EU, China hold talks as trade war looms

The EU and China were due to hold talks to defuse escalating trade tensions after Europe voted last week to adopt a tough new approach.EU trade chief Maros Sefcovic was set to meet China’s top trade envoy, Li Chenggang, on the sidelines of an Organisation for Economic Co-operation and Development (OECD) meeting on Thursday, the South China Morning Post reported.Talks will focus on establishing a new platform to discuss trade and investment issues and will pave the way for Chinese Commerce Minister Wang Wentao’s expected visit to Brussels on June 28 and 29.Ling Ji, China’s vice-commerce minister responsible for Europe, will also travel to Brussels next week to meet Ditte Juul Jørgensen, the bloc’s new director general for trade.Europe’s leaders have been warning about a new “China shock” due to a surge in imports partly caused by Chinese manufacturers seeking alternative markets amid a trade war with the US. The EU-China trade deficit rose by more than 50 per cent in the first quarter compared to the same period two years ago, according to EU statistics.The European Commission met on Friday to discuss potential economic tools to counter the yawning trade imbalance, including greater use of safeguards for industries under pressure from Chinese overcapacity. European Commission President Ursula von der Leyen is scheduled to present the meeting’s recommendations to EU leaders at a June 18-19 summit in Brussels.Beijing has vowed to respond to European measures.“If the EU insists on unilaterally introducing new trade instruments and imposing discriminatory restrictions, China will resolutely retaliate and take effective measures to safeguard its own interests,” the Ministry of Commerce said on Saturday.Related news: China and the EU both voiced complaints after the Trump administration proposed tariffs of up to 12.5 per cent on imports from 60 trading partners, citing failures in tackling forced labour. China’s Foreign Ministry called the rationale a pretext for “political manipulation”. Bernd Lange, chairman of the European Parliament’s trade committee, said the proposals were “utterly absurd”. China, Japan and India are among countries facing the top 12.5 per cent tariff. A 10 per cent levy could be imposed on the EU, UK, Canada and others. SAIC Motor, owner of the MG brand, plans to build its first EU car factory at a site in northwestern Spain, the regional Galicia government said on Monday. The Chinese carmaker will invest an initial 200 million euros (US$232 million) in the facility, which is scheduled to open in 2028. The plant will create about 1,000 direct jobs and eventually have an annual capacity of 120,000 cars. Chery Auto separately signed a preliminary deal to make cars at a Nissan plant in the UK. The carmaker is already taking over a former Nissan factory in Barcelona. China and the UK pledged to enhance high-level exchanges and deepen cooperation after a meeting on Tuesday between Foreign Ministers Wang Yi and Yvette Cooper in Beijing. Cooper’s trip was aimed at sustaining a thaw in bilateral ties following Prime Minister Keir Starmer’s visit to China in January. How others reported it Less complementary: Sun Chenghao, a fellow at Tsinghua University’s Center for International Security and Strategy in Beijing, said part of the reason for growing tensions between the EU and China is because trade ties are less complementary and more competitive than before. “China wants to upgrade its own industry,” he said. “We want to have some added value for our industries – for China’s national interests.” (Bloomberg) Trump effect: The chances of a trade war between the European Union and China are far higher than most Europeans realise. In the corridors of Brussels, insiders have theories to explain this calm. One involves a Trump effect: political and business leaders spend too much time reacting to provocations from Donald Trump and his team. Chinese bullying is discreet. If Xi Jinping shared his darkest thoughts on social media, more leaders might realise that, compared with America, China is a more urgent threat. (The Economist) Global issue: China’s overcapacity is not a bilateral issue; it is a global one. The same surge in low-priced green-tech exports that threatens European manufacturers is also destabilising markets in the United States, Japan, South Korea and emerging economies. Uncoordinated responses risk a fragmented trading system in which China plays divide-and-rule, punishing the most vocal critics while rewarding the more accommodating. Europe, lacking the single-market scale of the US or the raw-material leverage of others, would be particularly exposed to targeted retaliation. (Euractiv) Hard task: Uniting 27 member states around a joint approach will be hard. But the European Council should put in the effort and give it a serious try. Europe needs to balance openness and the need for Chinese technology with protecting European industry from unfair cooperation. And the security dimension, not least in the area of rare earths and critical raw materials, must be included. (Peterson Institute for International Economics) Watch out: China’s aggressive forward guidance is designed to give EU leaders pause for thought. Needless to say that the present version of next month’s summit’s draft conclusions won’t have the same effect in Beijing: “The European Council held a strategic debate on the issue of global macroeconomic challenges.” (Financial Times) The SCMP Plus takeawayEuropean leaders are contending with rising inflation, the Strait of Hormuz shutdown, the Ukraine war and new tariff threats from the US. Still, they are seemingly readying for a trade war with China.The appetite for a fight with the world’s biggest goods exporter reflects the increasingly existential threat posed by low-cost Chinese imports to some of Europe’s biggest industries. It also shows the advances made by Chinese manufacturers over the past couple of decades – fairly or not.Europe’s economic challenges are clear to see. The bloc could lose as many as 1.3 million jobs this year due to the fallout from the war in Iran and global competition, the European Commission, the EU’s executive arm, said this week. The tally includes 600,000 posts in the auto sector, where vehicle makers are facing growing competition from China.The bloc’s trade deficit with China is more than 1 billion euros (US$1.2 billion) a day, prompting the Commission to move towards tougher defences including tariffs and import quotas. Thursday’s planned meeting between the EU’s Maros Sefcovic and China’s Li Chenggang may just be a prelude to the “more robust and coherent response” that the Commission trailed after a key meeting last week.“China is a critical partner, and engagement and dialogue will continue,” it said in a statement. “At the same time, the current state of the trade and investment relationship is not sustainable.”The increase in trade tensions is due to Chinese imports having surged fourfold since 2005, along with their shifting composition. Two decades ago, shipments were dominated by low-end tech, such as computer parts and DVD players, along with clothing and consumer goods. Now, the list is led by high-end electronics and machinery, including solar panels, lithium-ion batteries and servers, as well as organic chemicals and, increasingly, cars and auto parts.China is competing much more directly with European industry than in the past, which is stifling European exports to China in addition to fanning a boom in Chinese shipments to the EU. The 30 per cent surge in Germany’s trade deficit with China last year to a record 87 billion euros is emblematic of the trend.Europe contends that Chinese overcapacity and unfair government support are driving the trade imbalance. Subsidies account for 60 per cent of global market share gains for Chinese businesses over the past two decades, the Organisation for Economic Co-operation and Development (OECD) said this week. China rejects suggestions of unfair subsidies, and instead points to competitive strengths, such as new technology.That Europe is now stirring towards action is due to industries nearing crisis points and a wider push towards self-reliance amid tensions with both China and the US. Officials will soon lay out a tech sovereignty strategy to help loosen dependence on the US, according to the Financial Times.Chinese policymakers seem to be downplaying the possibility of an EU trade war. For instance, the heads of France, Germany and Spain have all visited Beijing in recent months and complained about the trade balance without getting much response.China’s confidence is at least partly due to expectations that the 27 EU member states will never all agree to actually do anything. This contains a kernel of truth. Germany, the bloc’s biggest economy, seems reluctant to support a trade war due to risks to its exporters. China-friendly Spain has also stepped back. China plays up divisions by praising favoured European nations, while scolding troublesome EU officials.The country is also threatening reprisals against EU trade measures, and it has strong cards to play. A near-monopoly over rare earths has provided powerful leverage in previous trade disputes. International efforts to develop alternative sources for the vital minerals have a long way to go.Europe also remains highly dependent on China for other key imports. Sanctions against chipmaker Yangjie Technology, for instance, were quickly shelved following complaints from German carmakers.Europe will have to balance the potential costs of a trade war against the risk of losing “whole sectors of industry within a couple of years” if it fails to take action, as EU trade chief Sefcovic put it in a recent interview with The Economist’s Inside Geopolitics. The danger is what follows any new European steps.“It’s very easy to start a trade war,” Sefcovic said. “But it’s difficult to stop one.”