The European Union is considering a fundamental change to its trade policy with China amid a widening trade deficit, rising dependence on strategic sectors and growing pressure from China’s state-sponsored production model on European industry.

China, the world’s largest manufacturing hub, is boosting its outreach in global markets through state-sponsored industrial policies as it rapidly expands production capacity in many fields, especially electric vehicles, batteries, solar panels, critical raw materials and high-tech products, putting pressure on Europe’s competitiveness.

European Commission President Ursula von der Leyen said at the G-7 summit in Canada that the EU’s trade with China is unsustainable.

She said the EU needs to grow its production capacity, expand its network of free trade agreements around the world and diversify supply chains, especially because critical minerals and raw materials are concentrated in China, urging the bloc to avoid heavy reliance on a single supplier.

China’s dominance in global trade will be among the topics discussed during an EU leaders’ summit in Brussels on Thursday and Friday.

The European Commission emphasized that economic relations with China should continue through risk mitigation, but current trade and investment relations between the bloc and the country are deemed unsustainable.

High-level consultations in Brussels showed that economic and security threats can no longer be assessed separately, prompting more comprehensive and coordinated policies toward China, including new tariffs, import quotas, supply chain diversification requirements and new defensive tools against economic risks emerging from the world’s manufacturing hub.

Last year marked a turning point for the EU in its trade with China, as all member states recorded a trade deficit with the country for the first time.

The EU’s imports from China reached 559.4 billion euros ($695.3 billion) in 2025, while its exports totaled $231.5 billion, marking a record high trade deficit of $417.4 billion, according to data from Eurostat.

Competition in EVs, solar panels, machinery

Intense competition from China in electric vehicles, solar panels, batteries, steel, chemicals and machinery is placing massive pressure on European manufacturers, prompting Brussels to view the impact of cheap, state-sponsored Chinese products on the European market as not only a commercial issue but also a strategic one.

The London-based Center for European Reform reported that Germany faces a serious deindustrialization risk amid China’s growing capacity, warning that Chinese firms are grabbing market share from German producers in their domestic markets, in third countries outside Europe and directly in Europe.

Reports show China could account for around 40% of the world’s industrial production by 2030, putting severe pressure on Europe’s production, research and development, or R&D, and innovation capacities.

Mechanisms to counter China

The EU is working on new mechanisms to combat this. The commission is discussing launching broad safeguard investigations into specific sectors, developing new tools to counter excessive production from China in strategic areas and implementing sector-specific safeguard measures.

Some proposals by France, Italy, Spain, the Netherlands and Lithuania go beyond current anti-dumping processes and would impose direct, blanket customs tariffs on specific sectors instead of relying on lengthy investigations.

One of the most notable regulations the bloc is working on would mandate the diversification of supply chains for critical products to prevent European firms from sourcing resources such as chips, rare earth elements and critical industrial inputs from a single country or supplier.

The proposal would require companies to maintain at least three different sources and would place an upper limit on the share of any single supplier in the total supply.

Maros Sefcovic, the EU commissioner for trade, proposed the diversification tool to prevent potential supply disruptions, especially in semiconductors and critical raw materials.

The diversification strategy involves additional costs for firms but should be viewed as an insurance premium because the costs of supply disruptions could be much higher, according to the Leibniz Centre for European Economic Research, or ZEW.

Another option is a new mechanism to preserve the bloc’s resilience, allowing the direct imposition of additional customs duties and import quotas when market-distorting practices threaten the bloc’s economic security. The legal basis is expected to rest on national security exceptions under World Trade Organization (WTO) rules.

The EU’s hardening stance toward China is due to concerns over strategic dependence and its growing trade deficit. Beijing’s export restrictions on rare earth elements, magnets and other critical technologies have raised concerns in Europe.

Brussels does not want to see a repeat of the energy crisis that followed the outbreak of the Russia-Ukraine war, but there is still no complete consensus within the bloc on imposing very strict trade measures against China.

Some countries, led by France, are calling for stronger tariffs, while Germany and Spain have adopted a more cautious approach because of their close economic ties to China.

The general trend in the bloc is moving toward reducing dependencies and preserving competitiveness rather than completely severing ties with China.

The new trade defense tools under discussion at this week’s summits will shape the future of economic relations between Brussels and Beijing.

The Daily Sabah Newsletter

Keep up to date with what’s happening in Turkey,
it’s region and the world.

SIGN ME UP

You can unsubscribe at any time. By signing up you are agreeing to our Terms of Use and Privacy Policy.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

After Brexit suddenly halted British cheesemaker Michael Harte’s plans to export his products across Europe, it took four years before his young company, Bridge Cheese, managed to find international buyers again, for its cheddar and mozzarella cheeses – this time in distant Hong Kong.

Harte had banked on a “soft Brexit” that kept frictionless trade after Britain’s shock decision on June 23, 2016, to leave the European Union, he said. Instead, the world’s fifth-biggest economy left the common market completely, putting up barriers to the giant on its doorstep.

From its base in Telford, central ⁠U.K. – a town best known as the birthplace of the 18th-century Industrial Revolution that helped spread the idea of open ⁠economies around the globe – Bridge Cheese’s pivot to Asia is now bearing fruit.

This year, it expects to sell more than double the volume of processed cheese to Hong Kong than the annual 100,000 tons it used to send to Europe. Harte hopes to start exports to Malaysia this year and is seeking approvals in Vietnam, Thailand and mainland China and other markets.

But between shortly after the Brexit barriers went up and late 2025, Bridge Cheese had booked no overseas ​sales at all, relying instead on slowing domestic growth to keep the business going.

Harte has no doubt his company’s growth would have been much stronger if the U.K. could still trade freely ​with its neighbors.

Before ⁠Brexit, “you could make a pallet of cheese here on a Monday and have it with the customer in France or Ireland by Wednesday,” Harte said, recalling plans he had to expand rapidly into Spain and Italy.

He abandoned sales to the continent six months after a post-Brexit trade deal was implemented in 2021 because of the new costs of doing business – including mandatory veterinary checks costing 500 pounds ($670) per inspection – as well as reams of customs paperwork and border delays, which increased lead times.

“We just weren’t competitive,” said Harte.

Now, it costs his firm the same for veterinary certification of a 40-foot container carrying 16,800 kilograms of cheese to Asia as it would do for just two pallets totaling 1,200 kilograms sent to the EU, Harte said. And the paperwork is less onerous.

Like Bridge Cheese, which has an annual turnover of around 35 million pounds, thousands of British companies have been forced to find ways to compensate for the loss of free access to their main foreign market, with food producers among the hardest hit.

Although the EU remains the U.K.’s biggest trading partner, a range of manufacturers have felt the impact, adding to the list of problems facing the economy, which has been stuck in a slow-growth rut since the 2007-08 global financial crisis.

“Make an economy less open, and it will restrict growth, though over a longer time trade will adjust and rebuild,” Bank of England (BoE) Governor Andrew Bailey said last October.

So far, that rebuild has proven tentative.

U.K. food exports to EU plummet

Volumes of U.K. food exports to the bloc were down by more than 23% between 2021 and 2025 compared with the five years before Brexit, according to the Food and Drink Federation.

By 2024, around 20,000 small firms, among them food producers, had stopped exporting goods to the EU, reducing the total to around 100,000, according to a report by the London School of Economics’ Centre ⁠for Economic Performance.

Britain’s ⁠post-Brexit trade deals with countries such as Australia and India will replace just a fraction of these lost exports. As well as the hit to trade, Brexit has created years of uncertainty for businesses, reducing investment.

Britain’s overall economy will be 4% smaller 15 years after Brexit than if the country had stayed in the EU, with around half the damage done already, the government’s budget forecasters have estimated.

Based on Britain’s 3 trillion pounds of gross domestic product in 2025, that would be equivalent to 120 billion pounds lopped off the economy.

The National Bureau of Economic Research, a U.S. think tank, predicts even heavier damage, saying Brexit will reduce the size of the economy by between 6% and 8%, with investment, which is crucial for future economic growth, down by 18% compared with a no-Brexit scenario.

Economists who supported Brexit – who were in the minority at the time of the referendum – challenge the estimates.

They argue that the remarkable performance of the U.S. economy in the NBER’s analysis – which compares Britain with a basket of other countries including the U.S. – exaggerates the Brexit effect. The real culprits for the economic malaise, they say, are higher taxes, more regulation and sky-high power bills.

They point out that Britain’s overall economic performance in recent years has been roughly in line with that of France and better than Germany’s, arguing that London should pursue further bilateral trade deals, especially those which help the country’s big services sector.

The red tape, delays and administrative costs of Brexit have also impacted the cost of the food Britain imports, a contributor to ⁠inflation, which has been the highest in the G-7 for much of the past four years, fueled in part by the drop in the value of sterling after the referendum.

Northern Ireland exporters fare better

When policymakers wonder about how the U.K. economy might have fared without Brexit, some look across the Irish Sea.

Northern Ireland, a constituent part of the United Kingdom which shares a land mass with the Republic of Ireland, has been allowed to keep free access to its southern neighbor and the rest of the EU’s single market, thanks to arrangements designed to protect the peace deal that ended decades of armed ​conflict.

That access is vital for businesses and entrepreneurs such as Mike Thomson, another cheese-maker near Belfast.

He said it represented “the best Brexit outcome we could have hoped for,” even if red tape for ingredients shipped over from the U.K. has added costs for his craft dairy, ​Mike’s Fancy Cheese.

His biggest single client is located across the border, in Dublin.

Northern Ireland’s Brexit carve-out helped it to outgrow the rest of the U.K. In 2023 – the most recent year for which such data is available – the Northern Irish economy was 16.5% larger than in 2015, making it the best-performing part of the U.K.

England’s economy grew by 11.6%, according to data from the Office for National Statistics (ONS).

In 2024, more than a quarter of Northern Ireland’s goods and service exports ⁠went to the Republic of Ireland, up ‌from 14% in 2015.

U.K.-EU reset

British Prime ‌Minister Keir Starmer is trying to ease the friction and an EU-U.K. summit has been set for July 22 to seal a deal to slash veterinary checks from mid-2027, although ⁠EU sources have said progress has been slow.

Harte said Bridge Cheese would be keen to export to the EU again if conditions were right and Britain aligned ‌with its rules on human, animal and plant life trade, giving EU buyers more confidence: “If it improves our competitiveness, brilliant.”

But for many companies bruised by Brexit and other economic shocks in recent years, a sense of uncertainty and caution is unlikely to be lifted much by a U.K.-EU reset on food safety standards.

Business investment in Britain has been weak ​since the turn of the millennium, and as a share of gross domestic product (GDP), it has been ⁠the lowest among the G-7 economies since shortly before the Brexit vote.

Economists point to a range of likely causes, including tax changes and poor management, but Brexit – and the political volatility it has ⁠spawned with six different prime ministers in Downing Street since 2016 – hangs heavily over many employers.

Starmer himself is likely to face a challenge from within the governing Labor Party in the coming months.

Thomson, the cheese-maker in Northern Ireland, said the uncertainty meant he ⁠would not be investing to expand sales to the EU, even ​with his largely hassle-free access.

Reform UK, the party of Brexit campaigner Nigel Farage, is riding high in opinion polls. At the same time, one of the possible contenders to replace Starmer from within the Labor Party, former health minister Wes Streeting, has called for Britain to rejoin the EU one day.

“Brexit is not a thing that has happened and is done,” Thomson said. “It’s not something you can plan around because you just don’t know how it’s going to be resolved.”

The U.S. Federal Reserve left its benchmark interest rate unchanged at 3.5%-3.75% on Wednesday, saying economic activity continues to expand at a solid pace despite uncertainty linked to tensions in the Middle East, while inflation remains above policymakers’ target.

The Federal Open Market Committee (FOMC) decided by a unanimous 12-0 vote to maintain the target range for the federal funds rate between 3.5% and 3.75%, in support of the Fed’s dual mandate.

The decision marked Kevin Warsh’s first FOMC meeting as Fed chair, with investors closely watching how he will handle persistent inflation, Middle East-related uncertainty and questions about the central bank’s forward guidance.

The federal funds rate has remained in the current range since the Fed cut rates by 75 basis points in the second half of 2025.

The latest policy statement was significantly shorter than the previous and removed wording that had been interpreted as signaling a bias toward possible rate cuts. The move suggested policymakers are seeking to keep their options open as they assess whether the latest inflation surge will prove temporary or persistent.

Nearly half of Federal Reserve policymakers have lost faith that merely holding borrowing costs steady will be enough to bring inflation back down to their 2% target in ​the face of the oil price surge after the Iran war.

Nine of the U.S. central bank’s 19 policymakers now believe they will need ⁠to raise the Fed’s policy rate this ⁠year, according to projections published on Wednesday as the Fed announced its decision to leave the policy rate in its current 3.50%-3.75% range. None had that view just three ​months ago, when the Fed last published its projections.

Six of those ​nine, ⁠or nearly a third of the committee, feel more than one quarter-point rate hike will be needed this year, the projections show.

Eight believe that rates ought to stay unchanged, and just one felt a single rate cut would be in order. One policymaker, not named, did not submit a rate-path view.

Those views, captured in the Fed’s so-called dot plot of individual policymaker’s rate-path views, illustrate how quickly the debate within the central bank has flipped from a focus on how long to hold rates steady before cutting them, to a growing worry – and for a some, a conviction – that the Fed will need to raise rates to keep price pressures from higher fuel ⁠prices from ⁠seeping more broadly into underlying inflation.

They also pose a challenge for new Fed Chairman Kevin Warsh, who was picked for the job by President Donald Trump with the expectation that he cut interest rates, an option that becomes less feasible as broad support for such a move fades.

Global oil prices have dropped sharply since last week when Iran and the U.S. announced a deal to end the conflict and get oil flowing through the Strait of Hormuz again. But it is not clear how quickly shipping and exports could recover after the agreement is ⁠signed, particularly given the damage that energy facilities sustained during the three-month war.

Fed policymakers typically have the option of rewriting their dot-plot submissions until shortly before publication, so the views should reflect the latest developments in the Middle East.

Inflation ​has been running above the Fed’s 2% target for more than five years.

The projections published on Wednesday ​show central bankers have become more pessimistic about inflation since March, reflecting the sharp rise in inflation since the start of the war. Inflation by the personal consumption expenditures price index is ⁠now seen ‌at 3.6% ‌by the end of the year, based on the median policymaker ⁠view. In March policymakers expected year-end PCE inflation of 2.7%. Core ‌PCE inflation, which strips out volatile oil and food prices, is now seen hitting 3.3%, compared with 2.7% previously. The unemployment rate ​is now projected at 4.3% ⁠by year-end, matching the actual reading in May and lower than the ⁠4.4% policymakers had expected in March. The forecast suggests increasing confidence that the labor market is not ⁠weakening or in need of ​support from rate cuts, as some policymakers had worried earlier this year. GDP growth is seen at 2.2% this year, worse than the 2.4% forecast as of March. (Reporting by Ann Saphir; Editing by Andrea Ricci)

The Daily Sabah Newsletter

Keep up to date with what’s happening in Turkey,
it’s region and the world.

SIGN ME UP

You can unsubscribe at any time. By signing up you are agreeing to our Terms of Use and Privacy Policy.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

The World Bank has approved 400 million euros (nearly $464 million) in additional financing to help expand Türkiye’s renewable energy market, focusing on wind power and utility-scale battery energy storage projects.

The financing expands the Accelerating the Market Transition for Distributed Energy Program, building on the success of its first phase, approved in 2024, which helped accelerate the deployment of low-voltage distributed solar energy systems across the country.

The new package consists of two 200 million euros International Bank for Reconstruction and Development (IBRD) loans provided to the Development and Investment Bank of Türkiye (TKYB) and the Industrial Development Bank of Türkiye (TSKB) under a results-based financing framework, in which disbursements are tied to independently verified performance targets.

With the additional funding, the program’s scope will be broadened beyond distributed solar projects to include onshore wind developments and next-generation Battery Energy Storage Systems (BESS).

Türkiye aims to reach 120 gigawatts of combined wind and solar capacity by 2035, alongside a significant expansion of battery storage capacity.

However, access to long-term financing for distributed wind and storage projects remains limited, partly due to local banks’ short-term funding structures, the World Bank said on Monday.

The program aims to address these financing constraints by providing longer-term funding through development banks, strengthening market expertise in emerging grid technologies and mobilizing private sector investment.

“Scaling up battery storage and distributed wind is the next critical step to future-proof Türkiye’s energy grid,” said Humberto Lopez, World Bank country director for Türkiye.

“By using public development banks to bridge the commercial financing gap, this program enables ready-to-build projects to reach financial close, which will support the competitiveness of Turkish industries, enhance national energy security, and create local jobs across the renewable energy value chain,” Lopez added.

According to the World Bank, the expanded program is expected to support 1,579 megawatts of additional renewable energy capacity, 392 megawatt-hours of battery storage and mobilize up to $405 million in private financing.

The Türkiye package forms part of a proposed $2.96 billion increase in the World Bank’s regional renewable energy financing framework, designed to accelerate clean energy investments across Europe and Central Asia.

“Türkiye is acting as a trailblazer for the broader ECARES (Europe and Central Asia Renewable Energy Scale-Up) program,” said Charles Cormier, World Bank regional director for infrastructure for Europe and Central Asia.

“By successfully pioneering commercial rooftop and utility-scale solar, onshore wind and battery storage, Türkiye is establishing the best practices and knowledge that can be replicated to modernize grid infrastructure, integrate renewables and enhance energy security across the entire region,” Cormier added.

The Daily Sabah Newsletter

Keep up to date with what’s happening in Turkey,
it’s region and the world.

SIGN ME UP

You can unsubscribe at any time. By signing up you are agreeing to our Terms of Use and Privacy Policy.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

A U.S. federal judge on Wednesday ordered the dismissal of a long-running case against Halkbank over alleged Iran sanction violations after the Turkish public lender completed a compliance review.

The bank’s shares on the Borsa Istanbul Stok Exchange (BIST) rose as much as 8.4% after U.S. District Judge Richard Berman signed a “nolle prosequi” order requested by U.S. Attorney Jay Clayton seeking to drop the case.

“The criminal case against our bank ongoing in the United States for years has been definitively and conclusively closed,” Halkbank said in a statement.

Halkbank CEO Recep Süleyman Özdil said the lender expected its opportunities to access foreign funding would improve.

The dismissal promised to relieve one of the main irritants between Türkiye and the U.S., as the NATO allies ‌experience their best ties in decades.

Halkbank was charged in 2019 during President Donald Trump’s first term with allegedly helping Iran evade American economic sanctions. The bank had pleaded not guilty in the case.

President Recep Tayyip Erdoğan repeatedly rejected the charges, insisting that Ankara did not violate the U.S. embargo on Iran. Erdoğan once called the case unlawful and “ugly.”

After Erdoğan and Trump met last year, the Turkish president expressed hope for a resolution of the matter.

Erdoğan said in October that Trump told him during the September meeting at the White House and in a subsequent phone call that the “Halkbank problem is finished for us.”

This March, the U.S. Department of Justice announced a deferred prosecution agreement in which it would dismiss the case following a successful compliance review of Halkbank’s programs.

No money changes hands under the deal, and the bank did not admit criminal ⁠wrongdoing.

To fulfill the agreement’s requirements, Halkbank enlisted a Turkish affiliate of accounting firm Ernst & Young to review the bank’s compliance program and check whether any transactions were for the benefit of Iran or Iranian persons or entities.

In a June 10 joint request to judge Berman co-signed by Halkbank counsel, attorney Clayton said the bank’s compliance obligation “has been satisfied,” according to a 12-page letter.

The review identified “no findings of noncompliance,” the letter said.

The Daily Sabah Newsletter

Keep up to date with what’s happening in Turkey,
it’s region and the world.

SIGN ME UP

You can unsubscribe at any time. By signing up you are agreeing to our Terms of Use and Privacy Policy.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Energy and Natural Resources Minister Alparslan Bayraktar visited Romania on Wednesday to inspect a nuclear power plant using Canada’s CANDU reactor technology as Türkiye evaluates options for its planned third nuclear power station.

According to a statement from the Energy Ministry, Bayraktar toured Romania’s Cernavoda Nuclear Power Plant, which operates two CANDU reactors developed by Canadian engineering firm AtkinsRealis.

Türkiye is seeking to expand its nuclear power capacity beyond the four-reactor Akkuyu plant, which is being built by Russia’s state-owned nuclear company Rosatom in the southern Mersin province and is expected to begin generating electricity later this year.

Ankara plans to construct two additional large-scale nuclear power plants, one in Sinop on the Black Sea coast and in the Thrace region, with negotiations continuing with South Korea for a second facility and discussions with Canada accelerating in recent months for a third project.

“A critical process is underway for Türkiye,” Bayraktar said during the visit.

“Following Akkuyu, we are evaluating technology choices, potential partnerships and the countries we will work with on future nuclear projects,” he added.

Türkiye aims to reach 7.2 gigawatts (GW) of nuclear generation capacity by 2035 and 20 GW by 2050. It plans to complement the conventional nuclear plants with small modular reactors (SMRs).

Akkuyu’s four reactors will have a combined installed capacity of 4,800 megawatts (MW).

Once all units are operational, it is expected to supply from 10% to 15% of Türkiye’s electricity demand.

In addition to cost and electricity pricing, Ankara is placing increasing emphasis on localization requirements in ongoing negotiations, seeking to ensure that a significant share of equipment and components can be manufactured domestically and integrated into the global nuclear supply chain.

Bayraktar said AtkinsRealis is expected to meet Turkish suppliers and equipment manufacturers later this month or in early July.

“We want a nuclear power plant that is competitive, more affordable, highly secure and has a high degree of localization,” he said.

Türkiye has also been engaged in long-running discussions with China over nuclear cooperation and has intensified contacts with South Korea in recent months.

Bayraktar said the visit to Romania provided an opportunity to examine operational examples of CANDU technology in a nearby country with which Türkiye maintains close relations.

Türkiye views nuclear energy as a key component of its strategy to strengthen energy security and achieve its target of net-zero emissions by 2053.

“Türkiye wants access to nuclear power at competitive prices while ensuring the highest safety standards,” Bayraktar said.

“We will move forward with future projects through a more comprehensive approach that also addresses nuclear waste management and fuel supply security.”

The Daily Sabah Newsletter

Keep up to date with what’s happening in Turkey,
it’s region and the world.

SIGN ME UP

You can unsubscribe at any time. By signing up you are agreeing to our Terms of Use and Privacy Policy.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.