EU sends envoy to Beijing as rising exports from China raise economic anxiety

European Commissioner for Trade and Economic Security Maros Sefcovic [AP Photo]

The European Union is bracing for a confrontation with China as a trade deficit exceeding $1 billion a day heightens anxiety over potential job losses and pushes the bloc’s political leaders to take a more aggressive approach toward its second-largest trading partner.

The European Commission’s top trade envoy, Maroš Šefcovic, will be in Beijing Friday (Macau time) for a two-day meeting with Chinese Commerce Minister Wang Wentao. The goal is narrowing the EU’s 360 billion euro ($410 billion) trade deficit with China. Earlier this year, he gave Beijing a deadline of October to provide meaningful results in doing so.

Politicians and economists across the 27-nation bloc consider China’s massive subsidies and exports a major threat to core industrial sectors from steel foundries to car factories. China diverted many of its exports to the EU and other markets after the U.S. raised tariffs.

On Wednesday, European Parliament lawmakers voted 454 to 86 on a resolution to toughen up on China that centered on a call for “economic reciprocity and a proportionate EU response if China does not open its markets.”

Ahead of the vote, Hilde Vautmans, the Belgian lawmaker who led the resolution, said that “Europe has economic power, it’s time we used it.”

EU options range from tariffs to ‘trade bazooka’

Despite the seeming European unity this week, it remains unclear what the EU can or is willing to do. It has already rolled out trade measures against Chinese steel imports and e-commerce small parcels.

A letter by France and Germany, a copy of which was seen by The Associated Press, called for a sweeping rethink of the EU’s China policy. Among other actions, it proposed making it easier for the European Commission to use the bloc’s so-called “trade bazooka,” the Anti-Coercion Instrument. This is a never-used-before raft of measures for blocking or restricting trade and investment from countries found to be putting undue pressure on EU member nations or corporations.

Yet not all EU nations agree on such tough measures. Spain, the eurozone’s fourth-largest economy, has been less adversarial toward China in recent years. Far-right and left-wing lawmakers from Ireland to Bulgaria formed an unusual coalition on Wednesday to vote against the resolution calling for tougher China policies.

The EU’s ailing economy requires both a domestic overhaul and a more aggressive foreign trade policy, especially with China, said Tim Rühlig, a China analyst at the European Union Institute for Security Studies, the bloc’s internal think tank.

“It’s clear that just protecting yourself from China is not the future,” Rühlig said. “But to have a chance of making yourself ready for future technologies and to remain competitive in the coming 15-20 years, you have to protect yourself.”

China is ready for a long trade dispute

This week in Beijing, when asked about the letter penned by France and Germany, a spokesperson at China’s Ministry of Commerce said that the countries should refrain from encouraging the EU to resort to protectionist measures.

“Protectionism cannot enhance competitiveness, and decoupling or cutting off supply chains will only harm others without benefiting oneself,” the commerce ministry said in a statement.

Chinese exports to the EU rose 15.3% in the first eight months of this year, according to China’s customs agency, while its imports from the EU rose 6.2%.

This past weekend, ahead of the meeting between Šefcovic and Wang, China launched an anti-dumping probe on EU exports of p-nitrotoluene, which is used in dyes and pharmaceuticals. The probe was initiated after Beijing warned last month that it would take retaliatory actions if the EU instituted tougher protectionist trade measures.

“China has been battle-tested by successive rounds of external pressure and, so far, has largely stared down attempts to force a change in course,” said Max Zenglein, Asia Pacific senior economist at The Conference Board.

China’s economy has been largely driven by exports as domestic demand remains sluggish. The EU imports sizable amounts of Chinese lithium-ion batteries and hybrid electric vehicles, with Chinese carmakers expanding European production.

When it comes to negotiations with the EU, Chinese investment in Europe is likely to be among Beijing’s bargaining chips, Zenglein added, particularly as EU member states compete to attract capital, jobs, and new manufacturing projects. MDT/AP