Opinion | Europe can't afford a trade conflict with China

By Tom Fowdy

Last week, some European states voted to impose tariffs on Electric Vehicles imported from China. The vote can't be described as a consensus, because less than half of member states voted to do so, with another portion opposing, and another abstaining. The levy does not just cover EVs in China made by Chinese firms, but also those made in China by European firms and imported back, notably Germany's Volkswagen. China has immediately retaliated by launching a dumping probe into European brandy exports, and will presumably counteract a number of other exports too.

The tariffs on Chinese-made EVs originated from the European Commission, which headed by Ursula Von Der Leyden, has taken an increasingly aggressive transatlantic foreign policy since 2022. Her decision to blindly follow the United States has harmed the strategic autonomy of the European Union considerably and overwhelmingly diminished the competitiveness of European Industry. Now, the decision to initiate a trade conflict with China will ultimately be another hammer blow to EU-based growth, pursuing unrealistic protectionist goals that the European Industrial base is simply not capable of attaining. All signs point to this being a strategic disaster for the bloc.

The Eurozone economy, defined as the states in Europe that are economically integrated under the Euro, grew by only 0.7% in the year 2023. Its forecast for the full year of 2024 is predicted to be between 0.5-1.2%. For Germany, its largest economy and most significant industrial state, the scenario is even worse with an expected contraction of 0.2%. The stagnation of the eurozone is largely attributed to the surge in energy costs derived from the implications of decoupling Russian energy as a broader consequence of the war in Ukraine. This has caused the production costs of European industry to surge, which has undermined its competitiveness and led to the phenomenon known as "deindustrialization."

The European Union has long held complaints about the lack of market access in China. Initially, the solution to this was to negotiate a mutually reciprocal solution which was known as the "Comprehensive Agreement on Investment" (CAI) which would offer greater European market access within China in exchange for the EU upholding the status quo. This agreement was negotiated at the end of 2020, but following a comprehensive propaganda campaign by the United States, aligned with the United Kingdom, the deal was scuppered as they successfully drove a wedge in EU-China relations and created opposition to it.

Since that time, Von Der Leyden, on her transatlantic turn, has scuppered the deal altogether while simultaneously complaining about the lack of market access, instead trying to use tariffs and coercion to force unilateral concessions. When viewed in this light, China has been reasonable, but the European Union has not. However, it must be stated that this decision will be hugely damaging to the respective EU economies. First of all, owing to the energy crisis and the smaller scale of Europe's industrial base pertaining to China, it simply is not possible for European companies to manufacture electric vehicles at the scale and affordability of which they are available from China.

This is not in fact a product of so-called "subsidies" but simply economic reality. The surge in electric vehicle imports from China is happening because there is, owing to the EU's emission and renewable goals, large-scale demand for EVs, and domestic markets are not capable of meeting that demand. China is in fact the only country in the world that is capable of serving the broader demand for such cars, yet out of political motivations it is depicted as market distortion and "unfair." As a result, the imposition of tariffs will not in fact benefit domestic manufacturing, but will simply make the entire market more expensive for European consumers, contributing to the inflation crisis that has gripped the continent over the past few years.

Likewise, Chinese retaliatory tariffs will hurt European companies who rely on China as their largest export market, in retaliation. It should be made clear that the design of the European Commission to take this path is a "lose-lose" on their behalf. Europe should stop invoking geopolitical conflict and negotiate a mutually favorable solution, because, for the past few years, the policies emulating from Brussels have been nothing short of self-imposed destruction, undermining the global competitiveness and affordability of European countries.

The author is a well-seasoned writer and analyst with a large portfolio related to China topics, especially in the field of politics, international relations and more. He graduated with an Msc. in Chinese Studies from Oxford University in 2018.

The views do not necessarily reflect those of DotDotNews.

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