Opinion

How could Europe benefit from the US-China trade war?

Under pressure from the US, Beijing is set to be more open to making new allies.

By: Date: October 18, 2018 Topic: Global Economics & Governance

Versions of this article have also been published by Caixin, Die Zeit, Nikkei and Politico.

Caixin logo

Politico logo

The European Union and Donald Trump got off to an awkward start. Initially, the U.S. president seemed to want to take on the world, confronting China and his country’s long-time allies alike.

More recently, however, tensions between the U.S. and the Europe have calmed — especially as Trump has turned his focus squarely on China. This provides the EU with an important opportunity it must not waste — to use the pressure on China to more clearly set the rules of engagement with Beijing.

There are many reasons why Trump may have shifted his crosshairs. They include worries about Beijing’s rise and the perception that competition from China has cost the U.S. jobs in important economic sectors.

Trump also seems to have realized that the EU remains an important ally — despite its trade surplus. Commission President Jean-Claude Juncker diplomatic success has also helped — even if the truce remains fragile. The question now becomes: How can Europe benefit from the U.S.-China trade tensions?

At first blush, it doesn’t look great. Trade wars aren’t just easy to lose; they also cause collateral damage to companies in third countries because of globally integrated supply chains. The German carmaker Daimler, for example, blamed a recent profit warning on the U.S.-China trade war, warning that it would make its exports more expensive.

But trade wars also create opportunities for companies and sectors in third countries. One might see European agriculture exports to China increase, for example, as they replace products once sourced from the US. European companies manufacturing consumer goods could benefit from rising export opportunities in the US.

But the trade war also offers Europe a far larger opportunity. Under pressure from the U.S., Beijing is set to be more open to make new allies.

So Trump has announced a 10% tariff on $200 billion-worth of imports from China, and threatened to increase the percentage to 25% if Beijing does not end its “unfair” trading practices. China has, in turn, announced counter-tariffs on some $60 billion-worth of imports.

True, China is less vulnerable to a trade war than it would have been a few years ago, having rebalanced its economy away from exports. But Beijing can’t afford having Japan, the U.S. and the EU form a united front as they recently did with a declaration on forced technology transfer that was clearly targeted at China.

Beijing is therefore actively reaching out to Brussels, trying to advance talks on bilateral investment and aiming to start negotiations on a trade agreement. China would also like to see the EU as a strategic partner in the World Trade Organization.

This gives EU officials an important opening. The bloc’s key interests are clear: China needs to open up its markets to more sectors.

European investment in China has been falling for years as market access has become more difficult. Europe needs to ensure that Beijing treats European companies on an equal footing to their domestic ones. It must also insist that it remove unfair subsidies delivered through state owned banks and other state owned companies.

China, of course, will not fundamentally alter its economic model. But there’s reason to believe it’s ready to make some concessions.

European leaders also need to work with Beijing to address concerns at home. As China has found it more difficult to invest in the U.S., it has moved its investment efforts to Europe — especially in cutting edge technology.

European companies and politicians have observed this rise with mixed feelings. Of course, Chinese investment is welcome and can increase corporate profits, especially when access to Chinese markets is improved.

But there is a clear worry that China uses market manipulation and subsidies to buy companies at unfair prices. Security concerns about sensitive technologies have also been raised. The EU needs to define its red lines on Chinese technology acquisition and enforce them more vigorously.

The overall upshot is clear. Whatever the economic spillover of the U.S.-China trade war, there is diplomatic advantage to be gained. It’s up to Europe’s leaders to formulate a unified strategic position and explore the opportunity.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read about event More on this topic

Upcoming Event

Jan
22
08:00

Rules-based trading system and EU-Australia

At this event the Australian Minister for Trade, Tourism and Investment, Senator the Hon Simon Birmingham will speak about Australia-EU bilateral trade, the FTA negotiations and the importance of multilateral rules-based trading system

Speakers: Senator the Hon Simon Birmingham, André Sapir and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More by this author

Blog Post

What 2019 could bring: A look inside the crystal ball

Economic performance prospects in Europe, the US and Asia in 2019. We start off by reviewing commentaries and predictions about the euro zone, which many commentators expect to perform below potential as uncertainties continue to dampen a still robust recovery.

By: Michael Baltensperger Topic: European Macroeconomics & Governance, Global Economics & Governance Date: January 14, 2019
Read about event More on this topic

Upcoming Event

Feb
8
08:30

The world’s response to China’s Belt and Road Initiative

This event will look at the Chinese Belt and Road Initiative as well as the response from the rest of the world.

Speakers: Alicia García-Herrero, Jean-Francois Di Meglio, Theresa Fallon and Uri Dadush Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article Download PDF More on this topic

Policy Contribution

The Belt and Road turns five

Five years after its launch, Michael Baltensperger and Uri Dadush reflect on China’s Belt and Road Initiative. The plan to revive ancient trade routes has the potential to enhance development prospects across the world and in China, but that potential might not be realised because the BRI’s objectives are too broad and ill-defined, and its execution is too often non-transparent, lacking in due diligence and uncoordinated.

By: Michael Baltensperger and Uri Dadush Topic: Global Economics & Governance Date: January 10, 2019
Read about event

Upcoming Event

Feb
12
12:30

Is the European automotive industry ready for the global electric vehicle revolution?

How can Europe catch up on the global electric vehicle race?

Speakers: Simone Tagliapietra and Reinhilde Veugelers Topic: Energy & Climate, Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author

Opinion

Lose-lose scenario for Europe from ongoing China-US negotiations

Without an expectation of a larger market for European exports in the absence of additional opening up by Chinese authorities, European exporters should not enjoy the ongoing China-US negotiations.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: January 9, 2019
Read article More on this topic More by this author

Podcast

Podcast

Deep Focus: Europe's auto industry and the global electric vehicle revolution

Bruegel fellows Reinhilde Veugelers and Simone Tagliapietra elaborate on the recent Policy Contribution they co-authored on the European automotive industry in the light of the global electric vehicle revolution.

By: The Sound of Economics Topic: Innovation & Competition Policy Date: January 8, 2019
Read article More by this author

Podcast

Podcast

Director’s cut: Wrapping up 2018

With 2018 drawing to a close, and the dawn of 2019 imminent, Bruegel's scholars reflect on the economic policy developments we can expect in the new year – one that brings with it the additional uncertainty of European elections.

By: The Sound of Economics Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Date: December 20, 2018
Read article Download PDF More on this topic

Policy Contribution

Is the European automotive industry ready for the global electric vehicle revolution?

This Policy Contribution investigates the position of the European automotive industry in a scenario in which electrification substantially progresses. Europe cannot follow China in the adoption of centrally-planned industrial policy measures. But it certainly can and should do more to stimulate the transformation of its automotive industry through more ambitious policies.

By: Gustav Fredriksson, Alexander Roth, Simone Tagliapietra and Reinhilde Veugelers Topic: Innovation & Competition Policy Date: December 20, 2018
Read article More on this topic More by this author

Opinion

China’s view of the trade war has changed—and so has its strategy

The truce agreed on by China and the United States at the sidelines of the recent G-20 meeting in Buenos Aires doesn’t really change the picture of the U.S.’s ultimate goal of containing China. The reason is straightforward: The U.S. and China have become strategic competitors and will continue to be so for the foreseeable future, which leaves little room for any long-term settlement of disputes.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: December 19, 2018
Read article More on this topic More by this author

Blog Post

Brexit: Now for something completely different?

The life of Brexit. After a week of ECJ rulings, delayed votes, Theresa May’s errands across Europe and the vote of no confidence, we review the latest economists’ opinions to try to make sense of what has changed and what hasn’t.

By: Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: December 17, 2018
Read article More by this author

Opinion

The world deserves a more effective G20

As the presidency shifts from Argentina to Japan at Buenos Aires (and then to Saudi Arabia) it is worth asking why the G20 has endured this long and what it needs to remain relevant in a dramatically changed world.

By: Suman Bery Topic: Finance & Financial Regulation, Global Economics & Governance Date: November 29, 2018
Load more posts