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: and 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 [email protected].

Read article More by this author
 

Opinion

Why China should fear the EU's carbon border tax

Expect Beijing to soon start lobbying against the proposal.

By: Alicia García-Herrero Topic: Energy & Climate, Global Economics & Governance Date: July 26, 2021
Read about event More on this topic
 

Upcoming Event

Sep
2
11:15

Towards a new global trade regime: reform of the WTO

Bruegel Annual Meetings, Day 2 - the World Trade Organisation has been going through trying times, a phenomenon amplified by the pandemic. Why are we headed towards a new global trade regime? And what lies ahead for the WTO?

Speakers: Ngozi Okonjo-Iweala and Guntram B. Wolff Topic: Global Economics & Governance Location: Palais des Academies, Rue Ducale 1
Read about event More on this topic
 

Upcoming Event

Sep
3
09:00

The role of the EU's trade strategy for an inclusive and sustainable recovery

Bruegel Annual Meetings, Day 3 - We are delighted to welcome Valdis Dombrovskis, Executive Vice President of the European Commission for An Economy that Works for People to talk about Europe's trade strategy.

Speakers: Valdis Dombrovskis, Alicia García-Herrero and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Palais des Academies, Rue Ducale 1
Read article More on this topic
 

Blog Post

A world divided: global vaccine trade and production

COVID-19 has reinforced traditional vaccine production patterns, but the global vaccine trade has changed considerably.

By: Lionel Guetta-Jeanrenaud, Niclas Poitiers and Reinhilde Veugelers Topic: Global Economics & Governance Date: July 20, 2021
Read article More by this author
 

Blog Post

The European Union’s carbon border mechanism and the WTO

To avoid any backlash, the European Union should work with other World Trade Organisation members to define basic principles of carbon border adjustment mechanisms.

By: André Sapir Topic: Energy & Climate, Global Economics & Governance Date: July 19, 2021
Read article More on this topic More by this author
 

Opinion

Could the RMB dislodge the dollar as a reserve currency?

The dollar remains the world’s largest reserve currency, but it is facing both domestic and external risks.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: July 14, 2021
Read about event More on this topic
 

Past Event

Past Event

Strengthening the weak links: future of supply chains

What new supply chains trends will we see in the post-pandemic era?

Speakers: Ebru Özdemir, André Sapir and Guntram B. Wolff Topic: Global Economics & Governance Date: July 7, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

CCP's 100th Anniversary: Reflecting and looking forward

As the Chinese Communist Party celebrates its 100th anniversary, we looked into the past, future and present of the country's economic development.

By: The Sound of Economics Topic: Global Economics & Governance Date: July 7, 2021
Read article Download PDF More on this topic
 

Policy Contribution

Commercialisation contracts: European support for low-carbon technology deployment

To cut the cost of decarbonisation significantly, the best solution would be to provide investors with a predictable carbon price that corresponds to the envisaged decarbonisation pathway.

By: Ben McWilliams and Georg Zachmann Topic: Energy & Climate Date: July 1, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Avoiding a requiem for the WTO

The WTO has been 'missing in action': how can we restore the organisation's role as a global forum for cooperation on trade?

By: The Sound of Economics Topic: Global Economics & Governance Date: June 16, 2021
Read article
 

Opinion

Relaunching transatlantic cooperation with a carbon border adjustment mechanism

The best way for the EU and the US to jointly introduce carbon border adjustment would be to form a ‘climate club’.

By: Simone Tagliapietra and Guntram B. Wolff Topic: Energy & Climate, Global Economics & Governance Date: June 11, 2021
Read article More by this author
 

Podcast

Podcast

A transatlantic climate alliance

When Joe Biden visits Europe for the first time as US president, he should begin forging a transatlantic green deal.

By: The Sound of Economics Topic: Energy & Climate, Global Economics & Governance Date: June 11, 2021
Load more posts