July 15. 2024. 6:17

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Is the growing EU-China trade dispute a staged act?

As widely anticipated, the week was dominated by trade tariff headlines.

Two of the European Commission’s top officials – trade chief Valdis Dombrovskis and vice president Margaritis Schinas – coordinated the EU executive’s announcement on Wednesday (12 June) of preliminary duties of between 17.4% and 38.1% on Chinese electric cars, with the rate varying also based on how collaborative companies have proved during the Commission’s seven-month-long anti-subsidy investigation.

Analysts widely believe that Chinese companies could absorb the announced EU duties and still maintain healthy profits.

What was slightly more surprising, thus, was that China’s reaction to the EU’s announcement of provisional and relatively manageable duties was, at least in terms of narrative, as harsh as that to the previous US’s announcement a month earlier. In that instance, President Joe Biden had revealed a much more significant tariff increase, raising duties on Chinese electric vehicles from 25% to 100%, alongside steep hikes on a range of other products.

Moreover, the EU’s approach to rebalancing what it saw as a vexing competition distortion differed greatly from the US’s strategy – with the former opting for an evidence-based assessment and ad-hoc, provisional requests for the different companies involved.

The US, on the other hand, opted for a less nuanced and more aggressive on-the-spot announcement of across-the-board tariff increases.

And yet, the two announcements seem to have provoked a comparable response from China: a strong condemnation, from the Ministry of Commerce, of the respective decisions, their underlying motives and the methods – paired up with slightly vague mentions of possible breaches to WTO rules, accusations of unfair protectionism and calls to take a step back and think twice.

The reason why two very different moves seemingly prompted a very similar response may be that China’s strategy on its trade relation with the EU could be hinging on objectives that contrast starkly with its stance towards the US.

In the case of EU-China relations, if one considers the Commission’s language over the past few months (emphasising the importance of safeguarding the international WTO rule-based system and open trade relationships) as well as what’s at stake for China (a vital and very profitable export market, as well as equally profitable business ventures with German carmakers), the feeling is that the two blocs are fully aware of their mutual need to maintain friendly trade relations, and are equally intending to do so.

This means that, despite the language of the two Commissioners this week, and the yet more peremptory response received by China, the two blocs may be onto something less antagonistic despite what this week’s events would lead us to assume.

Besides, as we had reported last week, EU analysts had expected this week’s announcement may have been mostly intended to be an “opening bid” for what was really the main objective for both the EU and China: starting negotiations to reach a deal that would mostly preempt the need for prohibitive and punitive trade measures.

If that’s the case, what we’re seeing unfold – the back and forth of action and reaction that seems akin to the opening salvos to a trade war – may in reality be a mutually-agreed and pre-staged act of political posturing that both parties see as politically and rhetorically convenient – when in fact, more amicable and business-minded negotiations might have already started in the background.

Economy News Weekly Roundup

EU tariffs on China too low to protect Europe’s car industry, says former top US trade official. Former General Counsel of the Office of the United States Trade Representative Greta Peisch told Euractiv that the duties—which range from 17.4% to 38.1% and go on top of the existing 10% tariff—are insufficient to “counteract” the hefty levels of state support Chinese EV manufacturers typically receive at all levels of the production process. “I think you could anticipate that those vehicles could continue coming in and being sold at essentially the same price today and continuing to take market share away from the European brand producers in the EU,” Peisch said. Her comments were echoed by European experts, who noted that the new tariffs suggest that the EU’s China policy is becoming more aligned with the US’s. Read more.

European Commission dismisses Chinese businesses’ allegations of malpractice during EV anti-subsidy probe. “All actions taken by the Commission as part of this investigation have been fully in line with applicable EU and WTO standards,” European Commission spokesperson for trade, Olof Gill, told Euractiv on Thursday (13 June). Gill’s comments came the day after China’s Chamber of Commerce alleged that “several enterprises and stakeholders have reported misuse of investigative power and misconduct by the [Commission] during the investigation”. Read more.

Reform of EU cohesion policy inevitable, German official says. Revision of EU spending priorities, including regional development and agricultural support, should be prioritised over discussions on a new programme of joint EU borrowing, said Ole Funke, coordinator for EU fiscal policy at the German Chancellery. Speaking on Wednesday (12 June) at a panel discussion on a proposal floated by German trade unions, and referred to as a “Future Fund” – a follow-up to the EU’s €728.3 billion post-pandemic Recovery and Resilience Facility (RRF) – Funke argued that the debate should focus on how to differently allocate the existing budget, rather than raising additional funds. Particularly on “structural and cohesion funds […] things cannot remain as they have been in the past,” he said. Read more.
German car industry, government react against EU EV tariffs as BMW faces 21% duty. The German car industry association VDA and senior government ministers criticised the EU’s preliminary tariffs on China-made electric cars announced on Wednesday (12 June), which will also hit European companies producing in China, such as BMW and Dacia. “This measure further increases the risk of a global trade conflict,” said Hildegard Müller, head of Germany’s car industry association VDA. Alongside Chinese companies, European carmakers producing electric vehicles in China will also be affected by the move, the largest group of which are Dacia and BMW, which will face a 21% import duty – even higher than China’s BYD. Read more.
EU-China tensions flare up as Chinese government rebukes EU tariffs move. The EU will impose additional tariffs of 17.4% to 38.1% on electric cars produced in China, the European Commission announced on Wednesday (12 June), prompting strong condemnation from the Chinese government, which threatened to “take all the necessary measures” to defend its companies. “When our partners breach the rules, we will assert our rights,” Executive Vice-President Valdis Dombrovskis said in a statement. The decision was “based on clear evidence of our extensive investigation and in full respect of WTO rules,” he said. Read more.

EU companies relieved as EP’s centrist majority holds. Business groups across Europe expressed relief that the “von der Leyen” coalition of centre-right EPP, centre-left S&D and liberal Renew groups gained a total 403 out of 720 seats in the European Parliament following Sunday’s elections results. “It is good that the pro-European parties are still clearly in the majority in the European Parliament,” said Tanja Gönner, managing director of German industry organisation BDI, adding that MEPs should “take responsibility and swiftly agree on a strong leadership team with a growth plan for Europe” . The European Banking Federation similarly welcomed the confirmed centrist majority, but also warned that, while “there has been no far-right takeover as some predicted […], their influence is evidently growing.” Read more.

Von der Leyen will be re-elected Commission president, says EU’s longest-serving Commissioner. “To be honest, I don’t expect anything else than the nomination of Ursula von der Leyen,” European Budget Commissioner Johannes Hahn said on Tuesday (11 June), adding that he was he was “very optimistic” that the European Parliament will confirm her appointment in July. Hahn, who is set to retire this year after serving as a Commissioner since 2010, also criticised EU policymakers’ “obsession” with limiting the bloc’s regular budget to no more than 1% of annual GDP, suggesting that additional funds will need to be found to finance increases in defence spending. Read more.

Germany to set out conditions for supporting von der Leyen’s nomination. There cannot be a collaboration with Giorgia Meloni’s hard-right European Conservatives and Reformers (ECR) group if Ursula von der Leyen is to be re-elected, representatives of Germany’s three-party government coalition stressed on Monday (10 June). The liberal FDP made further demands, zooming in on EU debt and the future of combustion engines, both very poignant issues for Berlin. “A Commission president should not take the initiative for European joint debt,” party leader Christian Lindner said, a position which isolates the FDP within its liberal political group, where the French and others have called for more EU debt to finance the bloc’s defence industry ambitions. Read more.

Read more with Euractiv

Reform of EU cohesion policy inevitable, German official says

Reform of EU cohesion policy inevitable, German official says

Before talking about a new round of joint EU debt, the EU would need to reform its current spending priorities, including regional development and agricultural support, Ole Funke, coordinator for EU fiscal policy at the German Chancellery said.

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