European leaders blame China for industrial decline, but EU trade surpluses and global supply shifts suggest structural issues are more complex. Despite claims of economic imbalances, the EU maintains a current-account surplus, while manufacturing output remains stable, according to The Economist.
The narrative that China’s trade practices are the primary driver of Europe’s industrial challenges is increasingly at odds with hard data. While European policymakers have repeatedly cited Beijing as a source of “unfair competition,” the European Union recorded a €127 billion current-account surplus in Q1 2026, according to the European Commission. This contradicts the perception of a systemic imbalance, raising questions about the framing of the debate.
The Bottom Line
- EU current-account surplus reached €127 billion in Q1 2026, defying claims of economic imbalance.
- Manufacturing output in the Eurozone grew 2.3% YoY in May 2026, per Eurostat.
- Experts warn that protectionist policies risk destabilizing supply chains without addressing underlying inefficiencies.
How Supply Chain Reconfiguration Outpaces Geopolitical Narratives
While European officials focus on China as a scapegoat, data reveals a more nuanced picture. The EU’s industrial output has remained resilient, with the Eurozone’s manufacturing Purchasing Managers’ Index (PMI) holding steady at 52.1 in June 2026, according to Refinitiv. This contrasts with the 47.8 reading in 2020, highlighting a recovery that predates recent trade tensions.
“The focus on China obscures structural issues in Europe’s industrial strategy,” said Dr. Lena Müller, head of the Berlin Institute for Economic Research. “The real challenge is aligning production with green transition goals, not redistributing trade flows.”
The Role of Global Value Chains in Shifting Production
Global value chains have evolved significantly since 2020, with the EU diversifying suppliers to reduce reliance on single markets. According to WTO data, non-Chinese imports accounted for 41% of EU industrial goods in 2026, up from 34% in 2019. This shift has mitigated some pressures but not eliminated them.
| Region | Share of EU Industrial Imports (2026) | YoY Change (2025–2026) |
|---|---|---|
| China | 32% | -2.1% |
| North America | 18% | +4.7% |
| Asia (non-China) | 11% | +6.3% |
| Eastern Europe | 14% | +3.2% |
“Europe’s deindustrialization myths ignore the reality of supply chain diversification,” said James Carter, managing director at Morgan Stanley’s European division. “The real issue is whether the EU can maintain competitiveness amid rising energy costs and regulatory hurdles.”
Interest Rates and the Cost of Protectionism
The European Central Bank’s (ECB) decision to hold interest rates at 4.5% through 2026 has created a paradox. While lower rates could stimulate manufacturing, the bloc’s reliance on energy imports—particularly from Russia and the Middle East—continues to strain budgets. The ECB’s mid-year report notes that energy costs account for 12% of the EU’s trade deficit, a figure
