China-EU trade tensions are rising, and a business leader says a trade war is ‘unavoidable’

[EUROPE] In recent years, the economic relationship between China and the European Union has become increasingly strained, with tensions rising to unprecedented levels. As both sides grapple with trade imbalances, market access issues, and accusations of protectionism, the specter of a full-blown trade war looms large on the horizon. Jens Eskelund, the chairman of the European Union Chamber of Commerce in China, has issued a stark warning that such a conflict may be "unavoidable" if current trends continue.

The Growing Rift in China-EU Trade Relations

The once-thriving economic partnership between China and the European Union has hit turbulent waters in recent years. A combination of factors, including diverging economic policies, geopolitical tensions, and growing concerns over fair competition, has led to a deterioration in bilateral trade relations.

Trade Imbalance Fueling Tensions

One of the primary drivers of the current dispute is the persistent trade imbalance between China and the EU. Eskelund points out that there has been "a decline in Chinese imports and an increase, an accelerating increase in volume terms, of Chinese exports" for several years now. This growing disparity has fueled concerns in Europe about the long-term sustainability of the trading relationship and its impact on domestic industries.

Retaliatory Measures Escalate Conflict

The situation has been further exacerbated by recent retaliatory measures taken by both sides. China's decision to impose significant tariffs on EU brandy imports came shortly after the European Union approved punitive duties on Chinese-made electric vehicles. These tit-for-tat actions have raised fears of a spiral of protectionist measures that could severely damage global trade.

China's Role in the Trade Dispute

While Beijing has accused Brussels of "naked protectionism," Eskelund urges China to take a broader view of the situation and address Europe's concerns regarding Chinese government policies.

Not a Victim, But a Key Player

Eskelund emphasizes that it is "very important" to understand that China is not the victim in this dispute. He argues that many of China's own policies have contributed to the current tensions, and that Beijing needs to take responsibility for addressing these issues if it wants to avoid a trade war.

Market Access and Fair Competition

One of the key concerns for European businesses operating in China is the issue of market access and fair competition. Many EU companies have long complained about barriers to entry in the Chinese market, as well as preferential treatment given to domestic firms. Addressing these concerns will be crucial in defusing tensions and preventing a further escalation of the trade dispute.

The Role of Government Policies

The current trade tensions between China and the EU are not simply a matter of market forces at work. Government policies on both sides have played a significant role in shaping the economic landscape and contributing to the current impasse.

China's Industrial Policies

China's ambitious industrial policies, such as "Made in China 2025," have been a source of concern for many in the EU. These policies aim to transform China into a high-tech manufacturing powerhouse, but they have also raised fears of unfair competition and potential market distortions.

EU's Strategic Autonomy

On the other hand, the EU has been increasingly focused on achieving "strategic autonomy" in key industries, particularly in the wake of the COVID-19 pandemic and growing geopolitical tensions. This push for greater self-reliance has led to more scrutiny of foreign investments and a renewed focus on protecting strategic sectors.

The Potential Impact of a Trade War

If current trends continue and a full-blown trade war erupts between China and the EU, the consequences could be far-reaching and severe.

Economic Fallout

A trade war would likely lead to higher prices for consumers, disrupted supply chains, and reduced economic growth for both China and the EU. The impact would be felt not just in these two economies but across the global trading system.

Geopolitical Ramifications

Beyond the economic consequences, a China-EU trade war could have significant geopolitical implications. It could lead to a further fragmentation of the global economy, with countries forced to choose sides in an increasingly polarized world.

Avoiding the Worst-Case Scenario

While the current situation looks grim, there is still hope that a full-blown trade war can be averted. Both sides have much to lose from an escalation of tensions, and there are several steps that could be taken to defuse the situation.

Dialogue and Negotiation

Increased dialogue between China and the EU is crucial. Both sides need to be willing to listen to each other's concerns and work towards mutually beneficial solutions. This may require compromises on both sides, but the alternative – a damaging trade war – is far worse.

Addressing Structural Issues

To achieve a lasting resolution, both China and the EU need to address the structural issues underlying their trade tensions. This includes tackling market access barriers, ensuring fair competition, and working towards a more balanced trading relationship.

Multilateral Cooperation

Engaging in multilateral forums, such as the World Trade Organization, could help to resolve disputes and establish clearer rules for international trade. This approach could help to prevent bilateral tensions from spiraling out of control.

The warning from Jens Eskelund about an "unavoidable" trade war between China and the EU should serve as a wake-up call for policymakers on both sides. The current trajectory of trade relations is unsustainable and poses significant risks to the global economy.

However, it's important to remember that this outcome is not inevitable. With political will, open dialogue, and a commitment to addressing underlying issues, China and the EU can still chart a course towards a more balanced and mutually beneficial economic relationship. The stakes are high, and the time for action is now.