The European Union is weighing tougher trade measures against China as a deficit exceeding $1 billion a day raises concerns about factory jobs and industrial capacity. European Commission trade envoy Maroš Šefčovič was due in Beijing Thursday for two days of talks with Chinese Commerce Minister Wang Wentao, aiming to narrow the EU’s 360 billion euro ($410 billion) trade deficit. Earlier this year, Šefčovič gave Beijing an October deadline to deliver meaningful results.
A widening trade imbalance
China’s exports to the EU rose 15.3% in the first eight months of the year, while imports from the EU rose 6.2%, according to China’s customs agency. European Commission data show China ranks as the EU’s second-largest goods trading partner, after the United States.
Those figures have sharpened the dispute over whether the bloc can protect its industries while continuing to rely on trade with China. In June, the European Policy Centre in Brussels said European producers of batteries, solar panels, steel, electric vehicles, chemicals and machinery were losing jobs and capacity. It proposed a trade investigative body modelled on Section 301 of the U.S. Trade Act, to respond to perceived unfair trade practices and protect European industries.
In Strasbourg on Wednesday, the European Parliament voted 454 to 86 for a resolution calling for “economic reciprocity and a proportionate EU response if China does not open its markets.” Before the vote, Hilde Vautmans, the Belgian lawmaker who led the resolution, said: “Europe has economic power, it's time we used it.” The EU has already introduced trade measures against Chinese steel imports and small e-commerce parcels.
Tariffs and the EU's trade instrument
Possible responses range from tariffs to the Anti-Coercion Instrument, which officials describe as the EU’s “trade bazooka.” No one has used it. The instrument could block or restrict trade and investment from countries found to be putting undue pressure on EU members or corporations.
France’s High Commission for Strategy and Planning called in February for swift measures, including 30% tariffs on many Chinese exports and a devaluation of the euro against China’s currency. France and Germany also proposed a broad rethink of EU policy toward China in a letter that would make it easier for the European Commission to use the instrument. The Associated Press saw a copy of the letter.
The bloc’s governments aren't united behind a harder line. Spain, the eurozone’s fourth-largest economy, has taken a less adversarial approach to China in recent years. Prime Minister Pedro Sanchez has visited Beijing four times in three years.
Factories, investment and retaliation
Across the 27-nation bloc, politicians and economists view Chinese subsidies and exports as a major threat to industries ranging from steel foundries to car factories. After the United States raised tariffs, China redirected exports to the EU and other markets. German auto sales are falling sharply in China, while Chinese automakers are positioned to gain European market share by undercutting prices with heavy state subsidies. Volkswagen and other major manufacturers have already made mass layoffs.
European Commission President Ursula von der Leyen called the trend another “China shock” for Europe, comparing it with the early 2000s in the United States, when hundreds of thousands of factory jobs in the American heartland disappeared. Tim Rühlig, a China analyst at the European Union Institute for Security Studies, said the EU’s weak economy required domestic reform and a more aggressive foreign trade policy, particularly with China. He also said European businesses and political leaders bore some responsibility.
“It's clear that just protecting yourself from China is not the future,” Rühlig said. “But to have a chance of making yourself ready for future technologies and to remain competitive in the coming 15-20 years, you have to protect yourself.” He said complete disengagement with China, as the EU pursued with Russia after its invasion of Ukraine, was impossible. “Where do we make ourselves independent or at least more diverse? And where do we still work with the Chinese?” he asked.
China’s Commerce Ministry said the countries should not encourage protectionist measures. “Protectionism cannot enhance competitiveness, and decoupling or cutting off supply chains will only harm others without benefiting oneself,” a spokesperson said. In an editorial last month, the state-run Global Times said: “The EU does not have the capacity to wage a trade war against China. If it is truly determined to do so, then let it try.”