Brussels faces growing pressure to confront Beijing over the undervalued yuan.
Brussels, June 2026. European leaders are increasingly blaming China’s undervalued currency for the European Union’s record trade deficit with Beijing. They argue that the weak yuan makes Chinese products even cheaper across a market already saturated with imports.
German Chancellor Friedrich Merz said an artificially low currency gives exporters a major competitive advantage. The issue was discussed at both the European Council summit and the recent G7 meeting in France.
A French government advisory report estimates that the yuan, also known as the renminbi, could be undervalued by between 20% and 25%. Although measuring the precise value of a currency remains complex, several international institutions agree that the Chinese currency is unusually weak.
China’s large trade surplus should theoretically increase demand for the yuan and strengthen its value. However, analysts say Beijing limits this appreciation by keeping part of its export revenues in Hong Kong instead of converting them into renminbi.
The European Union recorded a trade deficit of €359.9 billion with China in 2025. It was also the first year in which every EU member state, including Germany, registered a commercial deficit with Beijing.
European Commission President Ursula von der Leyen described the situation as unsustainable. European manufacturers estimate that Chinese products are currently between 30% and 40% cheaper than equivalent goods produced within the bloc.
The weak yuan is not the only cause of Europe’s declining competitiveness. Economist Alicia García-Herrero said accumulated inflation since Russia’s invasion of Ukraine could explain approximately three-quarters of the European Union’s loss of external competitiveness.
Merz has proposed opening direct negotiations with China over currency management. He referred to the 1985 Plaza Accord, when several major economies coordinated exchange rates to reduce the United States’ trade imbalance.
The German chancellor also mentioned the former European Monetary System. That arrangement used exchange-rate bands to limit excessive currency fluctuations before the introduction of the euro.
However, García-Herrero noted that the United States did not promote similar negotiations during the latest G7 discussions. This could leave the European Union with limited international support for a coordinated currency agreement.
Another option would be for Brussels to monitor Chinese export prices more closely. Sharp declines within specific industries could indicate excessive production capacity and the sale of goods at artificially low prices.
The European Union could then respond through tariffs, trade investigations or measures targeting subsidised imports. Such actions, however, could intensify commercial tensions between Brussels and Beijing.
Europe now faces the challenge of protecting its industries without provoking a wider trade confrontation.
For Brussels, the yuan has become another decisive front in its increasingly difficult economic relationship with China.