Base effects: Europe's surplus collapse is a tariff hangover

The EU's trade surplus with the world collapsed in March, from €34.0bn to €5.9bn in a single year.[1] The figure has been read as Europe losing its industrial edge. It is the wrong number to fear. 

The headline collapse in EU exports to the US is mostly a base effect from 2025 tariff front-running. The deficit that genuinely threatens European industrial competitiveness is the structural imbalance with China.

In March 2025 Washington signaled tariffs would take effect on 2 April.[2] Targets were global trade partners including the EU. Firms reacted by shipping goods out ahead of the duties. The result was a month-on-month spike of almost 40%, to €71.6bn in exports to the US.[3] Today the 15% tariff set by the July Turnberry framework is real and a genuine cost to exporters.[4] The surplus more than halved YoY, and the collapse has been read as proof that European industry is losing ground in global competition. It arrives at an anxious moment. Brussels is already debating how exposed European industry is to a world of harder trade barriers and subsidized foreign competition, and the surplus figure has become a data point in that argument. The number is real. The reading of it is wrong.

The EU's external surplus drop of €28.1bn reads as a broad collapse in European competitiveness.[1] Close to none of it is broad. The balance with a single partner, the United States, swung from €40.4bn to €13.5bn over the same period, a fall of €26.9bn.[1] One bilateral relationship accounts for 96% of the entire shift, while balances with the EU's other major partners moved only marginally.[3] The contraction occurred almost exclusively against a single partner, and it collapsed on the export side.

The 37.1% YoY drop in EU exports to the US is calculated against March 2025.[1] The comparison overstates the decline because March 2025 was not a normal month. €71.6bn is 60% above the 2024 monthly average of €44.6bn.[3] In March 2025 firms rushed shipments out ahead of expected tariffs. That front-running inflated exports. The March 2026 number of €45.0bn sits fractionally above that 2024 average.

Stripping the base effect does not leave zero. Against a normal 2024 base, Q1 2026 exports to the US are down approximately 12%.[3] The quarter had a weak January, one of the lowest months in the last two years.[3] The pattern through late 2025 was an unwind. Exports ran below the 2024 average for most of the second half, dipping in August and rebounding in September around the July tariff framework that set the 15% ceiling.[3] November and December sat near €37bn, well under the €44.6bn norm.[3] By this March, exports are back near the 2024 average. The deeper quarterly figure reflects the tail of that unwind rather than a fresh decline. The drag from the 15% tariff is real and ongoing. It is well short of the headline. 

The asymmetry confirms the reading. Exports showed volatility that imports did not. Imports held at €31.5bn, up 1.1% YoY.[1] This discrepancy is the tell. A broad loss of competitiveness would pressure imports as well, as European firms would buy more from rivals they could no longer outcompete. Imports held. The deterioration was concentrated on the export side, around the tariff. Removing the front-running leaves exports at similar levels. The balance collapse is overwhelmingly the March 2025 spike unwinding.

Trade with the US normalized. The balance with China will not. It widened to €360bn last year from €312bn, with exports down 6.5% and imports up 6.4%. The first-quarter gap widened again, to €96.3bn from €88.4bn a year earlier.[3] The cause is structural. A European Parliament study finds industrial overcapacity across most of Chinese manufacturing, with electric vehicles and batteries among the sectors where it presses directly on European producers, and concludes the pressure is likely to persist or intensify.[5] Europe is selling less to China while buying more from it every year. Brussels is now fighting over it. The Commission is advocating broad measures against Chinese subsidized imports. The EU's industry commissioner Stéphane Séjourné called Chinese competition "existential" and argued for a more "muscular" approach.[6] That is the deficit worth the alarm. The tariff-induced surplus collapse with the US is correcting itself. The deficit with China will not.

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Notes

[1] Eurostat, "Euro area international trade in goods surplus €7.8 bn," 19 May 2026. 

[2] Reuters,  "Trump still intends for reciprocal tariffs to kick in on April 2, White House says," 19 March 2025. 

[3] Eurostat Comext, EU trade in all goods by partner, monthly series, NSA (own extraction). 

[4] European Commission, "Joint Statement on a United States-European Union Framework on an Agreement on Reciprocal, Fair and Balanced Trade," 21 August 2025. 

[5] European Parliament, "Industrial overcapacities, with a focus on China," March 2026. 

[6] Financial Times, "EU to broaden import quotas and tariffs against China," 28 May 2026.

Image credit: Bernd Dittrich, Unsplash

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Continental is a biweekly column on European economics by Felix Schmidt. New issues appear on Substack first and on the International Economics Post within 48 hours.