In a bid to lower trade tensions, the European Union and China have launched a new a ‘joint monitoring mechanism of trade flows, with the EU insisting that negotiations over trade imbalances, export controls and intellectual property must deliver “tangible results” by October. There will be four initial work streams, focused on trade and investment balancing, export controls, intellectual property rights, and World Trade Organization (WTO) reform. The agreement was reached after negotiations between EU Trade Commissioner Maros Šefčovič and Chinese Commerce Minister Wang Wentao in Brussels last week. Šefčovič said talks had been “intensive, focused and constructive”, but warned that the EU would be forced to take action should meaningful progress not be achieved by the October deadline. “There is much more understanding of the European situation from our Chinese counterparts than we had before,” Šefčovič told reporters, adding that he would travel to Beijing again in the autumn to assess progress, as the European heads of state and government expect expedient action on the trade issues.
After the first substantive discussion in three years among the EU’s 27 national leaders on China policy, a majority of capitals agreed that Europe is in the grip of a “China shock” and that drastic action is needed to tackle the challenge posed to its industry by Chinese firms, which often compete at much lower prices. In May alone, the EU’s trade deficit with China rose by 15% compared with a year earlier, with Germany’s deficit expanding by 31.6%. At this rate, the gap is on course to exceed the near-€1 billion-per-day deficit of 2025. EU leaders instructed the European Commission to develop new instruments to address the problem, and to ramp up engagement with Beijing to avoid a trade war. The October timeline could see Šefčovič meet Wang again before the leaders discuss China at that month’s European Council summit, when European Commission President Ursula von der Leyen is expected to present new tools on the EU’s China policy.
The clock is ticking for the EU and China to find an off-ramp if they are to avoid descending into a tit-for-tat trade battle. “My objective from the outset has been clear: to begin balancing the trade relationship between the EU and China. The gap is widening. China’s exports to the EU keep rising, while our market share in China keeps shrinking. This trend is not sustainable. The status quo is not an option,” Šefčovič said. “The EU remains open for business. But we need to defend our industrial base and keep pushing for a level playing field globally, so our industries get a fair shot at competing. That is why talks matter. They help us avoid unnecessary tension,” he continued.
Those tensions have mounted for months amid a surge in Chinese imports, which many economists attribute in part to the country’s industrial overcapacity, itself partly attributable to sizable and undeclared state subsidies. The Chinese government does not agree with this assessment and has vowed to retaliate against EU actions that would threaten China’s interests. A Global Times article accused the EU of being “insincere” in its dealings with China, the South China Morning Post reports.
The Global Times adds that MOFCOM has invited Commissioner Šefčovič to visit China this autumn to co-chair the second meeting of the newly established China-EU trade and investment consultation mechanism. The achievements of the first meeting underscore both parties' willingness to de-escalate economic and trade tensions, said Zhang Jian, Vice President of the China Institutes of Contemporary International Relations.
