Goldman Sachs: China's Capture of Third-Party Markets Is a Bigger Drag on European Growth
Alina Collins
Goldman Sachs says the real drag on Europe's economy is not the bilateral trade deficit with China but Chinese manufacturers taking market share in third-party markets — Asia-Pacific, Latin America, Eastern Europe — meaning the competitive pressure on Europe runs far wider and deeper than headline trade figures suggest.
Why isn't the bilateral deficit the main story?
In the first five months of this year, China's exports to the EU grew about 16%; EU exports to China rose less than 10% — the gap is widening.
But Goldman stresses the bigger drag is "third-market competition": Chinese firms use their cost edge to win orders from European companies across Asia-Pacific, Latin America, and Eastern Europe.
This means → watching bilateral trade data alone understates the real impact of China's export model on Europe.
Which industries are hit hardest?
The damage is concentrated in manufactured goods, especially transport equipment and industrial machinery — the sectors where China's cost advantage is sharpest.
Europe's share of global capital-goods exports has fallen from 54% in 2005 to 43%; China's share jumped from 7% to 24% over the same period.
In plain terms = in under twenty years, Europe lost 11 percentage points of the global capital-goods market — nearly all of it went to China.
The machinery picture is even starker: Chinese machinery exports to Europe rose by 50%.
Why are Chinese manufacturers pushing so hard into overseas markets?
Weak domestic demand plus excess capacity leave Chinese manufacturers needing foreign markets to absorb output.
This reflects a structural reality: China's export-driven model is not a temporary tactic but a necessary response to insufficient domestic consumption.
How will the EU respond?
Goldman expects the EU to shift toward targeted trade measures, focusing first on sectors with the clearest evidence of trade diversion and industrial drag: steel, machinery, and basic chemicals.
A "U.S.-style blanket tariff" is unlikely — the EU does not want to jeopardize imports of rare earths and other critical raw materials.
This means → the EU's counter-strategy is surgical, not sweeping. The pace and force of these targeted measures will be the key variable in whether European manufacturing competitiveness can stabilize.
Content is for reference only, not financial advice.