Fears of an escalating tariff war between China and other major exporting countries are keeping diplomacy between the world’s second-largest economy and the European Union even as trade talks on electric vehicles remain deadlocked.
While Tuesday’s U.S. election is almost certain to result in new U.S. restrictions on Chinese goods, European negotiators are investing in a longer-term game that may not lead to an immediate resolution, but which would at least put an end to the escalation of the trade conflict.
Some EU member states are even using this dispute to strengthen bilateral ties outside of negotiations between Brussels and Beijing and to attract new investments from China.
“I don’t think China wants this case to significantly torpedo EU-China relations, especially since we will probably see a very different world (after the US election),” Bo said Zhengyuan, partner of Plenum, a consulting company based in Shanghai.
New EU customs duties of up to 45.3% on imports of Chinese electric vehicles came into force last week, after a year-long investigation that divided the bloc and sparked retaliation from Beijing.
Brussels maintains that Beijing provides unfair subsidies to its auto industry and refuses to accept China’s counter-offer to set minimum import prices. Beijing responded by investigating Europe’s pork and dairy industries and imposing restrictions on brandy imports.
However, beyond the headlines, the negotiations are more complex.
In recent months, Beijing has hosted a procession of official visits from the EU and its member states.
A young French trade minister is visiting Shanghai this week, with Paris keen to continue developing trade ties in China’s financial capital.
France is also a “land of honor” at China’s annual flagship import expo, although Beijing has imposed retaliatory tariffs on its brandy.
Although little progress has been made toward a resolution, engagement remains a priority, analysts say.
“I’m not terribly optimistic that the Chinese side will put something on the table that the EU will accept, but I should probably also curb my pessimism a little and not rule out a solution,” said Max Zenglein, an economist chief at Merics, a Berlin-based China studies institute.
“I am sure that some Member States will insist on this point to demonstrate their willingness or ability to find an agreement.
A DIVIDED UNION
As Washington steps up its restrictive measures against Chinese goods, Beijing fears that its trade relations with the European Union, worth $783 billion last year, could suffer further.
For its part, the European Union is aware that customs duties only accentuate the divisions they have already created between its members.
Of the 27 Member States of the Union, 10 voted in favor of customs duties, 5 voted against and 12 abstained. Germany, Europe’s largest economy, was one of the dissidents.
“The definitive absence of a majority against customs duties means that the negative votes of certain countries are symbolic,” said a European diplomat.
“Some EU countries want more Chinese investment in their countries and were hoping for less retaliation by not voting in favor of tariffs,” he added.
Slovak Prime Minister Robert Fico is the latest European leader to visit Beijing, seeking closer bilateral trade and investment ties as insurance against a bigger fallout with China.
Last week, Finland, which abstained, also agreed to deepen trade ties with China during a visit by President Alexander Stubb, following the example of Spain and Italy.
CONSTRUCTIVE INTERFERENCE
China has an interest in containing the dispute: Its economy is slowing and it needs to find buyers for its electric vehicles to avoid deflationary pressures.
European diplomats, experienced in complex multilateral negotiations that can take years, said it was clear Beijing wanted to avoid a trade war, but only began talks with Brussels relatively late in the process.
China and the European Union have taken on each other before the World Trade Organization, but this arbitration may take years.
“China’s action on brandy, pork and dairy imports from the EU is probably a given at this point,” said Noah Barkin, senior advisor at Rhodium Group.
“A victory for the EU would be for Beijing to limit its response to brandy, pork and dairy products, and then for the two sides to resolve the issue at the WTO,” he added.
Mr Barkin warned that a less restrained response could see China restrict the EU’s access to key raw materials it needs for its green energy transition.
During his visit to China in September, Spanish Prime Minister Pedro Sanchez said Spain would seek to resolve the electric vehicle dispute at the WTO.
This would mean the failure of bilateral negotiations, but would avoid a deterioration of relations.
“I think there is a chance that they will reach an agreement on minimum prices, but it will not lead to the removal of tariffs, just a readjustment of the rates,” said Mr. Bo of Plenum on the EU negotiations. “It’s probably the best solution.
