No Smoking Gun from the European Commission's First Trade Diversion Monitoring Report

The Commission's import surveillance task force was established in response to concerns about trade redirection arising from increased US tariffs on Chinese imports. The fear was that Chinese products unable to access the US market would seek alternative routes into the European Union—a phenomenon known as trade redirection or trade deflection. Whilst the Commission refers to this as "trade diversion," this terminology is technically inaccurate, as trade diversion specifically refers to effects associated with free trade agreements.

Significant methodological and transparency concerns arise in the Commission’s first report:

• Format limitations: The report consists solely of a table with no explanatory text, context, or interpretation of results

• Construction methodology: No explanation is provided regarding how the table was constructed or which analytical methods were employed

• Third party verification: The calculations cannot be verified using the Eurostat database

• Temporal scope: It remains unclear which months of trade data were utilised for the calculations

• Date inconsistencies: The download page suggests data was calculated on 25 May 2025, while the file itself references 23 May 2025

The most plausible assumption is that the Commission accessed preliminary April 2025 data and combined this with the three preceding months, though this has not been officially confirmed.

A charitable interpretation is that this inaugural report was put together under considerable time pressure and that more details will be released in due course.

The Commission's report identifies 55 eight-digit customs codes covering a diverse range of products, both agricultural and non-agricultural, “that may be at risk of harmful import increases (a simultaneous increase in import volume from all origins and a decrease in price, for products where there is EU production).” All products listed in the report do indeed have both price reductions and volume increases compared to the previous year. It is unclear if any other products exhibiting this pattern were excluded from the table made available by the Commission.

• Median price reduction: 30% across all 55 products

• Extreme price reductions: Four products show price reductions exceeding 80%

• Distribution pattern: Price reductions are heavily right-skewed, indicating a concentration of smaller price reductions (see chart on next page)

The products listed in the table include:

• Steel products: 2 items

• HS Chapter 84 (machinery): 6 products

• HS Chapter 85 (electrical equipment): 4 products

• Many consumer goods: Including electric guitars and men's swimming wear

Notably, the list is not dominated by strategically important products such as critical minerals or key components. 

See Figure 1 for the distribution of year-on-year (YoY) percentage reductions in import prices reported by the European Commission.

Figure 1: Distribution of year-over-year price changes for products identified in the European Commission’s Trade Diversion Report issued on  5 June 2025.

To assess whether the Commission's findings genuinely reflect redirection of Chinese exports from the US market, the most granular US import data was consulted. Particular attention was given to Chinese products where a commercially significant quantum was exported to the United States in 2024 (taken to be a minimum of $500 million of exports of a product during 2024). A total of 101 product categories at the 10-digit US HTS level were identified in this manner. That list of products can be found here.

This analysis involved:

1. Using official US import data to identify high-value Chinese exports to the US (≥$500 million annually)

2. Cross-referencing product names and customs codes between the Commission's list and list constructed in step 1 

3. Focusing on the first six digits of product codes for comparison and deploying varying tools to assess similarities between product descriptions, identify those products on both the EU and US lists.

4. Double checking for any matches across the two lists.

This comparative analysis of lists revealed a striking mismatch:

• Only 2 out of 55 products on the Commission's list correspond to goods that China exports to the United States in sufficient quantities to generate meaningful trade redirection. 

• Neither product is of strategic importance or represents any known threat to the economic or national security of the European Union. The two products in question were kitchen appliances (e.g. pots and pans) and LED lamps. 

• 53 out of 55 products identified by the Commission are not exported by China to the US in large quantities, suggesting minimal risk of trade redirection on account of the ongoing trade war between China and the United States.

Limited Evidence of Trade Redirection

The analysis suggests that the Commission's first report does not provide a "smoking gun" for those concerned about European markets being flooded with redirected Chinese products. The near complete mismatch between products showing unusual import patterns in the EU and products that China exports substantially to the US calls into question whether genuine trade redirection is occurring.

Broader Context

Chinese export data indicates that overall Chinese exports in 2025 have increased compared to 2024, including exports to the European Union. However, the critical question remains whether the products experiencing unusual import patterns in the EU are the same products that China exports to the US in sufficient quantities to warrant redirection concerns.

Caveats and Limitations

The conclusions presented must be considered tentative due to:

·         The Commission's lack of methodological transparency

·         Incomplete information regarding data sources and calculation methods deployed by the Commission

·         Potential for revisions as more comprehensive data becomes available

Recommendations

1.       Enhanced transparency: The Commission should provide detailed methodological notes and data sources for future reports. Failure to do so may compromise the credibility and utility of this work, perhaps fatally

2.       Improved analysis: Future reports should include interpretive analysis and contextual information

3.       Verification mechanisms: Establish processes to allow independent verification of findings

4.       Focus: Consider prioritising monitoring of products with genuine trade redirection potential. Perhaps also flag those product codes where economic and national security considerations are deemed relevant.

While the Commission's initiative to monitor potential trade diversion represents a prudent policy response to changing global trade dynamics, the inaugural report's findings do not substantiate often-heard concerns about redirection of Chinese exports to European markets. This analysis suggests that the majority of products flagged by the Commission are unlikely candidates for trade redirection from China, given their limited nexus to the big-ticket items that China has exported to the United States.

Future iterations of this monitoring exercise would benefit from enhanced methodological transparency and more targeted analysis focusing on products with genuine potential for trade redirection. The availability of official data on imports into the United States from each trading partner at a very granular product level opens the door for the Commission to upgrade its nascent import surveillance initiative.

Simon J. Evenett is Founder of the St. Gallen Endowment for Prosperity Through Trade, Professor of Geopolitics & Strategy at IMD Business School, and Co-Chair of the World Economic Forum’s Trade & Investment Council.