Following sharply increased US tariffs on imports from China, concerns have been voiced that Chinese exporters might shift their exports to other markets such as Europe. Chinese exporters that find their access to the US market restricted by tariffs might try selling more of their products in third countries by cutting prices. Given the similarity of market characteristics in the US and the EU, Europe could be especially prone to such trade diversion effects, and, given the previous size of China’s exports to the US, concerns have been raised that the economic impact of such trade diversion could be sizeable.

Aggregate trade data show that the value of China’s exports to the EU has increased significantly in 2025, whereas Chinese exports to the US have fallen markedly. According to Chinese foreign trade statistics, the value of China’s exports to the EU (in US dollars) from April to December 2025 exceeded the level of the same period a year ago by nearly 10% (see Figure 1, left panel).
However, it is striking that this unusually strong growth already started in mid-2024 before the tariff hikes were announced by the new US administration and has hardly intensified since. Also, while one would expect trade diversion to act like a positive supply shock for Chinese exports into the EU – raising quantities and depressing prices – the growth of export volumes has slowed recently and the decrease in prices (approximated by unit values) has moderated (see Figure 1, right panel). Both observations suggest that trade diversion might not have been the main source of the recent strong export dynamics.

Figure 1 Chinese exports to the EU

Notes: Left figure: Year-on-year change (in %) of monthly Chinese exports to the EU and the US (in USD). Right figure: Average year-on-year growth rate (in %) of monthly Chinese export values/quantities/unit values to the EU (in USD) of all HS6 product groups; pre-tariff period is January 2024 to March 2025; post-tariff period is April 2025 to December 2025. Source: Chinese Customs, TDM, and own calculations.

To investigate more systematically how US trade policy contributed to the recent increase in China’s exports to the EU, we conduct a difference-in-differences analysis based on detailed product-level data. Specifically, we use monthly Chinese trade data from January 2023 to December 2025 on more than 3,000 HS6 product groups. We classify those products by their diversion potential, which we define as the percentage by which a product’s exports to the EU would rise if the post-tariff decline in exports to the US were fully diverted to Europe.
Hence, the diversion potential of a product is considered to be high (low) if, after the increase in US tariffs, exports of that product to the US declined a lot (only a little) relative to the level of EU imports of this same product before (i.e. without) diversion effects. Examples of products with high diversion potential include bicycles, washing machines, pneumatic tyres, certain textiles, and several products made of wood. We then compare the export growth of products with high and low diversion potential before and after the tariff shock (inspired by Cigna et al. 2022 and Balteanu et al. 2025).

Figure 2 Effects of trade diversion on export prices and quantities

Notes: The left figure reports by how much export prices and export quantities have changed (in %) due to the new US tariffs against China since April 2025 (until December 2025) according to our estimates for four exposure percentile groups (p50-p80, p80-p90, p90-p95 and p95-p100) vs. the reference group (p0-p50) including 90 % confidence intervals. In all models, the dependent variable is the log(export quantity or price (unit value) to the EU) in month t of product p; they all include sector-time fixed effects (HS2-date) and product-quarter fixed effects (HS6-quarter), and control for Chinese exports to the rest of the world to account for common demand and supply shocks. The right figure shows how the average estimated effect on Chinese export quantities to the EU varied over time in 2025 (for the p95-p100 exposure group). Dots in blue are derived using our baseline diversion measure applied in the left figure, while red dots are derived using an alternative measure of diversion potentials.

The results of the difference-in-differences analysis confirm that diversion effects have so far been concentrated in a small tail of highly exposed products. Since the tariffs entered into force, export quantities to the EU have risen significantly only for about 5% of products with the highest diversion potential (Figure 2, left panel). At the same time, export prices of these products might have edged down slightly. For most other products, we find no evidence of trade diversion effects to date. Across broad product types, mainly intermediate goods appear to be affected, while consumer goods and in particular capital goods show weaker responses.

Our estimation results also provide no indication that diversion effects have intensified over time. One might expect diversion effects to strengthen gradually, as exporters need time to adjust production plans, logistics, and customer networks. Yet our estimates do not show such a build-up. If anything, the effects seem to have started receding again (Figure 2, right panel). One possible explanation is the partial easing of trade tensions between China and the US (as manifested by the reduction in tariff rates from mid-2025 on) and associated policy uncertainty.

Taken together, the macroeconomic effects of trade diversion from China are likely to have remained limited so far. Although diversion effects can be observed for some product groups, their macroeconomic impact is small because the share of affected goods is low and the estimated quantity and price effects are modest. In this sense, the recent rise in Chinese exports to Europe should not be interpreted as evidence of a broad-based ‘flooding’ driven by US trade policy.

Instead, a large share of the recent increase in Chinese exports to the EU is likely to be explained by other factors – above all China’s continued secular export expansion. This trend is underpinned by a strong expansion of production capacity, fuelled by technological advances in several key manufacturing sectors, alongside weak domestic demand in China and a significant depreciation of its real effective exchange rate. This pattern is most visible in chemicals, pharmaceuticals, electronics, and vehicles. Two particularly prominent examples in this respect include exports of lithium-ion batteries and hybrid electric vehicles (EVs) which jointly explain about 32% of the year-on-year rise in Chinese exports to the EU in 2025 (in US dollar terms). For both, as with many products, China has become a key global producer and is expanding its exports steadily, not only into the EU but globally.

Figure 3 Chinese exports of lithium-ion batteries and hybrid EVs

Notes: Monthly Chinese exports (in USD) of lithium-ion batteries (HS6 850760) and hybrid EVs (HS6 870340, 870350, 870360, 870370). Source: China Customs, TDM and own calculations.

The findings of fairly limited trade diversion effects are in line with past experiences and expectations. Already the 2018 dispute between China and the US seems to have resulted only in mild diversion effects towards Europe (see Evenett and Martín 2024, Jiao et al. 2024, Balteanu et al. 2025, Gunella et al. 2025). Rather than being redirected primarily towards advanced economies, evidence suggests that Chinese exporters instead shifted sales disproportionately towards emerging market economies, where competitive pressures might be less intense (Sheng et al. 2025). Consistent with this finding, Chinese exports to Africa and Asia have risen particularly strongly in recent months. Against this backdrop, any reallocation of US-bound sales will likely continue to be dispersed across a wide range of countries, partly absorbed by domestic demand in China, or rerouted to the US market via third countries (see also Deutsche Bundesbank 2025 or Evenett and Martín 2025). The main challenge for Europe’s industry thus likely remains a structural one: China’s rising competitiveness and expanding industrial capacity will likely keep boosting Chinese exports.

References

Balteanu, I, D Moreno and F Viani (2025), “Flooded by China? Trade Diversion Due to US Tariffs During Trump’s First Mandate”, SUERF ECB Workshop, 16 September.

Cigna, S, P Meinen, P Schulte and N Steinhoff (2022), “The impact of US tariffs against China on US imports: Evidence for trade diversion?”, Economic Inquiry 60(1): 162-173.

Deutsche Bundesbank (2025), “The potential impact of the current trade dispute between the United States and China”, Monthly Report, May.

Evenett, S J and F Martín (2024), “Scaling the extent of Chinese Trade Deflection and Trade Retrenchment into the EU during the first US-China Trade War”, Global Trade Alert Zeitgeist Series Briefing 44.

Evenett, S J and F Martín (2025), “Redirecting Chinese exports from the US: Evidence on trade deflection from the first US-China trade war”, VoxEU.org, 24 April.

Gunella, V, G Stamato and A Kobayashi (2025), “The implications of US-China trade tensions for the euro area – lessons from the tariffs imposed by the first Trump Administration”, ECB Economic Bulletin, Issue 3/2025.

Jiao, Y, Z Liu, Z Tian and X Wang (2024), “The Impact of the U.S. Trade War on Chinese Exporters”, The Review of Economics and Statistics 106(6): 1576-1587.

Sheng, L, H Song and X Zheng (2025), “How did Chinese exporters manage the trade war?”, Journal of International Money and Finance 153, 103300.