Europe missed its chance to make trade with China a win-win for both sides, but it is unlikely to win a trade war, according to Professor Xiang Lanxin. He is Ngee Ann Kongsi Professor in International Relations at the S. Rajaratnam School of International Studies, Nanyang Technology University in Singapore. He is also Professor Emeritus at the Graduate Institute of International and Development Studies in Geneva, Zijiang Chair Professor at East China Normal University, Shanghai; and Distinguished Fellow at the Stimson Center in Washington, DC.
“The European Commission has been clearly signaling its intention to wage a trade war against China. The European Commission’s intent to counter the so-called China Shock 2.0 – the wave of subsidized Chinese exports such as electric vehicles (EVs), solar panels and batteries – is no longer merely a verbal threat but appears to be an imminent decision.
Comparing current trade tensions between the European Union and China with the trade conflict between Europe and Japan in the 1970s and 1980s reveals striking similarities but also significant differences in terms of geopolitics, technology and state intervention. In both instances, European industry feared that imports from emerging Asian manufacturing hubs would undermine domestic production.
During the 1970s and 1980s, Europe faced fierce competition from Japanese exports. Companies from Japan captured market share through high-quality, efficient production and competitive pricing. European policymakers were concerned about the deindustrialisation of sectors such as automobiles, consumer electronics and machine tools. Today, European manufacturers of EVs, batteries, solar panels, steel and other industrial products face intense competition from Chinese companies, which have become global leaders in strategic sectors. The loss of production capabilities and technological leadership is raising concern. Europe has responded with anti-dumping and protectionist measures. Against Japan, these measures included import quotas, “voluntary” export restraints and anti-dumping investigations. Against China, they have included anti-dumping duties, anti-subsidy investigations, tariffs on electric vehicles and other products, and increased scrutiny of Chinese investments.
The crucial difference lies in the fact that, while Japanese companies benefited from industrial policies and government support in the 1970s and 1980s, they were also political allies of the West. Japan enjoyed a favorable tariff policy in the U.S. China, by contrast, is viewed as a “systemic rival”. Trade policy is increasingly linked to security issues. Matters such as technology transfer, cybersecurity, critical infrastructure and supply chain resilience are shaping public policy. Consequently, current conflicts are more highly politicized.
Trade tensions between Europe and Japan eventually subsided due to transatlantic solidarity and the escalating trade conflict between the United States and Japan, which forced the latter to sign the Plaza Accord, leading to a prolonged economic crisis for Japan. To gain the upper hand in the trade war with China, the EU requires a favorable international environment, solid economic and trade policies, and unity – both within the EU and between the EU and the U.S. Currently, none of these factors appears to be in place.
The EU years ago squandered a great strategic opportunity to approve and activate the hard-bargained treaty with China, the Comprehensive Agreement on Investment (CAI), in which China agreed to eliminate joint venture requirements, forced technology transfer, equity caps and quantitative restrictions in a number of sectors in which European firms in China do business. The deal would have protected European investments in China. Ultimately, the deal was killed by a dispute over human rights. If the deal had existed today, the EU’s fear of deindustrialisation would have been much alleviated. More jobs may have been created. European companies in China would have been more profitable. But China must also acknowledge that such a massive trade surplus with the EU is unsustainable.
It is more accurate to say that the EU has had difficulty matching China’s manufacturing scale and speed than saying Europe has broadly failed to compete. In fact, the larger concern among European policymakers is how to remain competitive simultaneously against both China’s manufacturing strength and the technological leadership of the U.S. Therefore, as Washington withdraws from its global responsibility, Beijing needs the EU even more as a key market. It should consider using incentives to allay its trading partners’ real concerns, rather than relying solely on heavy-handed tactics.”
This is an abridged version of Professor Xiang’s arguments presented in the South China Morning Post.
