EU in a dilemma over China trade
For reasons of protocol alone, EU Commission President Ursula von der Leyen was assigned the role of „bad cop” at the meeting with China's head of state and party leader Xi Jinping. A more diplomatic tone was appropriate for French President Emmanuel Macron as host. Von der Leyen admonished, demanded and threatened. Europe would not hesitate to take “tough decisions“. Europe expects China to make more efforts to curb the supply of dual-use goods to Russia. Europe is prepared to make full use of trade defence measures if necessary.
This came across as resolute – and is likely to have been received in Beijing as a very clear message from its trading partner. And yes, there are good arguments in favour of the head of the EU Commission openly addressing and voicing core economic policy complaints against the Chinese leadership – such as state induced overcapacity in electric vehicles, and unequal market access in tenders. So far, so good.
However, it is another matter how credible the threats of action are. Depending on the importance of trade with China for their domestic economies, EU member states have very different ideas about how harshly trade defence measures such as tariffs, or the exclusion of Chinese suppliers from bidding processes, should be applied. In addition, there are considerable reservations, including in Berlin, as to whether these protective measures are actually „target-oriented“ – one of the most important conditions for their use. A charge on e-vehicle exports from China would ultimately come at the expense of European car manufacturers with Chinese production, and impact significantly less those Chinese auto manufacturers that (over)produce for the domestic market.
Von der Leyen was able to point out that the EU authorities recently proved that they meant business, by initiating a procedure for the first time on the grounds of discrimination against European companies when awarding contracts. But such proceedings are lengthy, difficult in terms of the burden of proof and, even if successful, are at best pinpricks. They are not a real threat, as expressed by the head of the EU Commission. The EU authorities therefore remain in a dilemma. They cannot tolerate China's policy of flooding the global markets with goods. At the same time, however, the EU must fear that it will have the short end of the stick in the event of an open trade war.