Bilateral trade between China and the EU: growth, integration, and policy uncertainty

Abstract

This paper examines trade flows between China and the European Union from 2000 to 2022, focusing on trade policy uncertainty (TPU) as a key determinant of bilateral trade. Using an extended gravity model, we develop a novel measure of China’s TPU and find that higher uncertainty is associated with a significant and persistent decline in China-EU trade, even after controlling for conventional economic and institutional factors. While China’s economic growth remains the primary driver of trade expansion, the results highlight the forward-looking nature of trade flows, which respond negatively to rising uncertainty. The analysis also suggests that, although the Belt and Road Initiative (BRI) has not generated substantial aggregate trade gains, it has supported EU exports to China. Robustness checks across alternative specifications confirm the value of TPU indicators as early warning signals of changing trade patterns, providing useful guidance for policies aimed at strengthening trade resilience and economic integration.