At the annual high-level strategic dialogue between China and the European Union, recently held in Brussels, Chinese Foreign Minister Wang Yi and EU High Representative for Foreign Affairs Federica Mogherini emphasized that the two sides “hold similar positions and enjoy close coordination on a series of major international issues” at a time when “unilateralism and protectionism are on the rise.”
There is no doubt that, at the moment, the most pressing international problem the Asian giant and the EU have to deal with is US President Donald Trump’s mounting protectionist campaign. Last week, Trump slapped tariffs on US$50 billion worth of Chinese exports. On June 1, he lifted exemptions he had previously granted to the EU on heavy duties on steel and aluminum imports.
Since taking office, Trump has repeatedly claimed that the US trade imbalance with China and the EU is largely due to their unfair commercial polices. Interestingly, Beijing and the EU bloc have decided to punish the US president in the same way – by targeting his electoral base in rural communities with a round of counter-tariffs, besides filing a complaint against Washington at the World Trade Organization (WTO).
In response to Trump’s barrage of duties, Beijing claimed last Friday that it would reciprocate with levies on $50 billion worth of US goods. They will be placed on agriculture items and cars valued at $34 billion from July 6, and energy products for the remaining sum at a later stage. China had already retaliated to Trump’s tariffs on imported steel and aluminum in April by hitting US farm goods worth $3 billion.
The EU has also reacted to Trump’s metal tariffs. It will impose duties on US agriculture products worth $3.4 billion from July 1. On Monday, the US president threatened to hit back at Beijing’s countermeasures with an additional 10% tariff on $200 billion worth of Chinese goods. It is said that Trump is also considering a 25% levy on foreign vehicles, which would particularly penalize the German car industry.
China-EU bilateral cooperation on free trade and multilateralism in the Trump era has so far been marred by disagreements on a number of commercial and investment issues.
On May 28, the European Parliament’s trade committee passed a proposal advocating an EU-wide screening mechanism for inbound foreign investment in security-sensitive industries, critical infrastructure, key technologies and the media sector. This measure, which should be adopted by the end of this year, is basically aimed at safeguarding EU’s high-tech companies from China’s unfair investment practices.
Despite Beijing’s promises to level the playing field for foreign investors, European companies still have restricted access to the vast Chinese market. On June 1, the EU brought a legal challenge against China’s intellectual-property-rights (IPR) legislation at the WTO, claiming it was damaging the rights of European businesses. Brussels’ reference is to Chinese rules forcing foreign firms to transfer technology to local partners when they operate in China.
It bears noticing that Chinese foreign direct investments in the EU stood at $40.6 billion in 2017. Though they decreased 17% compared with the previous year’s total, they dwarfed the amount of European investments in China, stuck at $9.2 billion both in 2016 and 2017, according to the Mercator Institute for China Studies.
On June 8, other EU trade defense rules became effective. They are designed to bolster Brussels’ anti-dumping legislation, which the Union approved last December with the primary aim of countering Beijing’s market distortions. Notably, the new measures penalize countries like China that do not comply with the high labor and environmental standards applied in the EU.
Then there is the elephant in the room, China’s Belt and Road Initiative for Eurasian connectivity. Major EU countries believe Beijing wants to use modern Silk Roads to export its manufacturing overcapacity and rewrite global rules on trade and investment on its own terms. What’s more, China’s ever-closer ties with EU member countries in Central-Eastern Europe have become a major irritant to Brussels.
Wiggle room for China-EU cooperation
All that said, the trade and investment rift between China and the EU still seems manageable. Far from reacting angrily, China said on June 5 that it had received the EU’s request against its IPR rules and would “deal with the case according to the WTO dispute-settlement procedures,” adding that it would also try to solve the problem through the ad hoc China-EU working group.
As well, Sino-European talks for the finalization of a comprehensive investment agreement are continuing. In this respect, Chinese Premier Li Keqiang stressed on June 13 that his country was pressing ahead with trade liberalization, IPR protection and dialogue on foreign investments. As for Belt and Road, during her recent meeting with Wang, Mogherini said the EU was ready to form “synergies” and “align” the bloc’s Investment Plan for Europe and Asia-Europe connectivity strategy with China’s grandiose infrastructure project.
The annual China-EU Summit, which is due next month, will provide more clues about whether Beijing and the European grouping will actually join forces against Trump’s protectionist agenda.