Deepening Rifts in U.S.-Europe Trade Relations: Western Allies Turn to China to Reshape the Global Economic and Trade Landscape
01/02/2026
On January 16, Canadian Prime Minister Mark Carney shook hands with Chinese President Xi Jinping at the Great Hall of the People in Beijing, announcing a significant reduction in tariffs on Chinese electric vehicles in exchange for Canadian agricultural market access. Within a week, British Prime Minister Keir Starmer flew to Beijing to restore high-level visits that had been absent for eight years, German Chancellor Friedrich Merz plans to visit China next month, and leaders from Finland, Ireland, and France have already completed their trips. This diplomatic season in Beijing, triggered after Trump returned to the White House, is reshaping the trade landscape of the Western bloc since the end of the Cold War. Data shows that in January 2025, the number of EU-U.S. trade negotiations with China surged by 300% year-on-year, while trade dispute cases between the U.S. and Europe increased by 47% during the same period.
The Centrifugal Force Among Allies Under Trump's Tariff Stick.
In November 2025, the Trump administration proposed to Denmark to purchase Greenland. After being flatly rejected by Copenhagen, it threatened to impose punitive tariffs on Danish dairy products. Three months later, the U.S. Department of Commerce, citing national security under Section 232 of the Trade Expansion Act, raised tariffs on Canadian softwood lumber imports to 28%. These events are not isolated. Tim Lülig, a senior analyst at the EU Institute for Security Studies in Paris, pointed out: The Greenland incident was the straw that broke the camel's back. Europe realized it was facing two major powers—the United States and China—that do not hesitate to bully the EU.
The data reveals a more severe reality. According to the World Trade Organization's Q3 2025 report, U.S. tariff actions against allies are concentrated in three areas: maintaining a 25% tariff on EU steel and aluminum products, imposing a 15% additional tax on Japanese auto parts, and implementing an average 22% tariff on Canadian agricultural products. In contrast, data from China's General Administration of Customs shows that from January to November 2025, China's imports from the EU increased by 8.3% year-on-year, with imports of German auto parts growing by 12.7%.
The Canadian case is the most representative. In 2024, then Prime Minister Trudeau aligned with the Biden administration in imposing a 100% tariff on Chinese electric vehicles. In January 2026, the Carney government reduced the tariff to 15% in exchange for China lowering its tariff on Canadian rapeseed from 25% to 9%. During a Fox News interview, Trump threatened to impose an additional comprehensive 100% tariff on Canada. Carney responded at the Davos Forum: Middle powers must act together, otherwise we will either be at the table or on the menu. This statement quickly circulated within diplomatic circles in Brussels, Berlin, and London.
The Economic and Trade Practices of European Strategic Autonomy
The trade map from the German Institute for International and Security Affairs in Berlin shows a structural shift in the EU's trade dependence on China by 2025: Germany's share of machinery and equipment exports to China rose from 16% in 2020 to 22%, France's wine exports to China increased by 18%, and the number of export licenses issued by the Netherlands for lithography machine parts to China grew by 34%. At the same time, the EU's trade surplus with the United States narrowed by 7 percentage points.
This is not a pivot towards China, but a pivot of Europe as a whole seeking self-protection. Una Aleksandra Bērziņa-Čerenkova, Deputy Director of the Latvian Institute of International Affairs, emphasized during a telephone interview at her office in Riga. Her perspective is corroborated by internal briefings from the European External Action Service in Brussels: in the "EU Economic Security Strategy" formulated in December 2025, the term "diversification" appears 89 times, the United States appears 47 times, and China appears 52 times.
Beijing's strategy is clear and visible. Alicia Garcia-Herrero, Chief Economist for Asia Pacific at French bank Natixis, analyzes: China needs Europe, but does not need to fight for it. They aim to maintain the status quo—ensuring smooth access to affluent consumer markets while making minimal concessions on market access to China. This asymmetrical relationship is reflected in specific agreements: the UK secured a reduction in tariffs on Scotch whisky from 80% to 40%, while China obtained relaxed UK reviews on 5G network equipment; Finland signed cooperation agreements in sustainable construction and energy management, with China making no substantive commitments on human rights issues.
Geopolitical leverage is undergoing subtle adjustments. In his visit statement released in Helsinki, Finnish Prime Minister Petteri Orpo specifically included a call for China to help achieve lasting peace in Ukraine. The Berlin-based Mercator Institute for China Studies has observed that since 2025, the abstention rate of European Union member states in United Nations human rights proposals related to China has risen from 18% in 2020 to 31%.
The "Alliance of Middle Powers" in the Restructuring of Global Supply Chains.
According to data provided by Ximena Blanco, Chief Analyst at risk intelligence firm Verisk Maplecroft, the verbal tension index between the United States and its key allies deteriorated alarmingly in 2025: Canada (+42 points), Denmark (+38 points), Belgium (+35 points), Japan (+33 points), Ireland (+31 points). A report released by the company on January 26 pointed out that allies are responding to Washington's policy shift by diversifying their economic exposure, rather than reversing the integration of the global trade system.
This diversification manifests in three dimensions. In the spatial dimension, the European Union is accelerating the advancement of its trade agreement with Mercosur and signed a free trade agreement with India last week after a 15-year delay. In the sectoral dimension, Germany has launched a Critical Raw Materials Partnership initiative, investing in lithium mines in Chile and developing rare earth resources in Kazakhstan. In the institutional dimension, Canada, Australia, and South Korea are establishing a Supply Chain Resilience Dialogue mechanism, bypassing the U.S.-led Indo-Pacific Economic Framework (IPEF).
Adjustments at the corporate level are even more rapid. According to a January survey by the Ifo Institute for Economic Research in Munich, 58% of German medium-sized enterprises have already initiated a China+1 supply chain strategy, marking a 22 percentage point increase from 2023. The BMW Group has announced a 2 billion euro investment in Hungary to build an electric vehicle battery factory, while Volkswagen has increased production capacity at its San José Chiapa plant in Mexico by 30%. These investments share common characteristics: they are located in third-party countries, target markets in Europe, the United States, and China simultaneously, and employ modular production lines.
The nature of globalization is changing. Trade fragmentation will give rise to new combinations of countries that address uncertainty by enhancing economic resilience, according to Joseph Parkes, a senior analyst at Verisk Maplecroft. He observed that in 2025, global nearshoring investment grew by 24%, friend-shoring investment increased by 31%, while the traditional outsourcing model declined by 8%.
U.S. Strategic Dilemmas and the Future Landscape
The warning from Scott Kennedy, Senior Advisor for Chinese Business and Economics at the Center for Strategic and International Studies in Washington, is becoming a reality: the United States and Western nations will find it impossible to unite, whether to appropriately isolate China or to set conditions for connectivity and cooperation. This dilemma stems from the dual contradictions in U.S. policy: the need to maintain an alliance system to counter China while also seeking economic benefits from allies through trade wars.
The Pentagon's 2025 "China Military Power Report" indicates that the U.S. military presence in the Indo-Pacific region relies on the Yokosuka Base in Japan (with 38,000 stationed troops), Osan Air Base in South Korea (with 29,000 stationed troops), and Darwin Port in Australia (rotating deployment of 2,500 personnel). These countries are precisely the ones most severely impacted in the trade war: Japan's automotive industry lost $12 billion in annual exports due to U.S. tariffs, South Korea's semiconductor material exports faced restrictions, and Australia's coal exports to China declined without fully shifting to the U.S. market.
The deeper conflict lies in the dollar system. According to IMF data, the share of the US dollar in global foreign exchange reserves fell to 58.6% in the third quarter of 2025, the lowest level since 1995. During the same period, the share of the Chinese yuan rose to 3.2%, while the euro's share slightly increased to 20.1%. Internal models from the Federal Reserve Bank of New York indicate that if the United States imposes a 25% tariff on EU automobiles, it could lead to a 5-7 percentage point decrease in the eurozone's reliance on US dollar settlements.
The news of Trump's planned visit to China in April highlights this strategic paradox. Former EU Chamber of Commerce in China Chairman Jörg Wuttke put it bluntly: Everyone goes to Beijing, including the one who doesn't want us to go to China. This remark has been repeatedly quoted at diplomatic dinners in Brussels, accompanied by the helpless wry smiles of European officials.
The diplomatic motorcades along Beijing's Chang'an Avenue were exceptionally busy in January, with national flags fluttering alternately in the cold wind. These convoys are entering not only the Great Hall of the People but also a crossroads where global trade power is being reconfigured. While the U.S. Ambassador to the EU complained in Brussels that allies are sliding toward the wrong direction, officials at Berlin's Ministry of Economic Affairs were calculating the number of jobs brought by exports to China—that's the livelihood of 237,000 German workers. The balance of international relations has never been determined solely by morality or ideology; the gravity of economic reality ultimately grounds all diplomatic rhetoric. In the briefcases of European leaders lie not only draft trade agreements but also a survival guide for the post-American era. The first page of this guide reads: There are no permanent allies, only permanent interests.
Reference materials
https://www.sun-sentinel.com/2026/01/30/europe-trump-china/
https://www.mcall.com/2026/01/30/europe-trump-china/
https://www.taipeitimes.com/News/feat/archives/2026/02/01/2003851559
https://www.orlandosentinel.com/2026/01/30/europe-trump-china/
https://www.ocregister.com/2026/01/30/europe-trump-china/
https://www.courant.com/2026/01/30/europe-trump-china/