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 article More on this topic

Opinion

EU policy recommendations: A stronger legal framework is not enough to foster national compliance

In 2011, the EU introduced stricter rules to monitor the implementation of country-specific policy recommendations. Using a new dataset, this column investigates whether these new laws have increased national compliance. There is no evidence that these stricter processes matter for implementation rates, whereas macroeconomic fundamentals and market pressure are important determinants of implementation progress. These results suggest ways to improve the effectiveness of European policy coordination that go beyond stronger legal processes.

By: Konstantinos Efstathiou and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: July 23, 2019
Read article More on this topic

Blog Post

China’s investment in Africa: What the data really says, and the implications for Europe

China has clearly signalled to Europe that it does not shy away from involvement in Africa, historically Europe’s area of influence. But the nature of China’s direct investment flows to the continent will have to change if they are to prove sustainable.

By: Alicia García-Herrero and Jianwei Xu Topic: Global Economics & Governance Date: July 22, 2019
Read article More on this topic More by this author

Opinion

The EU needs a bold climate strategy

Scientists report that global temperature increases must be limited to below 1.5 degrees Celsius. With global greenhouse gas emissions continuing to increase and rising temperatures driving up the frequency of extreme weather events, the world needs a greater commitment to climate policy.

By: Guntram B. Wolff Topic: Energy & Climate Date: July 19, 2019
Read about event More on this topic

Past Event

Past Event

The 4th industrial revolution: opportunities and challenges for Europe and China

What is the current status of EU-China relations concerning innovation, and what might their future look like?

Speakers: Elżbieta Bieńkowska, Chen Dongxiao, Patrick Child, Eric Cornuel, Maria Demertzis, Ding Yuan, Luigi Gambardella, Jiang Jianqing, Frank Kirchner, Pascal Lamy, Li Mingjun, Gwenn Sonck, Gerard Van Schaik, Reinhilde Veugelers, Wang Hongjian, Guntram B. Wolff, Xu Bin, Zhang Hongjun and Zhou Snow Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 12, 2019
Read article More on this topic

Opinion

What bond markets tell about China’s economy

Macro data doesn’t provide a comprehensive picture to investors, but bond issuance data can fill in some gaps.

By: Alicia García-Herrero and Gary Ng Topic: Global Economics & Governance Date: July 10, 2019
Read about event

Upcoming Event

Sep
9
08:30

China-EU investment relations: Exploring competition and industrial policies

What parts of Sino-European cooperation are most essential for European leaders? What is the future of an EU-China partnership, and which areas are most important?

Speakers: Alicia García-Herrero Topic: Finance & Financial Regulation, Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article Download PDF

Policy Brief

The threats to the European Union’s economic sovereignty

Memo to the High Representative of the Union for Foreign Affairs and Security Policy. The authors describe the current context and the increasing interlinkages between economics and power politics and the role to play in reinforcing and defending Europe’s economic sovereignty.

By: Jean Pisani-Ferry and Guntram B. Wolff Topic: European Macroeconomics & Governance, Global Economics & Governance Date: July 4, 2019
Read article Download PDF More on this topic

Policy Contribution

Redefining Europe’s economic sovereignty

This Policy Contribution delves into the position of the EU in the current global order. China and the United States increasingly trying to gain geopolitical advantage using their economic might. The authors examine the specific problems that China and the US pose for European economic sovereignty, and consider how the EU and its member states can better protect European economic sovereignty.

By: Mark Leonard, Jean Pisani-Ferry, Elina Ribakova, Jeremy Shapiro and Guntram B. Wolff Topic: Global Economics & Governance Date: June 25, 2019
Read about event More on this topic

Past Event

Past Event

China’s investment in Africa: consequences for Europe

How is Chinese investment impacting Africa, and what could be the consequences for Europe?

Speakers: Solange Chatelard, Maria Demertzis, Alicia García-Herrero, Abraham Liu and Estelle Youssouffa Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 24, 2019
Read about event More on this topic

Upcoming Event

Oct
29
08:30

Bank resolution: its impact in the EU

Closed-door workshop on various aspects of bank resolution.

Speakers: Jon Cunliffe, Martin J. Gruenberg and Elke König Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Past Event

Past Event

What reforms for Europe's Monetary Union: a view from Spain

How is a successful European Monetary Union still possible in today's ever-shifting political landscape? What reforms need to occur in order to guarantee success of cohesive policies?

Speakers: Fernando Fernández, José Carlos García de Quevedo, Gabriele Giudice, Inês Goncalves Raposo, Javier Méndez Llera and Isabel Riaño Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 19, 2019
Read about event More on this topic

Past Event

Past Event

Past, present, and future EU trade policy: a conversation with Commissioner Malmström

What was trade policy during the last European Commission? What will be the future of European trade under the next Commission?

Speakers: Cecilia Malmström, André Sapir and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 13, 2019
Load more posts