How European Union got stuck between Xi's China and Trump's America

Business Standard

11 hours ago

By Jeanna Smialek and Keith Bradsher
It once looked to many as if President Trump could be a reason for Europe and China to bring their economies closer. His planned tariffs did little to distinguish the European Union, a longtime ally of the United States, from China, the principal challenger to American primacy.
It hasn't turned out that way.
Instead, the European Union finds itself in a geopolitical chokehold between the world's two largest economies.
In Brussels, officials are trying to secure a rough trade deal with their American counterparts before Mr. Trump hits the bloc with high, across-the-board tariffs that could clobber the bloc's economy. At the same time, European Union policymakers are trying to prod their counterparts in Beijing to stop supporting Russia, to stop helping Chinese industry with so much state money and to slow the flow of cheap goods into the European Union.
But at a moment of upheaval in the global trading system, the bloc also needs to keep its relationship with China, the world's leading manufacturing superpower, on a relatively stable footing.
Leaders from the European Union are scheduled to be in Beijing for a summit in late July, plans for which have been in flux. Hopes for the gathering are low. Even as China pushes the idea that Mr. Trump's hostility to multilateral trade is prodding Europe into its arms, Europe's problems with China are only growing.
'There is no China card for Europe,' said Liana Fix, a fellow for Europe at the Council on Foreign Relations.
Tensions were on full display last week, when Wang Yi, China's foreign minister, visited Brussels for meetings in the run-up to the summit. China portrayed the tone as productive and dismissed the notion that the two sides had conflicts. European Union officials stressed lingering pain points, including trade imbalances.
The divide was underscored this weekend. The European Union recently moved to curb government spending on medical devices from China, arguing that Chinese government agencies had been treating European companies unfairly and that it was necessary to level the playing field. China on Sunday announced that it would retaliate.
Yet the European Union remains in a delicate dance with China. Economic ties between the two economies are extensive. Many European countries remain heavily dependent on China for industrial materials. And European exports to China remain substantial, especially from Germany, which has long had close trade ties with China.
But Europe's exports have been dwindling, even as Chinese imports into the bloc have been surging. As cheap products from the fast fashion retailers Shein and Temu flood into European markets, policymakers have been working to tighten restrictions on such imports. And European leaders regularly complain that China's state-controlled banks subsidize the country's manufacturers so heavily that European companies can't compete.
Nor are Europe's complaints unique to trade. European Union officials are angry about China's support for Russia during the war in Ukraine, providing a market for Russian fuel and other products that has blunted the bite of European sanctions.
The European Union's aim cannot be to cut ties with China, according to the Danish foreign minister, Lars Løkke Rasmussen. 'It is about engaging on a more equal footing and being more transactional in our approach,' he said, speaking at a briefing with reporters on Friday.
As the United States upends the global trading system in a bid to shrink its trade deficit, raise revenue and re-shore domestic manufacturing, the European Union finds itself in a lonely place. It is a bloc of 27 nations that together make the world's third-largest economy. The European Union was devised to promote commerce across borders and remains a powerful defender of free trade.
Europe wants to 'show to the world that free trade with a large number of countries is possible on a rules-based foundation,' Ursula von der Leyen, the president of the European Union's executive branch, said at a news conference last month.
The European Union has already deepened its trading relationships with like-minded countries like Switzerland and Canada. Ms. von der Leyen suggested that it could go a step further. It could pursue a new collaboration between the bloc and a trading group of 11 countries that includes Japan, Vietnam and Australia, but that notably does not include the United States or China.
Yet even as Ms. von der Leyen tries to go on the offensive, E.U. officials have spent months on a far more defensive footing.
That is because even as the European Union takes issue with the policies coming out of the United States and China, it is also being battered by — and torn between — the two.
No matter the outcome of its trade talks with the Trump administration, the European Union is expected to end up with higher tariffs on its exports to the United States than it faced at the start of the year. American officials have said repeatedly that 10 percent across-the-board levies are not negotiable.
Officials are also likely to be compelled to make concessions to secure an agreement. Those include a possible commitment to taking a tougher stance toward China.
The European Union agrees with Mr. Trump that China has pursued unfair trading practices. Yet the bloc can push China only so far, given how intertwined the economies are.
China has recently offered the European Union a damaging reminder of that reality.
In response to U.S. tariffs, China limited global exports of rare earth magnets, which are critical to producing a range of goods from cars and drones to factory robots and missiles.
Because China dominates rare earth production, it can inflict serious pain on its trading partners with such limitations.
European policymakers initially hoped that China's restrictions would mainly affect American companies. But European firms have also faced long delays in getting China to approve its purchases of rare earths.
The slowdown is caused not only by logistical kinks as China works through a queue of applications. Instead, it appears to be tied to a longer-standing trade flashpoint between Europe and China.
The Chinese government has for years required that foreign companies share or transfer technology to their Chinese partners as a condition for entering the China market. Recently, European carmakers and other companies have found themselves far behind their Chinese competitors, which have led the development of electric cars, solar panels and other technologies.
Given that, European Union officials have been pressing Chinese companies to transfer technology as part of the price of admission to the European market.
The European Union has also joined the United States in restricting the shipment to China of equipment to make the fastest semiconductors, which have military as well as civilian applications.
That has annoyed Chinese officials. China's minister of commerce, Wang Wentao, called for Europe to cancel controls on high-tech exports to China as part of discussions on a resumption of rare earth supplies.
'Minister Wang Wentao expressed the hope that the E.U. will meet us halfway and take effective measures to facilitate, safeguard and promote the compliant trade of high-tech products to China,' the Ministry of Commerce said in a statement last month.
At the Beijing summit this month, European officials are likely to keep pushing Chinese officials for more consistent access to rare earths.
Jens Eskelund, the president of the European Union Chamber of Commerce in China, said the chamber also wants the meetings to focus on trying to persuade Chinese officials on the need for more transparent and predictable regulations and to address how hard it has become for foreign companies to do business in China.
But the outlook for meaningful changes, or anything that draws Europe and China closer, is dim. The tone coming from Europe is not positive.
Ms. von der Leyen, in a speech at the Group of 7 meeting in Canada last month, said China was engaged in a cycle of 'dominance, dependency and blackmail.'