Source: La Hulpe, “A Trade War Between the EU and China Seems Inevitable,” The Economist, June 11, 2026.
Commentary: Chinese firms have long benefited from domestic industrial policy to bolster exports and lower prices. These policies, such as extensive subsidies, tax incentives, forced technology transfer, and currency manipulation, among others, have enabled Chinese firms to sell products far below market price. In fact, many Chinese firms would not survive without these subsidies; 32 percent of industrial firms in China are unprofitable. For example, Chinese firm BYD sells electric vehicles at prices thousands of dollars lower than comparable Tesla models, largely due to the extensive subsidies it receives. Between 2005 and 2024, Chinese firms received approximately 3 to 8 times more subsidies as competitor firms in the Organization for Economic Cooperation and Development (OECD). These state subsidies have enabled China to gain massive trade surpluses with key trading partners, including the European Union. According to The Economist, the EU’s trade deficit in goods with China was about €1 billion ($1.16 billion) per day in 2025, roughly twice the value before the pandemic.
