China's GDP growth slows in Apr.-Jun. amid tariff uncertainty
A prolonged slump in the real-estate sector and US tariff policy were major factors.
The National Bureau of Statistics says gross domestic product grew 5.2 percent in real terms compared to the same quarter last year. That was above the government's target of around 5 percent. But it was down from the 5.4 percent logged from January to March.
Domestic demand remained stagnant as the property market continued to struggle.
Also, tariffs announced by US President Donald Trump discouraged businesses from investing in new equipment.
Beijing and Washington are continuing trade talks after agreeing to drastically slash their additional tit-for-tat tariffs. But concerns are spreading that a trade war between the world's two largest economies could flare up again.
China's central bank cut interest rates in May to help boost domestic demand.
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The Diplomat
3 hours ago
- The Diplomat
Where Climate Fits in China-EU Engagement During Trump 2.0
Europe and China are taking steps to strengthen ties where possible, despite a complicated relationship, as Donald Trump's second term as U.S. president assaults the frameworks that their economies and climate security rely on. On July 24, top political leaders from both sides will meet in Beijing for the EU-China summit. This high-level meeting underscores the political imperative. But the China-EU summit in past years has mostly lacked concrete deliverables, in part due to the increasing complexity of China-EU relations. It's worthwhile for diplomats to identify some near-term goals to get this high-speed reconciliation underway. Ultimately, the EU and China's strategic assessments of each other may not have changed drastically. But the man ruling the White House is a significant factor in altering the context, providing both sides with the incentive and need to make meaningful progress. As the two sides prepare for the July summit, trade is the most prominent topic, with ongoing but challenging negotiations. While it is unclear whether consensus will be reached on trade arrangements, there is a good chance that high-level exchanges in environmental and climate areas can deliver progress. In fact, 'climate change, biodiversity, and advancing the green transition' were listed as the only 'areas of shared interest' in the European Council's preview of the summit. Despite ongoing tensions over clean tech trade, both sides still share a common interest in bolstering the global energy transition, strengthening multilateralism, and pushing back against unilateralism, isolationism, and climate denialism. The EU-China High-Level Dialogue on Environment and Climate, which concluded two weeks before the Leaders' Summit, is a strong demonstration of common ground. The fact that these topics enjoy significant overlap in the China-EU relationship is a great strength, and that shouldn't be ignored. It's also worth noting that, compared to Trump 1.0, when the cost of renewable energy was still higher than the cheapest fossil fuels in many parts of the world, today the cost incentives of the energy systems are on the side of progress and stronger deployment of climate solutions. China issued red alerts for flood risk in late June, for the first but likely not the last time this year. Meanwhile, heatwaves are scorching Europe. As both sides enter climate disaster season, projecting extreme heat and rainfall, the urgent need for collaboration on climate issues could not be more clear. Neither side has delivered its 2035 climate plan, known under the Paris Agreement as their nationally-determined contributions (NDCs). Better alignment on timing and the ambition level of NDCs stands out as a major opportunity to strengthen the global energy transition and bilateral ties. Over the next few weeks, alignment between China and the EU will benefit greatly from coordination on identifying important yet feasible deliverables on both sides' agendas at multilateral fora. The China-EU summit provides an opportunity for the highest-level political exchanges on each side's respective climate targets, offering an important chance for leaders from both sides to clarify their ambitions and timeline. So far, signals from China have not offered enough reassurance. Chinese policymakers have adopted a conservative approach to defining what is possible for climate action, compromising in the face of economic pressure and geopolitical tensions. Policymakers in Beijing still tend to see ambitious climate action as an economic burden, despite China's technological and manufacturing strength in climate solutions. This way of thinking is perhaps outdated. In fact, an ambitious NDC would boost China's economy and earn it recognition as a responsible global power. A strong plan from China needs to feature both targets to further expand wind and solar energy and clear measures to limit coal. Together, these efforts will lead to a robust pathway for reducing emissions and keep alive the global goal of limiting warming to 1.5 degrees Celsius. On the European side, the EU projects itself as a global leader when it comes to climate action. Over the last year, this image has been damaged. Inside the EU, several governments and political parties are pushing to slow down climate action and lower climate ambition. In Trumpian fashion, some want to do away with it altogether. This is further cause for alarm at such a crucial time, with the world on the brink of missing the chance to limit global warming to 1.5 C. The EU has now started the legislative process to establish its climate target for 2040, following the publication of the European Commission's proposal on July 2. The proposed target is a 90 percent net reduction in greenhouse gas emissions compared to 1990 levels, but it includes the use of 'high quality' carbon credits for up to 3 percent of this target, and starting from 2036 only (meaning it won't impact the NDC). The EU's climate target for 2035 will be agreed after a special Environment Council of member states on September 18. For China's climate target, President Xi Jinping in April offered a loosely defined timeline that the 2035 target would come out before COP30, to be held in November 2025, and China remains attentive to the actions of other key players. That puts this moment in China-EU relations at the center of the global climate effort in a year where progress on climate will be seen as a bellwether for multilateralism and the ability of the global climate process to fortify itself from unilateral attacks on science and clean tech industries. No two parties are better positioned to strengthen the pylons than China and the EU.
The Diplomat
3 hours ago
- The Diplomat
Rare Earths Are the Key to Winning the China-US Trade War
To accumulate industrial leverage over the U.S., China played the long game. The U.S. must do the same. Imagine the China-U.S. trade war as two opposing armies exchanging bursts of gunfire, one volley after another. Responding to China's unfair trade practices, the United States imposed tariffs on a broad range of Chinese exports. In turn, China restricted rare earth exports necessary for American automotive and defense manufacturing. The U.S. retaliated by freezing jet engine sales, technology that China can't find anywhere else. Then came a lull. In June, President Donald Trump announced that China would resume exports of rare earths, in return for the U.S. providing China with the student visas it wanted. Subsequently, the U.S. and China announced a formalized agreement to resume Chinese heavy rare earth exports, while the United States will resume jet engine, software, and ethanol exports. But this isn't a truce. It's only a ceasefire in a trade war that is likely to erupt again and again in the coming years. China left its growing infrastructure for export controls in place: rare earth export licenses require sensitive information disclosures and only last for six months. And once the trade war breaks out again, the United States may find that China has more ammunition than it does. To accumulate this much industrial leverage over the U.S., China played the long game. The U.S. should take this pause in the trade war to begin doing the same. As China grew to become an industrial superpower over the last three decades, it encouraged other manufacturing countries, particularly the U.S., to rely on it as the primary supplier for dozens of critical minerals. The dependence is even more stark in rare earths: China's export licensing regime caused U.S. imports of high-performance magnets to fall by 93 percent. This adds up to Chinese leverage in the short, medium, and long term. Right now, it can choose to cut off access to minerals and slow the pace of U.S. reindustrialization. The short-lived rare earth restrictions already forced a Ford plant to halt production, and the company, like many other carmakers, is scrambling to find a supply of magnets. In the coming months and years, this dynamic could force manufacturers to move American industry to China, if that remains the only way of accessing strategic materials. More than just slowing reindustrialization, China's export controls could cause further deindustrialization in the U.S. Over the long term, China's intent is clear: keep the rest of the world hooked on Chinese raw materials. As long as the United States' most essential commercial and military products rely on Chinese strategic materials, the U.S provides Beijing with an informal veto over American foreign and domestic policy. Absent U.S. action, this dynamic won't change. The U.S. can't afford to sit by while China begins to exert the leverage that it has built up over the last few decades. The U.S. response should similarly be framed over short-, medium-, and long-term goals. The United States' immediate need is to retain access to strategic materials from China and keep the manufacturing base alive. This is why Trump's agreement with China was so important: the U.S. can't reindustrialize without using Chinese raw materials in the near term. But now with temporary access, the medium-term goal must be developing alternative supply chains to meet the United States' military and commercial industrial needs. Time is an imperative: the search for a perfect set of critical policies induces a costly paralysis. Policymakers need to acknowledge trade-offs. In some cases, this means trying out a range of programs, some of which will ultimately fail. Now that the Senate has passed Trump's One Big Beautiful Bill, there's a wide-open space for consequential policies. Undoing the theory that developing the electric vehicle supply chain would boost critical mineral resilience, the bill repeals EV subsidies and sunsets provisions of the advanced manufacturing tax credit. But the bill leaves the door open to new investment by allocating billions for critical mineral and industrial base financing. That funding needs to flow to effective programs. The United States' long-term goal should be independence – not from the rest of the world, just from China. On some level, the American people recognize this. Between 1990 and 2020, the American public went from thinking of China as a Japan-type competitor to a Soviet Union-like threat. But over that period, the scale and character of U.S. trade with China remained much closer to that of Japan than the Soviets. A fundamental readjustment of the United States' trade patterns with China isn't just necessary, it's long overdue. To that end, the United States should play both defense and offense in trade. Defensive measures insulate the U.S. from the Chinese supply shocks and unfair trade practices that contribute to the forcible deindustrialization of the American heartland. Offensive strategies would increase the number of technologies that China relies on the U.S. for, gradually rebalancing leverage away from Beijing. The Department of Defense's recent investment in MP Materials, a U.S. rare earth producer, offers a roadmap for the future. The terms of the deal include $400 million equity investment from DOD, more than $1 billion in public-government loans to construct new processing facilities, and establishing a price floor for MP's rare earth output. In the intervening days, Apple and MP announced a $500 million commitment to purchase magnets and develop a recycling plant in Texas. With DOD and other government agencies leading the way in investment, offtake agreements, and permitting, U.S. firms will help adjust the supply and demand constraints necessary for developing a fully integrated domestic supply chain. While the specifics will vary from mineral to mineral, deals like these will be the way forward. But if the U.S. does nothing to shift this balance of power, China will always be able to use the leverage that it built up over the past few decades. China could use access to raw materials to stop us from imposing further restrictions on advanced technologies, or even force the U.S. to loosen advanced technology transfer restrictions. The United States would be able to do little about it. In gray-zone economic warfare, trade leverage becomes its own kind of armament. The United States should arm itself aggressively to pursue strategies that take ammunition away from the Chinese. When that next round of trade war sniping breaks out, the U.S. will want more firepower than it has now.
The Diplomat
3 hours ago
- The Diplomat
The Great Wall Between China and the EU
In times of evolving transatlantic dynamics under the second Trump administration, and in response to shifting global power balances, some within the European Union have shown interest in exploring a more nuanced engagement with China. However, there are structural obstacles to a warming up between Brussels and Beijing, considering China's unfair trade practices in the economic sphere, its troubling human rights record, and its alliance with Russia and support for Moscow's war on Ukraine in the security sphere. China's leadership is not willing to change course. Instead, China is gambling on the EU's weakness and hoping that Brussels will simply give in. While the EU is indeed in a tough spot currently, it cannot agree to a 'grand deal' if China is unwilling to make major concessions on its unfair economic practices and support for the war in Ukraine. Now all eyes are on the upcoming China-EU summit to take place in Beijing on July 24, an important gathering that will mark 50 years of diplomatic relations. But if the summit demonstrates anything, it will be the fact that China is unwilling to play by the rules of the international order and that it is in neither in the EU's nor in the United States' interests to try to make a grand deal with Beijing without a major paradigm shift in China's behavior. The months-long discourse about an China-EU rapprochement and the China-EU summit take place against the backdrop of major divisions between the EU and the United States in recent months. The second Trump administration's initial ambiguity on support for Ukraine and the assertive approach toward the EU in its trade policy created uncertainty in Europe, encouraging the advocates of European 'strategic autonomy.' On the trade front, Trump started with the introduction of 25 percent tariffs on EU auto, steel, and aluminum imports, followed by the warning of a 50 percent tariff on all EU goods in absence of a trade deal. Finally, a July 12 announcement placed a 30 percent tariff on EU imports. These policies have created worries in Europe about the future of the transatlantic economy. Trying to capitalize on the transatlantic rift, Beijing started a charm offensive toward Europe last February with tailor-made messages such as 'your best friend has abandoned you' and 'China and the EU should serve as the world's anchors of stability.' Chinese Foreign Minister Wang Yi and two of his deputies have been touring Europe, accusing the United States of abandoning the international order while touting that China was interested in maintaining that order. An important part of their agenda was to convince the Europeans to revive the previously abandoned Comprehensive Agreement on Investment and to rescind EU sanctions against China. These diplomatic overtures resonated with some decision-makers in the EU, while others, like Commission President Ursula von der Leyen, signaled openness if China was ready to commit to real change on structural issues. As a result, there were several steps taken by both sides toward a potential rapprochement. In March, EU Trade Commissioner Maros Sefcovic met with Chinese leaders in Beijing to discuss ways 'to improve and rebalance China-EU trade and investment relations.' In April, von der Leyen held a phone call with Chinese Premier Li Qiang to discuss how to improve bilateral relations. In May, China and the European Parliament agreed to lift restrictions on mutual exchanges, including China's sanctions on some members of European Parliament. However, what the Europeans have been waiting for has not arrived from Beijing. Citing China's lack of reciprocity and unfair trade practices, the EU skipped the usual High-Level Economic and Trade Dialogue, signaling clear frustration and skepticism. The Chinese government has not put a serious offer on the table, which would require major change on structural economic and security issues. On the economic front, the list of deep structural issues that have prevented the EU from creating some kind of détente with China is long and includes chronic trade deficits, restricted access for European companies to the Chinese market due to non-tariff barriers and opaque regulations, market asymmetries, forced technology transfer, and currency manipulation. A major issue for the EU is Chinese industrial overcapacity, aided by state subsidies, which leads to export dumping in EU markets, depressing prices and undermining European industries. In a notable example, the EU hit Chinese electric vehicles with penalties of running from 17 percent to 45.3 percent over dumping allegations. However, Chinese electric vehicle and battery manufacturers have established production capabilities in EU countries, thereby seeking to establish their goods as 'made in the EU,' threatening European industries. While China has been a major trading partner for the EU for years, the EU's trade deficit with China has increased in the last decade, exceeding 300 billion euros ($350 billion) in 2024. Another structural issue faced by the EU for decades is China's restrictions on market access. The head of the European Chamber of Commerce recently spoke out on one of the problems in this area, saying that 'a lack of fair access to government procurement in China has been a long-standing issue for European companies operating in the country.' The EU has responded to these obstacles with a new tool of its de-risking strategy, the International Procurement Instrument (IPI). In the first-ever use of the IPI, the EU recently restricted the access of Chinese medical device manufacturers to the EU's sizable procurement market for five years. At the summit, the EU and China are expected to tackle another pressing issue: China's restrictions on rare earth exports to the EU. While these critical minerals are crucial for the EU's auto, defense, and renewable energy industries, China has been slow-rolling rare earth licenses for months, in an outgrowth of the China-U.S. trade war. In the security domain, the primary source of tension in China-EU relations is China's role in supporting Russia's war against Ukraine. Von der Leyen sharply criticized China's 'unyielding support for Russia,' warning it is fueling instability in Europe and 'de facto enabling Russia's war economy' – a stance she said the EU 'cannot accept.' Von der Leyen further warned that 'how China continues to interact with Putin's war will be a determining factor for China-EU relations going forward.' Ignoring European criticisms, China's Foreign Minister Wang Yi recently told the EU's foreign policy chief, Kaja Kallas, that it was not in China's interest for Russia to lose the war in Ukraine. Wang said the war currently keeps the focus of the United States on Russia and Eastern Europe, and a Russian loss would shift U.S. attention back on China and the Indo-Pacific. The China-EU summit will coincide with the 50th anniversary of diplomatic relations between the two sides, but the occasion is unlikely to be celebratory given the many divisions that currently strain their relationship. Chinese leadership has made clear in recent months that, while it wants a rapprochement with Europe, it is unwilling to make sacrifices for it by significantly modifying China's conduct on structural issues in the economic, technology, and security domains. It is time the EU's decision-makers and opinion-leaders recognized that China continues to be a strategic competitor and systemic rival that is intent on perpetuating its unfair economic practices and doubling down on its alliance with Russia and support for the Ukraine war. As a result, China-EU rapprochement is an unrealistic pipedream. Even if the transatlantic relationship is going through a rough patch, it is worth remembering that the United States and its European allies were the founders of the liberal international order, built on the values of human rights, democracy, free markets, the rule of law, and non-aggression. Communist Party-ruled China, contrary to what its leaders like to say during their charm offensives, does not embrace these values and seeks to transform the international order in its own authoritarian image. As long as China continues to flout the rules of the international order with its unfair economic practices, widespread human rights violations, and support for unlawful aggression, it is not in the EU's interest to warm up its relations with Beijing. The China-EU summit will hence serve to confirm how differently the two sides see the world, how different are the values they hold dear, and how widely their interests diverge. Held in the proximity of the Great Wall, the discussions between European and Chinese leaders will once again demonstrate that there continues to be a great wall between the EU's values and interests and those of China's.
