EU needs to ‘cooperate with China’ as concerns of trade war with US rise
Published: Dec 05, 2022 11:08 PM
Illustration: Liu Rui/GT

Illustration: Liu Rui/GT

As concerns of a possible trade war between the EU and the US increase, Chinese analysts said major European economies need to make pragmatic and wise decisions to safeguard their own interests rather than following Washington too closely at their own costs while serving the US hegemony.

US pressure on the EU is an opportunity for China-EU relations, as currently European leaders are engaging with both the US and China, experts said, citing French President Emmanuel Macron's China visit reportedly to be scheduled in January 2023. The EU, after having been disappointed by Washington, would likely seek deals with China, and China and EU - the two major pillars of the global economy - could support each other in difficult times, experts said.

More EU politicians are speaking out against the US Inflation Reduction Act (IRA), which offers huge subsidies for US-made products in electric vehicles and clean energy, as the act may divert investment from the EU to the US. 

Speaking at the College of Europe's Bruges campus in Belgium, European Commission President Ursula von der Leyen said on Sunday that EU must take "rebalancing" measures to smooth out the "distortions" of competition caused by the US $369 billion subsidies of IRA, news portal Euronews reported.

It was the first time that von der Leyen has made a public response to the IRA, a bill French President Macron warned as "super aggressive" and that risked "fragmenting the West." German Economy Minister Robert Habeck called for a "robust" response.   

According to von der Leyen, there is a risk that the IRA "could lead to unfair competition, could close markets and fragment... critical supply chains." 

Sun Keqin, a research fellow at the China Institutes of Contemporary International Relations, told the Global Times on Monday that the US act displays protectionism and economic nationalism.

Many Europeans worry about the hollowing-out of their industries at a time when energy prices are rising in Europe and the cost of industrial goods is eroding competitiveness, Sun said, "but Europe does not have many tools to deal with the situation."

Europe may first use talks, international arbitration, or even partial subsidies to reduce the impact of the US act. But if the conflict cannot be properly handled, it could lead to a trade war with Europe introducing its own subsidies and then restricting American products, even though Europe traditionally opposes protectionism, Sun said. 

"But no matter how the two sides handle the conflict and how the game unfolds, the transatlantic relationship is destined to suffer damages," Sun noted. 

Complaint and illusion

As the US still wants to recruit Europe to contain China and Russia, Sun believes the US may show some limited coordination with Europe in other areas to placate the latter even if Washington does not give ground on the IRA.  

Some EU leaders and elites still have illusion or wishful thinking over the US, believing Washington is their ally despite trade frictions. But observers underlined that US-EU ties are becoming increasingly competitive in terms of economy, which is why the US is making use of the Russia-Ukraine conflict and fanning up a sequential energy crisis to diminish the EU economy and business environment. 

Bernd Lange, head of the European Parliament's Trade Committee, said on Sunday that the EU should file a complaint with the World Trade Organization (WTO) over the IRA, according to the Funke media group.

However, Chinese experts do not consider the WTO a platform for the two sides to find solutions. The US is well aware that international governance institutions, such as the WTO, cannot check and balance the US hegemony. Besides, the Russia-Ukraine conflict has brought capital and industry back to the US, widening the gap between Europe and the US in terms of economy.

Wang Yiwei, director of the Institute of International Affairs at the Renmin University of China, told the Global Times on Monday that although it was former president Donald Trump who stated "America first," incumbent President Joe Biden is acting on the same principle. 

The IRA's purpose is not what its name claims - to reduce inflation, it aims to weaken the advantages of US competitors.

Both the US and Europe are developed economies, and there is competition between them. "In the post-pandemic era of new energy and digital transformation, being ahead of the curve means leading the international economic and technological landscape and setting new standards. The US is trying to cultivate its future advantages by pushing Europe down so that it can have a bigger say," Wang noted. 

The EU is clearly divided into a group that prioritizes its ties with the US regardless of the costs and a group that seeks more independent policymaking. Von der Leyen is pro-America, advocating the EU to make compromise to avoid a trade war which the EU cannot win. Macron seems to be more of a "tit-for-tat" mentality, but that cannot actually change the US position on the IRA.

Looking East

Experts believe the EU's dissatisfaction with the US may open a window for China and the EU to improve bilateral ties as well as to provide a solution to the prolonged Russia-Ukraine conflict. When Macron met with Biden on Wednesday local time in Washington mainly to discuss the US bill, Chinese President Xi Jinping and President of the European Council Charles Michel on Thursday vowed to strengthen strategic communication and cooperation, and bring forward the process toward the China-EU investment agreement during their meeting in Beijing.

Xi said on Thursday the more unstable the international situation becomes and the more acute challenges the world faces, the greater global significance China-EU relations take on.  

Michel on Thursday called for increasing mutual understanding and managing differences properly with China. He noted that the EU pursues strategic autonomy, upholds the one-China policy and respects China's sovereignty and territorial integrity. It will not interfere in China's internal affairs. 

Wang said the EU's previous economic prosperity largely depends on cheap Russian energy and cheap Chinese products. The halting of the China-EU investment deal is a huge loss for the EU, which was given more favorable treatment than the US in the Chinese market. 

If Europe does not seek to repair its ties with China, it will be even more disadvantaged in front of US bullying considering its decoupling from Russia, Wang said. "Europe cannot afford to follow America's lead irrationally."

China is always willing to push forward its ties with Europe. If Macron visits China, he might want to "have a good talk with China," especially after his "disappointment with the US," Wang said.