By Tom Fowdy
The political winds in the European Union (EU) pertaining to China have changed dramatically in recent months, and a storm of protectionist economic policy is on its way.
Rather than being influenced by the United States, which is much less likely in the current environment, European Policymakers and elites appear to have arrived at the conclusion that China's surge in exports, from low-end goods such as Temu and Shein to high-end goods through electric vehicles, constitutes a threat to its own industrial base.
To this end, the storm clouds of a potential trade war are brewing. First, the EU has announced a mandatory duty to be paid for all imported packages under a certain value, similar to rules applied in the United Kingdom and United States. Second, the Chancellor of Germany, Friedrich Merz, called for a "Plaza Accords" deal between the bloc and Beijing, an agreement which was effectively an economic humiliation for Japan in the 1980s.
Third, the EU is launching a proposed "overcapacity instrument" which will allow the commission to impose restrictions on sectors, products, or industries it deems (politically chosen) to be in "overcapacity" or in other words, produced too much and shipped abroad. This, of course, will be politically, as opposed to arbitrarily applied, but the political discourse and noises are unmistakable. The EU believes its economic relationship with China is unequal and that such is harming its own economy, it wants things to be "balanced."
I use what I describe as the "Volkswagen" case study to highlight how China's own technological advancement is increasingly making European goods obsolete. Long ago, when China was poorer, German automobiles represented a high-quality foreign product which was in demand. This allowed companies such as Volkswagen to massively expand into the Chinese market and, at the same time, accelerate German imports to China. As a result, through the 2000s and 2010s, the Angela Merkel government cultivated a close relationship with Beijing because it became an engine of German prosperity.
However, China suddenly developed the know-how to make its own cars, which, of course, were high quality, cheaper and produced at scale. All of a sudden, by 2023, China had transformed to become the world's largest producer of automobiles. These once premium-quality German products were suddenly made obsolete due to being more expensive and having less appeal inside the Chinese market, leading sales to diminish. Suddenly, China's cars then start coming into Europe, competing with Germany's domestic industries. The example has repeated itself across the board, China advances in a field of technology, produces at speed, cost and scale, and the previous product it relied on is pushed out, before then entering the original exporting country. This has created political grievances.
However, there are numerous reasons to argue that trade tensions with Europe not be as catastrophic as the situation with Trump has been, here's why. First of all, the European Union is not a unified bloc, it is an aggregation of 27 member states who operate by consensus and must negotiate their respective national interests. While the European Commission is an unelected, bureaucratic body, its ability to enforce its will is ultimately only as powerful as the membership's willingness to cooperate with it. The Commission tries to exert leadership and shape the continental political agenda, but is ultimately subject to bureaucratic and political inertia.
This allows us to see that the EU administratively, as well as economically and geographically, does not have as strong a hand of the United States. The EU is more dependent on exports to China than America, its economic condition is weaker, it is locked in a proxy war with Russia over Ukraine, and as noted above, not every EU economy wants to see China retaliate by shutting the door. Some European Union countries have a lot to lose from the Chinese market, so to speak.
Second, European Union politics is, generally speaking, more mature, reasonable, and less confrontational than the mass hysteria, drama, and paranoia of America. In contrast to previous years, the decision-making of key EU players is being driven by genuine self-interest rather than appeasing the United States or pursuing unhinged Neo-Conservative sentiments. Likewise, the EU has shown its willingness to negotiate with China and reach compromise solutions. China, on the other hand, also believes it is geopolitically and economically beneficial to keep Europe "on board," so to speak, and also open to some form of compromise, although it remains highly unlikely to change its entire economic model to appease Europe.
Beijing also recognises that the Trump administration offers a golden window to negotiate with Europe, given he has severely strained transatlantic ties and waged trade wars of his own against the bloc, whereas a future Democrat administration may push stronger transatlanticism as Biden infamously did. Thus, while trade tensions may heat up between the two, it will come with none of the drama and chaos we've seen from Washington. Europe isn't seeking to dramatically burn bridges or deal a wrecking ball to its own relationship with China, but it definitely is trying to strengthen its hand where it can, and would like its interests to be known.
The views do not necessarily reflect those of DotDotNews.
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