EU and China Reach Fresh Trade Deal on Hybrid Cars and Rare Earth Supplies

China and the European Union have reached an understanding on hybrid vehicles and agreed to strengthen trade dialogue following talks between their commerce chiefs, easing concerns over a possible trade war.

China’s Commerce Ministry said on Friday that European Commissioner for Trade Maroš Šefčovič and Chinese Commerce Minister, Wang Wentao, agreed to follow procedures concerning company price undertakings for hybrid cars, according to a joint statement.

The automotive sector was a major focus of the negotiations, as the EU seeks to address concerns over cheaper Chinese imports and their impact on European manufacturers.

China also pledged to continue facilitating the approval of export licences for rare earth minerals and permanent magnets destined for the European Union.

The commitment is expected to provide some relief to European businesses that depend on the materials for manufacturing and other industrial activities.

The two sides acknowledged their differences but agreed to maintain trade dialogue and hold another meeting in March.

The talks followed months of rising tensions between the 27-member European Union and China, amid disputes over trade practices, tariffs and market access.

Before the negotiations, Šefčovič described tangible outcomes as crucial, while warning that the EU’s trade deficit with China, estimated at about one billion euros ($1.1billion) daily, was unsustainable.

European officials have accused China of unfair trade practices, including providing substantial subsidies to domestic companies and selling goods at artificially low prices. 

Beijing has faced similar scrutiny over its trade and industrial policies.

Despite the disagreements, both sides have economic interests in maintaining stable relations. 

The EU relies on Chinese imports for several industrial products, while China depends heavily on exports amid weakness in its domestic economy.

Ahead of Šefčovič’s visit, Bernd Lange, chairman of the European Parliament’s trade committee, said China’s economic difficulties gave the EU bargaining power.

Adam Dunnett, the secretary general of the European Union Chamber of Commerce in China, said European businesses operating in the country were concerned about the trade imbalance and the direction of relations.

Speaking to AFP in Beijing on Friday, Dunnett said companies supported efforts to address the imbalance but wanted solutions to be proportionate, specific and negotiated.

“They fully support that that needs to be addressed, but they want it to be done in a proportionate, specific and negotiated way so that we can manage the overall relationship,” he said.

China’s commitment to facilitate rare earth exports is also expected to ease concerns among European businesses over access to the critical materials.

Beijing introduced new export controls last year in response to tariffs announced by United States President Donald Trump, complicating access to rare earths and related products.

Dunnett said greater transparency and predictability surrounding export approvals would be an important outcome of the talks.