Europe is facing a new "China shock" as cheap Chinese goods increasingly flood the bloc amid slowing global demand and the impact of U.S. tariffs, raising concerns over pressure on Europe’s industrial base, particularly in automobiles, machinery and high-tech manufacturing, according to a report on Monday.

Chinese exporters, supported by a weak yuan and state-backed incentives such as low interest rates, are increasingly redirecting production toward overseas markets as domestic demand in China remains weak, according to EU data and industry officials.

This second wave of the China shock, which comes more than two decades after China joined the World Trade Organization (WTO) in 2001, is seen as more damaging than the first because it targets Europe’s core industrial sectors rather than low-cost consumer goods.

Eurostat data shows Chinese exporters are increasingly penetrating European markets for clothing, household appliances, furniture, industrial raw materials and advanced technology products.

China’s industrial robot exports to the EU surged 171% year-over-year in October, while prices dropped 31%. Integrated circuit exports rose 84% as prices fell 6% and Chinese car exports to the bloc more than doubled.

Prices of Chinese goods declined by an average of 20% over the same period, affecting about 23% of the eurozone inflation basket. The European Central Bank (ECB) estimates that the shift in Chinese trade flows could lower eurozone inflation by around 0.15 percentage points next year.

As a response, the EU Commission launched a new import surveillance tool earlier this year to track the redirection of global trade flows. However, European manufacturers remain under pressure as they compete simultaneously with weak domestic demand, U.S. tariffs and cheaper Chinese imports within the EU market.

The EU last year signaled it could impose targeted tariffs on Chinese imports, similar to measures already applied to Chinese electric vehicles, to level the playing field. Despite narrowing price advantages, Chinese electric vehicles continue to gain market share in Europe, albeit at a slower pace.

This has kept European industry groups and automotive lobbies on alert, with calls for tougher trade defenses to counter the shift in imports.

Despite mounting pressure, analysts say the EU is unlikely to enter a full-scale trade war with China due to its dependence on Chinese intermediate goods and concerns that retaliation could further harm European producers.

Energy costs also remain a key factor. EU energy prices are about 50% higher than China’s, and Europe’s push to expand solar and wind power relies heavily on equipment manufactured in China.

Political considerations further limit the scope for escalation. Several EU member states, including Hungary, Spain and Germany, benefit from significant Chinese investment, particularly in battery and electric vehicle plants, which provide jobs and tax revenue.

China posts over $1T trade surplus

The EU Chamber of Commerce says the weak Chinese yuan has significantly increased the competitiveness of Chinese exporters in European markets.

Jens Eskelund, president of the EU Chamber of Commerce in China, said China’s overproduction is driving efforts to sell more goods in Europe, putting pressure on sectors critical to the bloc’s economic security due to the influx of high-quality but low-priced products, supported by exchange rates and industrial policy.

The yuan recently hit its lowest level against the euro in a decade before stabilizing around 8.22 and is heading for its biggest annual loss in more than 20 years. Over the same period, the currency gained about 3.2% against the U.S. dollar.

Analysts say the yuan’s relative stability against the dollar has revived Beijing’s push to expand the currency’s global use.

China’s exports rose 5.9% on a yearly basis in November to $330.3 billion, according to the General Administration of Customs.

The country posted a trade surplus of $111.6 billion in November, with imports rising 1.9% to $218.6 billion.

From January through November, China’s trade surplus reached $1.1 trillion, exceeding $1 trillion for the first time.

Exports to the U.S., meanwhile, fell 28.6% in November, while shipments to the EU surged 14.8% to more than 47 billion euros ($55.1 billion).

EU prepares new measures against cheap imports

The EU is preparing new steps to raise import costs in a bid to curb the inflow of low-priced goods.

Under a decision agreed by member states in Brussels, packages valued below 150 euros ($176.1) will be subject to a 3-euro fee starting in July 2026, targeting online retailers such as Shein and Temu.

Currently, goods valued below 150 euros can enter the EU without customs duties.

The measure is intended as a temporary step, with the longer-term goal of applying customs duties to all imported goods regardless of value.

It remains unclear how much the move will raise prices for consumers, as producers or importers may absorb part of the additional costs.