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Chinese trade diversion from US would cut euro zone inflation, ECB blog says
Published by Global Banking & Finance Review®
Posted on July 30, 2025
2 min readLast updated: January 22, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on July 30, 2025
2 min readLast updated: January 22, 2026
Chinese trade diversion from the US could lower euro zone inflation, impacting economic scenarios, according to an ECB blog.
FRANKFURT (Reuters) -A major flow of Chinese trade away from the United States would likely lower euro zone inflation next year, when price growth is already set to undershoot the 2% target, a European Central Bank blog post said on Wednesday.
China is negotiating a trade deal with the U.S. and pressure has increased on Beijing to accept higher tariffs after Washington cut deals with the European Union, Japan and Britain.
If those talks failed and U.S. tariffs on Chinese goods rose to an effective rate of around 135%, as threatened by the Trump administration, then China would likely sell much of its surplus product in the euro zone, pushing up supply and lowering inflation by as much as 0.15% next year and to a lesser extent in 2027, the ECB blog said.
While economists do not see this scenario as the most likely outcome, such a price drag would be problematic since euro zone inflation is already expected to fall to 1.6% next year and this trade diversion would raise the spectre of more persistent undershooting, potentially forcing the ECB to cut rates.
"It will take some time for consumer prices to drop," the blog argued. "Consumer prices for non-energy industrial goods tend to respond with the strongest impact materialising one to one-and-a-half years after the initial shock," the blog said.
Under this "severe" scenario, the euro zone's imports from China could rise by as much as 10%, resulting in an excess supply of goods equivalent to 1.3% of overall goods consumption, the blog, which is not necessarily the ECB's opinion, said.
For the market to absorb such an excess supply, overall import prices would need to drop by 1.6% and non-energy industrial goods inflation may fall by as much as 0.5 percentage points in 2026, it said.
(Reporting by Balazs Koranyi; Editing by Sharon Singleton)
A significant shift of Chinese trade away from the U.S. is likely to lower euro zone inflation next year, with price growth expected to undershoot the 2% target.
If U.S. tariffs on Chinese goods rise to around 135%, China may sell much of its surplus products in the euro zone, potentially leading to an excess supply.
The euro zone's inflation is expected to fall to 1.6% next year, which is already below the target rate.
The blog suggests that it will take time for consumer prices to drop, with the strongest impact typically materializing one to one-and-a-half years after the trade changes.
Under a severe scenario, euro zone imports from China could rise by up to 10%, leading to a potential drop in overall import prices by 1.6%.
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