Early July 2025, Chinese state media rebuked France’s economy minister Éric Lombard after he argued that Europe should strengthen tariff barriers to counter Chinese imports that threaten its industrial base. Last week, at POLITICO’s Competitive Europe Summit in Paris, Lombard doubled down: “Free trade is over, it is dead.” On 9 October, after Beijing tightened rare-earth export controls, the EU’s ambassador to China, Jorge Toledo, warned: “We are collateral damage. China’s rare-earth export controls are hurting our firms, and they worsened today.”
Brace for impact is an airline warning before a crash. It also describes global trade today. Even the WTO sounded it last week: the Director General said “the outlook for next year is bleaker… I am very concerned.”
To cap last week, irked by China’s latest rare earths move, President Trump floated massive tariffs on China. The trade war is back in high gear. Brace for impact.
The usual charts say the U.S. buys more from Europe and Europe buys more from China. True, but the interesting question is who does the trading. In 2023, almost 190,000 EU firms exported to the U.S. versus 87,000 to China. Flip the lens to importing and the picture reverses: 580,000 EU firms bought from China versus 283,000 from the U.S. The U.S. is where Europe’s SMEs sell. China is where Europe’s SMEs source. Once you see it by company size, policy priorities look different.
Participation gap on exports
EU firms exporting to the U.S. outnumber those exporting to China by 2.18× overall. The gap is widest for micro firms (3.2×), narrowing with size (small 2.0×, medium 1.5×, large 1.4×).
Value concentration
Large firms generate 77% of EU exports to the U.S. and 80% to China, with SMEs supplying the rest.
Ticket size
Average exports per firm are close overall, but composition differs. Micro exporters that reach China ship larger orders per firm; for small, medium and large exporters, the U.S. yields bigger orders per firm.
Participation gap in reverse
Participation gap in reverse. EU firms importing from China outnumber those importing from the U.S. by around 2× overall. China has 2.4× as many EU micro buyers; 1.9× among small; 1.4× among medium; and 1.1× among large firms.
Value diffusion in imports
Large firms account for 71% of EU imports from the U.S. but only 52% from China. China’s supply reaches deep into the SME base: SMEs take 49% of import value from China versus 30% from the U.S.
Ticket size
Purchases from the U.S. are larger per importer on average, while China supplies reach deep into the European SME base with many smaller orders
It is often forgotten that 99% of companies in the EU are SMEs. We compute the SMEs punch ratio, that is, for every 1% of participating firms that are SMEs, how much % of trade value do SMEs carry.
SME Punch Ratio= value share ÷ participant share
If the ratio equals 1, EU SMEs carry trade value in line with their share of participating firms (neutral). Values below 1 mean SMEs are under-weight on value relative to their participation. Values above 1 mean they are over-weight.
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Exports to U.S. → 0.25 (SMEs are 91.7% of exporters but 22.6% of value)
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Exports to China → 0.23
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Imports from U.S. → 0.32
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Imports from China → 0.50
SMEs do most of the showing up; large firms do most of the lifting. That’s especially true on exports. On imports from China, SMEs carry half as much value as their headcount weight, still under-weight, but much closer to parity.
Exports
Fewer EU firms sell to China, those who do are larger and more selected. Large companies take 80% of export value, SMEs show up but carry only a quarter of their weight on value, a Punch Ratio near 0.23.
Imports
On the buy side China is Europe’s SME supply machine. Roughly 580,000 EU firms import from China, and SMEs account for about half the value. Orders are smaller on average than from the U.S., but they reach far deeper across the firm base. That depth is a strong vulnerability.
Exports
Beijing’s message to Europe’s big firms is clear: set up in China and ship from China, not Europe. The prize is framed as access to a vast market, but in practice it favours domestic champions and will continue to do so for years. Geopolitics will shape how far EU giants follow; even so, large EU companies should set guardrails, ringfence IP, build China-plus-one capacity, negotiate on a clock with time-bound milestones, and measure delivery, not promises.
As for SMEs, China’s dual circulation amounts to import substitution. With rising frictions, slower GDP growth and subdued consumption, exporting is a harder sell. For most EU SMEs, the market is selective rather than scalable, unless they step up innovation enough to become must-have supplier
Overall, EU exports to China will keep falling for now.
Imports
China is Europe’s SME supply machine; EU SMEs are, in effect, the last mile of China’s export engine. China’s vulnerability is its reliance on a goods surplus with the EU of roughly €1 billion per day to buy time for a pivot toward Global South markets as substitutes for advanced-economy demand.
Expect Beijing to dress this imbalance in the language of partnership, packaging EU-bound investment announcements and selective export approvals as offsets for the goods surplus.
The EU should respond with sustained, affirmative action to unwind strategic dependencies—diversify SME sourcing, align trade-defence and public-procurement tools, and tighten screening and standards to secure reciprocity. It will take time, but the direction must be clear.
For some time, China controlled rare-earths at the border in a traditional way: exporters in China needed a licence if the item in the box appeared on the control list. That model tightened on Apr 4, 2025, when China put seven rare-earth families under licence.
Earlier, on Dec 21, 2023, China refreshed its technology rulebook. It identified rare-earth know-how as technology that cannot be freely “exported” (i.e., transferred to foreign parties). But this lived in a catalogue, not yet wired into the day-to-day export-control machinery.
On Oct 9, 2025, Beijing reframed the system so it reaches down the supply chain and beyond China’s shores. A new rule means a foreign exporter shipping from, say, Europe to the U.S. may still need a Chinese licence if:
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the product contains Chinese-origin controlled rare-earths worth at least 0.1% of the item’s value; or
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the product was made using Chinese rare-earth technology; or
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the item is a Chinese-origin controlled rare-earth
A sister announcement moves rare-earth technologies into the formal dual-use list with new codes. It covers both the process know-how and the services that bring a production line to life. “Export” now also means providing that know-how to a foreign party even inside China.
In short:
before, China controlled exporters in China and what left the border; now it follows the materials and the know-how wherever they go.
Footwear remains a top-15 Chinese export worth about $50 billion a year. It is labour-intensive, so when orders slow, jobs feel it first.
From January to August 2025 versus 2024, the picture splits three ways.
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EU exports are softer: value −7.5%, pairs −5.4%, FOB unit value −2.3%.
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The U.S. is the shock: value −23.1%, pairs −16.4%, unit value −8.1%.
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The rest of the world: increased volume, with pairs increasing +7.9% (about +202 million pairs) but at much lower prices, with FOB unit value −18.8%, so value still fell −12.4%.
Year to date 2025, footwear exports are up 2% in volume and down 6% in value; the FOB China unit value (yuan per pair) fell 8%.
In short, the Global South absorbed volume but not value. More low-priced orders elsewhere do not offset the U.S. slump in revenue, leaving margins and employment under pressure unless demand recovers or mix upgrades spread beyond the EU.
On the sovereign side, China’s gold reserves hit an all-time high of 2,298.53 tons in Q2 2025.
On the commercial side, 2025 imports are up a modest 3.4% after years of heavy buying, while exports moved sharply higher: January–August shipments increased threefold year over year, to 157 tonnes from 49 tonnes.
What’s driving this? Record prices have cooled domestic demand for jewelry and bars, with some investors rotating into equities, creating a local surplus available for export.
At the same time, China has eased trade procedures, making it simpler for firms to move gold in and out.
Strategically, this pattern aligns with a longer-term effort to diversify away from the U.S. dollar by deepening China’s gold market and promoting wider use of the renminbi. Most exports still flow through Switzerland, but 2025 buyers also included Iran (about 3.25 tonnes), which is unsurprising.
China’s regulations keep commercial gold flows separate from the central bank’s balance sheet, yet rising exports underscore China’s bid to anchor a larger share of global gold trading at home.
UNCTAD’s Review of Maritime Transport 2025 charts seaborne tonnage; the steepest line is bauxite. The report does not spell out the driver.
Our chart explains the why. We plot China’s share of world bauxite/aluminium-ore imports by value. China’s share rose from 3% in 2005 to 86% in 2024. As China built out alumina refineries, its import demand surged and seaborne tonnage followed.
In mid-September, Qiushiran a Xi speech delivered in July. The purpose was canon-setting, not casual.
In this internal voice the Party speaks to its own cadres without saying 产能过剩 (overcapacity). It leans on euphemisms such as “disorderly low-price competition” and “involution”. It also instructs cadres that overcapacity may exist only at the global level. That claim assumes a world with frictionless trade, identical goods, and prices that can fall without limit.
Cadres quickly internalise the idea that what benefits China benefits the world, and mainstream Chinese media swiftly amplifies it.
However, that world imagined by the Party exists on paper, not in practice. In reality global demand is not a bottomless bin; it is segmented by quality, standards, geopolitics, and time.
If a country or a sector cannot sell what it makes at prices that cover costs without ongoing support, there is overcapacity, whatever the global totals say
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