The European Union’s growth is being dragged down more by losing market share to China than by a widening trade deficit with the Asian country, according to Goldman Sachs. Chinese manufacturers have been increasing competition for the EU in international markets, particularly in the Asia-Pacific, Latin America, and Eastern European markets.

Trade Deficit and Market Share

The EU’s exports to China rose by less than 10% in the first five months of this year, while China’s exports to the EU increased by 16%. The biggest hit has been in manufactured goods, especially transport equipment and industrial machinery, where China’s cost advantage comes into play.

Goldman expects the EU to shift its stance towards China to a more assertive but still targeted trade policy response. However, a US-style blanket tariff regime remains unlikely, as the EU would not want to jeopardize access to a key market for critical materials such as rare earths.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.