EU-China Trade and intra-EU Trade: Substitute or Complementary?

This paper examines how EU-China trade affected intra-EU trade. The estimation shows that when a country's share of trade with China increased, its share of trade with EU partners declined. This suggests that stronger trade links with China resulted in weaker trade links among EU countries. Furthermore, the "disintegration" effect of the export to China was stronger than that of import from China, meaning that the influence of China as an export destination was greater than that of China as a source of import. An extended analysis shows that the disintegration effect was most strongly felt in trade links among EU core countries, less strongly felt in trade links between EU core and periphery countries, and least strongly felt in trade links among EU periphery countries. In comparison, we find that EU import from the US and India significantly weakened and strengthened intra-EU trade respectively. Estimation results using product level data demonstrate that the effects depend on the types of products we are concerned with. Whether using gross value or value added, the conclusions remain valid