Ursula von der Leyen had a phone conversation with Chinese premier Li Qiang, focusing on the status of EU-China relations and trade matters. She emphasised the need for a negotiated resolution to avoid further escalation due to US tariffs and widespread disruption.
They discussed potential trade diversion resulting from tariffs, particularly in sectors with global overcapacity. Despite prior efforts by the EU to diversify its trade relationships away from China, the current geopolitical climate has prompted a reassessment of priorities.
Building Concern in EU-China Trade
Their dialogue, while diplomatic in tone, highlights a deeper concern that has been building just beneath the surface for months now. The European Commission president’s reference to “trade diversion” is not just about shifting supply chains or rerouting products—it’s a warning about unintended consequences, especially for sectors already under strain from surplus production, like electric vehicles and steel.
Li, for his part, appears to be playing a balancing act. He’s aware of the growing unease in European capitals, and perhaps more importantly, in their budgets. While the public conversation rests on “resolution” and “cooperation,” the reality is shaped far more by timing, inventories, and a cooling appetite for risk.
From our standpoint, this isn’t merely a question of diplomatic choreography—it presents a layered set of trading implications over the coming weeks. If tariffs begin to deter traditional EU-China trade flows and redirect goods towards or away from secondary markets, pricing gaps may emerge. These are not expected to appear instantly, but rather begin as small discrepancies, which, compounded by speculation or limited liquidity, could grow into price shifts large enough to adjust futures positions across multiple sectors.
Consider the machinery and heavy equipment space. Previously stable, it’s now becoming vulnerable to cross-border frictions. Contracts in these areas—which were once rarely adjusted from quarter to quarter—are now susceptible to pressure brought on not just by stock levels but by import clarity. When either side implies they may tune enforcement strategies without notification, derivative markets should expect sharp moves, often with few early signals.
Market Vulnerabilities and Strategic Updates
What makes the risk harder to contain is how slowly some institutional players have updated their models. Many continue to account for China as a stable source of low-cost goods, a baseline that appears increasingly unsteady. That distortion could leave derivative exposures underhedged. On a shorter timeline—one to three weeks—we would not be surprised if certain EU-focused indices show irregular pricing on even mid-volume contracts. Volatility spikes may not come from poor economic data, but from regulatory shifts, or even hints at them.
By bringing the conversation up just as US tariffs begin to ripple across supply routes, von der Leyen is effectively marking a point on the chart. The next time China trades cause distortions, no one will be able to say they were caught unaware.
So what next? We should monitor for formal statement windows and keep risk margins slightly wider—not defensively, but in anticipation of tempered liquidity around key announcement periods. Syndicated data due next week on import deviations could become highly relevant, especially for those tracking cross-sector ratios. Timing these releases accurately—down to the hour—is worth more now than macro views stretched over quarters. It’s about avoiding delay, not anticipating some grand shift.
There may not be continuous headlines, but the undercurrents they’re responding to won’t go quiet. Trade models dependent on status quo assumptions from six months ago now need near-real-time reassessment. The focus from Brussels isn’t purely political—it’s quietly shifting how we think about exposure, pairings, and even short-term allocation.
When public positions are this carefully worded, it’s often what’s not said that should shape the strategy. We move where the gaps are—especially when those gaps are not yet in the spreadsheets.
