The Sound of Economics China’s Yuan and Europe’s industry: a growing imbalance
Jan 21, 2026
Alicia García-Herrero, a senior fellow at Bruegel focusing on China and international economics, and Jürgen Matthes from the German Economic Institute, delve into the implications of the undervalued yuan on Europe's economy. They explore the stark trade deficit that has emerged since the pandemic and discuss China's pricing strategies, often undercutting Western competitors by 30-50%. The conversation highlights the need for effective policy responses, weighing the risks of protectionism against the urgent necessity for action to prevent hollowing out European industries.
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Post-Pandemic Trade Shift
- Europe’s trade deficit with China surged after the pandemic as imports from China expanded into higher-value sectors like green tech and chemicals.
- This shift created a puzzling large bilateral deficit despite Europe staying competitive with most other partners.
Large Price Gaps Hit European Industry
- German firms report Chinese competitors often offer prices 30% or more below theirs, sometimes 40–50% lower.
- These price gaps correlate with job losses and industrial strain in Germany and wider Europe.
Real Exchange-Rate Divergence
- Euro-area producer prices rose roughly 35–50% above pre-COVID levels while Chinese producer prices stayed flat.
- The resulting real appreciation of the euro versus the yuan exceeded 40%, creating a massive cost disadvantage for Europe.