The EU’s trade deficit with China hit roughly €360 billion in 2025. That works out to about €1 billion leaving Europe every single day, and German Chancellor Friedrich Merz and French President Emmanuel Macron have decided they’ve seen enough.
At a joint press conference near Cologne on July 17, 2026, the two leaders presented a unified front, arguing that the yuan is significantly undervalued and that Beijing’s subsidies and industrial overcapacity are distorting global trade in ways that systematically disadvantage European producers. They tasked their ministers with building a comprehensive roadmap, due in September 2026, to address these imbalances and explore what they diplomatically called “emergency measures.”
The numbers behind the frustration
Germany’s bilateral deficit with China has grown nearly fourfold since 2020, driven by surging Chinese imports on one side and weakening German exports on the other.
China’s goods surplus with the EU reached approximately $687 billion between January and July 2026 alone, according to customs data.
Every EU member state now runs a deficit with China. That unanimity of pain is politically significant: it makes it harder for Beijing to play one European capital against another, which has been a reliable diplomatic strategy in the past.
Merz has been specific about the currency dimension. During a G7 discussion in June 2026, he argued the yuan is undervalued by 25 to 30%, a figure that puts a concrete number on what European manufacturers have long complained about informally.
China’s overall goods surplus climbed to nearly $1.2 trillion in 2025, a record that signals the problem isn’t narrowly a Europe-China issue. The US has its own grievances, which is part of why Merz raised the topic at a G7 forum rather than strictly in bilateral EU-China channels.
Why critics are nervous about this playbook
Reuters Breakingviews published an analysis on August 31, 2026, raising a pointed historical comparison. The argument goes that pushing for yuan appreciation without a corresponding effort to boost domestic consumption inside China risks repeating the errors of the 1985 Plaza Accord.
That agreement, signed in New York by the US, Japan, West Germany, France, and the UK, successfully weakened the dollar against the yen and Deutsche Mark. Japan’s yen appreciated sharply. What followed was a deflationary spiral in Japan that contributed to its so-called “lost decade” of economic stagnation.
The lesson that Breakingviews draws is blunt: currency revaluation alone doesn’t rebalance trade if the underlying demand structure in the surplus country doesn’t change. China would need to spend more at home, not just export less cheaply, for the deficit arithmetic to actually shift in Europe’s favor.
China doesn’t operate a freely floating currency. The People’s Bank of China manages the yuan within a daily trading band, which means any appreciation would have to be a deliberate policy choice by Beijing, not something that market pressure alone could achieve.
Beijing has not signaled any willingness to move in that direction. The diplomatic framing from both Merz and Macron has stressed dialogue over confrontation, an indication that neither leader wants to trigger a formal trade war even as they escalate the rhetorical pressure.
What comes next
The September 2026 roadmap deadline is the immediate thing to watch. If the document is substantive, it will likely sketch out a menu of options ranging from tariff escalation and anti-subsidy investigations to renewed multilateral currency discussions within G7 or G20 frameworks.
The EU already has experience using trade defense instruments against Chinese electric vehicles, solar panels, and steel.
For European exporters, particularly in agriculture and precision manufacturing, a stronger yuan would make their products cheaper in yuan terms for Chinese buyers, which could partially offset the demand weakness that has hit German and French exporters hard over the past several years.