In 2018, the United States implemented a series of tariffs and non-tariff measures targeting Chinese imports, significantly raising the trade barriers between the two nations.

These actions resulted in an effective tariff rate increase of nearly 18 percentage points on Chinese goods, leading to a notable decline in Chinese exports to the US. Consequently, Chinese exporters began diverting their trade to other markets, including the euro area.

An analysis of trade data reveals that, after the imposition of these tariffs, China's market share of euro area imports grew at an accelerated rate, as alternative markets were sought to offset the losses incurred in the US market.

Research conducted using detailed product-level trade data highlights that the sectors most affected by US tariffs included clothing, information technology (IT) equipment, automotive parts, and furniture.

Exports in these categories to the United States decreased substantially, which directly contributed to China's declining share of US imports.

In contrast, many of these tariff-affected goods found new markets in the euro area, allowing China to make significant gains in market share therein by 2019, with this trend persisting into the COVID-19 pandemic.

Despite this shift, the euro area did not manage to capture a more significant share of the US import market.

The potential for euro area products to be more price-competitive due to US tariffs on Chinese goods did not translate into an increased market presence in the US. Instead, other countries with export profiles similar to China were able to increase their US market share as global supply chains adjusted away from direct sourcing from China.

Empirical evidence from gravity model analyses further supports the observation of trade diversion.

The results indicated a significant decrease in Chinese exports to the US, with substantial reallocation occurring towards the euro area and other international markets.

Specifically, euro area imports from China showed a statistically significant increase of approximately 2% to 3% following the implementation of US import restrictions on Chinese goods.

In light of these developments, structural similarities between Chinese exports and those sought in the euro area facilitated this trade redirection.

The euro area, being one of the most similar markets to the US for Chinese exports, emerged as a natural alternative for Chinese suppliers seeking to mitigate the impact of the tariffs.

This shift was also echoed in trade dynamics with neighboring South and Southeast Asian countries, further demonstrating the complex realignment of global trade flows.

As trade barriers increase, particularly if US-China tensions escalate further, the implications for the euro area net trade and economic growth are significant.

Future adjustments will largely depend on the evolving landscape of US trade policies and the interplay with global market conditions, which continue to evolve since the imposition of the original tariffs.