Time for a pragmatic EU-China partnership?
July 5, 2018
Ever since Donald Trump became US president, the trans-Atlantic alliance has begun to crumble. Trump has has continually criticized the European Union over global trade, saying the bloc behaves as "badly as China." He has said that it is harder for US companies to sell their goods in the EU than vice versa and that this is why Washington has a trade deficit of $151 billion (€129 billion) with Brussels. Trump seems to be more interested in criticizing than listening to counterarguments and statistics regarding the profits of US corporations in the EU.
Read more: Trump's tariffs: When does a trade spat become an actual trade war?
Brussels has reacted to Trump's decision to impose 25 percent tariffs on steel and 10 percent tariffs on aluminum by threatening to impose 25 percent tariffs on US products such as Levi's jeans, motorbikes, peanut butter and bourbon, which amount to €2.8 billion, less than half of the steel and aluminum exports, which come to about €6.4 billion. The European Commission has now made a show of solidarity with China by saying that other WTO members have a right to impose retaliatory tariffs on US goods.
Europe hopes to be spared
But the Commission has not been more concrete than that. There's still some hope in Brussels that Trump will concentrate on China and spare its loyal trans-Atlantic partners. But this could be a miscalculation. In mid-June, Trump threatened 20 percent tariffs on all European cars exported to the US if the EU did not lift its trade barriers on US products "soon."
This would hit Germany and its car-based economy hardest. The argument that German carmakers, especially BMW, already make thousands of cars stateside and export them from there with profit for the US seems to have fallen on deaf ears in Washington.
There doesn't yet seem to be a deal that would be acceptable to everyone. But time is not on Trump's side. The mid-term elections are coming up in November and Trump will not win votes with complicated global negotiations. His fans don't mind so much if he plays with the truth a bit.
Read more: Trump's China trade dispute: Is it a war for tech supremacy?
He recently inaugurated what he called the "eighth wonder of the world" in Wisconsin, which is a key state for him. Foxconn's $9 billion LCD plant will supply Apple, Amazon and other tech giants with electronic components, creating some 13,000 jobs. Trump says the plant is a direct result of his trade policy. The US will subsidize Foxconn with almost $3.5 billion, which Democratic Senator Jennifer Shilling has criticized as being "the largest state taxpayer-funded giveaway to a foreign corporation" in US history.
Such policy is not a good long-term method for boosting economic growth and competition in the US.
Trump's policy could backfire
Tariffs and subsidies are not a long-lasting combination. Prices will rise and supply chains will collapse. Jobs will disappear. In the long run, Trump's policy will backfire.
That's why it would be a good strategy for the EU to work more closely with China. A recent report released by the European Union Chamber of Commerce in China suggested that it would make more sense to sign an agreement on the protection of investments than to impose tariffs. Such an agreement could take shape at the EU-China summit coming up in mid-July and in the long term develop into a free trade agreement with China. At a preparatory meeting in Beijing, Chinese Vice-Premier Liu He indicated that European companies would have better access to the Chinese market in future but Beijing has promised as much in the past. Brussels and Beijing have to solve their problems and political tensions, which are the same as those criticized by the US — unequal market access and the state subsidies of core Chinese industries — at the negotiating table. At least now there is more willpower to do so.
Nobody can win alone
The EU and China are also growing closer in other areas. They want to reform the World Trade Organization (WTO) together and shield it from Trump-style protectionist policies. The EU profits more than any other economic area in the world from free trade. Trump has belied speculation that the US would withdraw from the WTO, but he has also said that he does not take the organization seriously as an arbiter in trade disputes. He has in the past accused the WTO of treating the US unfairly and demanded that stop.
What is certainly clear is that neither Beijing, Brussels or Washington can win a trade war alone. If Beijing and Brussels join forces, the chance is higher that they will not lose. But this is a hard concept for Brussels to grasp.
DW's Frank Sieren has lived in Beijing for over 20 years.