Bilateral trade between China and the European Union: Emerging challenges and opportunities in a shifting global landscape

Abstract

This paper examines trade relations between China and the European Union from 2000 to 2022, focusing on the role of trade policy uncertainty alongside key economic and institutional factors. Using an extended gravity model, the results show that China’s economic growth is a dominant driver of trade flows. The study introduces a novel proxy for China’s trade policy uncertainty, finding that it significantly influences bilateral trade. Results are robust to different specifications. Additionally, the results indicate that while non-eurozone EU countries demonstrate higher trade flows with China, the immediate impact of China’s Belt and Road Initiative on EU trade remains limited. Given the anticipatory nature of trade policy uncertainty and its relationship with economic growth, the findings highlight the usefulness of trade uncertainty indicators as tools for the early detection of shifts in trade patterns, offering valuable insights for policymakers to design strategies that promote greater stability and economic integration.