EU-China Trade Dispute 2026: CBAM Tensions and the Structural Trap

They're shaking hands, but their fists remain clenched. According to SCMP, China and the European Union (EU) kicked off 2026 with another high-stakes trade confrontation. While both sides signaled technical progress on the electric vehicle (EV) dispute this week, the broader relationship's stuck in a cycle of escalation and interdependence.

EU-China Trade Dispute 2026: Escalation Under CBAM

The latest flashpoint arrived as the Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase. As Brussels tightened compliance, Beijing warned of swift countermeasures. This juxtaposition underlines a structural trap: even when one dispute moves toward negotiation, imbalances in standards and subsidies quickly create new ones.

Bilateral trade reached an enormous €730 billion in 2024, but the EU's deficit stood at a "critically unbalanced" €305.8 billion. The emblematic fight over EVs has seen EU tariffs climb as high as 45.3 per cent. In response, China retaliated with provisional duties of up to 42.7 per cent on EU dairy products as 2025 drew to a close.

The Collision of Economic Models

The diplomatic bridge between the two powers has hit a ceiling. Brussels treats China's industrial policy and overcapacity as "systemic distortions," while Beijing views these investigations as politicized protectionism. With the Comprehensive Agreement on Investment (CAI) still politically frozen, the path to a long-term resolution remains narrow.