A delegation of European Union trade negotiators is in Beijing, hoping to avert what could be a full-scale trade confrontation with China.
uncertain
what → hop → China
The talks on Thursday and Friday between a team headed by EU Trade Commissioner Maros Sefcovic and his Chinese counterpart Wang Wentao are taking place amid Europe’s fears that a swelling flood of cheap Chinese imports is de-industrialising its economies.
Last
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flood → head → economies
So far this year, China’s exports to the EU are up 15 per cent and the surplus has swollen by as much as 23 per cent.
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surplus → swell → cent
Sefcovic has called the widening trade imbalance “unsustainable” and a threat to Europe’s social model.
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Sefcovic → call → model
The increasing concerns about the unbalanced trade relationship have brought about an unlikely alliance between France, traditionally one of the more protectionist of the major European countries, and Germany, historically a free trader and opponent of measures to restrict imports from China.
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concerns → increase → China
With imports of Chinese electric vehicles and plug-in hybrids cutting a swathe through the German auto industry – Volkswagen has recently announced the closure of four of its major factories, with about 100,000 of job losses – German Chancellor Friedrich Merz has joined France’s Emmanuel Macron in calling for the creation of a new “last resort” trade instrument that could instantly cut off access to the EU market.
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that → plug → market
The risk for China is that if it continues to wipe out other countries’ manufacturing sectors and jobs, others might hold their noses and join the protectionist US president.
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others → continue → president
That’s a major shift in Germany’s stance.
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That → ’ → stance
Historically, it opposed trade restrictions because it was a major exporter to China and its companies had invested heavily in China’s industries via joint ventures.
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companies → oppose → ventures
Now its own industries are being decimated by an industrial base it helped develop.
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it → decimate → base
The letter sent by Macron and Merz to European Commission (EC) President Ursula von der Leyen on Monday implored her to expand the EU’s arsenal of trade weapons in response to the increased “weaponisation of trade, systemic market-distorting practices and global macroeconomic imbalances.”
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letter → send → trade
The EU already has what has been described as its “trade bazooka” – its “anti-coercion instrument” -- but has never used it.
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what → have → it
That instrument allows EU officials to impose tariffs and other trade restrictions if they determine another government is using economic coercion against the bloc.
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government → allow → bloc
The move, however, requires the support of more than half the EU’s 27 member countries representing at least 65 per cent of the EU population, which is a steep hurdle.
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which → require → population
Merz and Macron’s proposed new instrument could be activated instantly by the EC, unless the member states voted to revoke it, lowering the hurdle.
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states → propose → hurdle
It would also allow the EC to move far quicker.
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EC → allow → ?
France and Germany also proposed a “diversification” instrument, which would let the EC impose a cap on the percentage of imports from one country allowed in various product categories.
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EC → propose → categories
The obvious concern for France, Germany and the rest of the EU is that if they were to restrict Chinese imports or increase tariffs on them, China would respond by cutting off access to strategic minerals like rare earths and magnets, where it has introduced a licensing system.
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it → restrict → system
The new tool would give the EC the ability to shut China out of its biggest and richest market.
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tool → give → market
In effect, the European leaders are seeking to create something akin to the Section 301 powers that Donald Trump has invoked in the US to recreate the global tariff regime knocked out by the US Supreme Court earlier this year.
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Trump → seek → Court
That section of the US Trade Act gives a president the authority to impose trade penalties in response to unfair trade practices.
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section → give → practices
The current flashpoint in the EU-China relationship is the devastation of the European car industry by China’s electric vehicle and, more particularly, plug-in hybrid manufacturers.
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flashpoint → plug → vehicle
Only two years ago, the EU imposed tariffs ranging from 7.8 to 35.3 per cent – on top of a general 10 per cent tariff on imported cars – on Chinese EVs.
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EU → impose → EVs
But the duties didn’t cover plug-in hybrids, where EU imports more than doubled last year.
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imports → cover → hybrids
This year, Chinese hybrids account for almost half of all new EU sales of plug-ins.
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hybrids → account → ins
It’s not just electric cars, however.
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It → ’ → ?
Europe’s green technology, steel, chemicals, pharmaceuticals, machine tools and aerospace sectors are also being swamped by Chinese imports.
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technology → swamp → imports
Even the UK, albeit under the threat of facing restrictions to its own trade with the EU, is considering imposing hefty tariffs on imports of cars and chemicals from China.
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UK → face → China
The EU also wants China to lower some of its own tariff and non-tariff barriers to EU imports.
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China → want → imports
China will, of course, resist the European pressure.
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China → resist → pressure
And it has its own powerful trade instrument – cutting off access to the rare earths and magnets vital to most advanced manufactures.
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it → have → manufactures
It might, however, be prepared to make some concessions rather than risk being shut out of its key developed world market entirely.
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It → prepare → market
Sacrificing its value-added tax rebate for exported EVs might be a start, knowing that the sprawling and disparate nature of the EU membership makes it difficult to build consensus for anything even mildly controversial.
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it → sacrifice → anything
A ban on imports from China, or caps on its market shares, would be tricky to achieve.
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ban → achieve → shares
America decided during Trump’s first term that China was using unfair tactics – state and local government subsidies, below-market finance and central direction to dominate strategic sectors – and began the initial trade war.
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China → decide → war
Unfortunately, Trump’s fixation on tariffs meant he extended the trade war to the rest of the world in his second term, alienating many of America’s closest allies that might have joined the US in pressuring China to change its ways.
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that → mean → ways
There’s good reason for the EU and other economies that, like Australia, are open and dependent on a relatively free global trading environment to be concerned about China’s exports.
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that → ’ → exports
The collapse of China’s property market more than five years ago has undermined its domestic economy, leaving it increasingly reliant on exports to drive economic growth.
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collapse → undermine → growth
Beijing has resisted external calls for a major stimulus program to drive greater domestic consumption and domestic growth, which has led to significant over-capacity relative to the weak domestic demand – and a tide of exports as its companies redirect their sales.
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companies → resist → sales
Last year China had a trade surplus of about $US1.2 trillion ($1.7 trillion), or about four times its surplus in 2020.
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China → have → 2020
…and 6 more, not listed.
The Aporia
