, engines and batteries is almost 0.4 pp of EU GDP on its own
Gavekal argues that Europe's trade has held up well if China is excluded. That's one big exclusion!
The auto, engines and batteries balance ex China has also turned down
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Gavekal argues that Europe's trade has held up well if China is excluded. That's one big exclusion!
The auto, engines and batteries balance ex China has also turned down
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The euro value of EU auto exports globally has also been held up by the increase in auto prices (proxied by the rise in export proceeds per kilo of vehicle exports here)
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Chinese auto exports are generally pretty cheap (20K for an EV, less for an ICE per the Chinese auto data) so the swing in the real trade balance is clearly bigger -- consider the trade balance in autos in kilos for example
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There has been a massive rise in the "weight" of European imports of Chinese autos, machinery and electronics (electronics includes batteries) over the last 5 years (consistent with the rapid overall growth in Chinese export volumes)
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And the weight of European exports of autos, machinery and electronics is down by close to 50% in the last 5 years -- it certainly looks like, well, a shock
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"Weight" isn't a perfect proxy for volume. But the data on kilos of imports also refutes the Gavekal thesis that the rise in EU imports from China is just taking market share away from others -- the total kilos imported in key trade categories is up, particularly after 23
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And the European bilateral trade deficit with China by weight (the unit here is kilos) has doubled in the last few years in Europe's key export categories. Aircraft (which are light) are also down ... sure looks like a China shock to me
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Back to euros. The value of European exports of autos, engines, & batteries (not many batteries tho) has held up in third party markets better than in China ... but as @SanderTordoir has noted, there are signs of a broader deterioration. And China is too big to ignore
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@SanderTordoir p.s. the original China shock in the US was a rise in US imports (and the trade deficit) from China/ Asia of about 1 pp of GDP. The second China shock isn't over & it is already of similar size for Europe -- tho more of the impact is from a fall in exports. See machinery
