Europe’s window of opportunity in Asia

Let’s start with China, where growth is holding up despite US tariffs and a weak real estate market. A strong first half of 2025 should keep growth on track, despite a soft start to the second half. Exports are shifting: shipments to the US – especially furniture, footwear, and toys – have dropped under the weight of Trump’s tariffs, but rising exports of EVs, batteries, and semiconductors to Europe and Asia have more than offset the losses. Overall external demand has continued to support Chinese growth this year. As China’s economy moves up the value-added ladder, the reverberations will be felt worldwide.

The effect is already being felt across Europe, as ING’s Chief International Economist Opens in a new tabLynn Song explains:

China exporting less to the US and more to Europe means stronger price competition as products once bound for the US are now sold elsewhere, including Europe. European companies are feeling pressure from price competition, particularly in electric vehicles and household appliances. Also, Chinese semiconductors have gained ground in recent years.

However, the transition of China’s economy will not only bring challenges but also great opportunities, perhaps none bigger than China’s domestic consumer market. According to Song:

China has begun pivoting its policy focus toward boosting domestic demand. In the longer term, China’s huge population and increasing wealth will mean the Chinese consumer will be an increasingly important source of demand in the future. While domestic producers have a stranglehold on lower-end products, and the luxury market looks well saturated, between these extremes there remains significant opportunity for quality products and services to be sold to a growing middle class.

Seizing that opportunity requires a shift in approach. “European companies used to see China as a base for manufacturing products to sell elsewhere. They should invest in China with the idea of selling in China. The country’s anti-involution policy is meant to reduce harmful price wars between companies. This could also make it easier for European firms to stay competitive in the Chinese market. Rising wages and growing wealth mean the domestic middle-class market is expanding even further. However, the growth of the middle class is a long-term process, not something that changes in a few months.” 

Opportunities are also taking shape in India, where expanding trade, new free trade agreements, and strong complementarities in sectors like manufacturing and sustainability are opening doors for European firms. Opens in a new tabDeepali Bhargava, Head of Research and Chief Economist in the Asia Pacific, highlights a growing alignment between Europe and Asia, particularly in machinery, semiconductors, and textiles:

Asia is exporting large volumes of these goods, while Europe’s focus on sustainability is creating demand for green technologies such as solar panels – sectors where Asian markets are well positioned.

Trade agreements are accelerating this momentum. As Bhargava explains: “All this friction between the US and Asia has brought the EU and India together. Agreements with India, and increasingly with countries like Vietnam and In""donesia, are likely to move forward after nearly a decade of discussions. This is opening doors in manufacturing, sustainability, and infrastructure. India’s infrastructure and modernisation agenda for growth brings in scope for Europe and India to partner on clean and renewable energy, transport, telecom, where EU can offer tremendous knowledge and technology sharing."

The numbers show trade between Europe and India is already expanding. Europe has become India’s second-largest trading partner. Its share in Indian exports has risen five percentage points since 2018.

This is not a sudden change, but a long-building momentum now coming into focus.

- Deepali points out. At the same time, persistent US tariffs on transshipments via countries like Vietnam could force companies to rethink supply chains, boost Europe-based production and lower freight rates as some of the US-bound goods get redirected to the Asia-Europe route. “In that sense, there are opportunities. But companies will need to adapt. They will face higher costs, new shipping patterns, and increased cargo flows. Timing is crucial. Frameworks and Free Trade Agreements like the Opens in a new tabRegional Comprehensive Economic Partnership (RCEP) have existed for years but were underutilised. With new bilateral FTAs now moving forward, companies can act quickly. People will use it, and the process could move pretty fast.” 

For Europe, opportunities are emerging on two fronts. In China, a growing middle-class consumer market sits alongside rising competition in high-tech sectors. In India, expanding trade agreements and alignment in sustainability, manufacturing, and infrastructure open new possibilities for European firms to leverage their expertise. Europe’s window is open: decisive moves today, informed by local markets and sector trends, will define tomorrow’s leaders. 

Contact our sector experts Lynn Song or Deepali Bhargava for tailored advice.