Dairy Becomes a Strategic Lever in Trade Disputes
Escalating trade tensions between the European Union and China have increasingly drawn dairy into the centre of geopolitical confrontation. Trade analysts argue that dairy’s inclusion is far from incidental. Food products, particularly dairy, carry economic weight, political sensitivity and high visibility within rural constituencies, making them effective instruments of retaliation.
By targeting European dairy exports, China has signalled its readiness to widen the scope of retaliation beyond the industrial sectors that initially triggered the dispute, notably electric vehicles and industrial subsidies. The move underscores dairy’s growing role not merely as a traded commodity, but as a strategic asset within global trade negotiations.
Internal EU Divisions Weaken Negotiating Position
The situation is further complicated by divisions within Europe itself. Germany’s automotive sector, which relies heavily on access to the Chinese market, has reportedly lobbied for exemptions or softer enforcement of EU electric vehicle duties. However, political observers suggest these efforts have failed to ease tensions and may have amplified Beijing’s dissatisfaction with the EU’s fragmented stance.
This lack of a unified European approach has reduced the bloc’s leverage at a time when coordinated diplomacy is essential to contain escalation.
Protectionism Returns to Global Trade
Broader global dynamics have added further strain. The United States’ renewed emphasis on trade barriers under President Donald Trump has disrupted established trade flows, displacing exports across multiple regions. In such an environment, resolving long-standing disagreements over subsidies, market access and industrial policy coordination becomes increasingly difficult.
As protectionist measures multiply, global agricultural trade, traditionally more exposed to political intervention, faces heightened volatility.
Trade Data Highlights Structural Imbalance
Trade figures reinforce the imbalance underpinning the dispute. Chinese exports to Europe have resumed growth and now exceed European exports to China by more than twofold. Meanwhile, EU shipments to China continue to decline.
French President Emmanuel Macron has warned that without coordinated rebalancing involving China, the United States and the EU, Europe may be forced to adopt more defensive trade measures to protect its industries. To date, such calls have received little response from Beijing.
According to Francesca Ghiretti, director of the China Europe Initiative at the RAND think tank, the dynamics observed in 2025 are likely to intensify in 2026 rather than ease.
Implications for Global Dairy Markets
For global dairy exporters, including Australia and New Zealand, EU–China trade tensions are not a distant European issue. When European dairy products encounter barriers in China, surplus volumes are often redirected into alternative markets. This reshapes competition, pricing and market access across Asia-Pacific and other regions.
While such shifts can create short-term opportunities for non-EU suppliers, they also heighten market volatility and reinforce China’s position as a powerful gatekeeper in global dairy trade.
Dairy as a Geopolitical Asset
The escalation highlights a broader reality for the dairy sector. Dairy has moved beyond its traditional role as an agricultural commodity and now occupies a strategic position within an increasingly fragmented global trading system. Geopolitical considerations are beginning to weigh as heavily as supply-demand fundamentals.
As 2026 approaches, exporters, processors and policymakers will closely monitor whether EU–China trade tensions deepen further—and how profoundly they reshape global dairy trade patterns.
