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CNBC
11-07-2025
- Business
- CNBC
U.S. tariffs take center stage but China and the EU are quietly clashing
The U.S. tariff saga has stolen global spotlight from trade tensions between China and the European Union, which are now heating up. Accusations and investigations over each other's trade practices have long been a staple of EU-China trade relations, underpinned by concerns over how domestic economies are likely to be impacted by competing imports. In recent weeks, EU restrictions on Chinese companies taking part in public tenders for medical devices were quickly met with China imposing import curbs on such products. Separately, long-threatened Chinese duties on brandy from the EU came into force earlier this month, and both Beijing and Brussels have ramped up criticism of each another. Altogether, EU-China trade relations are now "quite poor," according to Marc Julienne, director of the Center of Asian Studies at the French Institute of International Relations (Ifri). "What was once a domain of great opportunity and enthusiasm for the bilateral relationship has now become more about risks than opportunities," he told CNBC earlier this week. EU and China relations are encumbered by many challenges and risks often linked to clashing economic positions, Grzegorz Stec, senior analyst at the Mercator Institute for China Studies, suggested. "The EU and China are broadly on a colliding trajectory in terms of their trade and industrial policy concerns," he told CNBC. Bones of contention include the challenge of China's overcapacity and trade diversion to Europe, Stec, who is also head of the Mercator Institute's Brussels office, explained. "Beijing's increasingly pressing need to export contradicts the EU's need to protect its own industrial base," he added. China's economy is facing a gap between its production capacity and demand. It is also struggling with sluggish growth, while exports, which long boosted the economy, have been under pressure amid global trade tensions and lower demand. Ifri's Julienne also flagged a series of concerns that make the EU-China relationship tricky, including an increasingly difficult environment for foreign companies operating in China and Europe's growing trade deficit. Additionally, he said Beijing was "weaponizing" trade to put pressure on Europe — like they did with the brandy tariffs. China first started investigating European brandy imports after the EU began slapping levies on Chinese-made electric vehicles last year, which pose steep competition to Europe-made alternatives. U.S. President Donald Trump's recent tariff regime could have been an opportunity for China and the EU to improve their relations, according to Ifri's Julienne. "It should have had a positive impact on the bilateral relationship, in the sense that — facing economic coercion from the United States — [the EU and China] — might have been expected to negotiate and compromise in order to make the most of their trade relationship amid the US tariff war," he said. This has yet to materialize. Jean-Marc Fenet, senior fellow at the ESSEC Institute for Geopolitics & Business, suggested one reason for this failure could be that Beijing feels it has come out on top in its own trade drama with Washington. "The need for a common front with the EU is therefore less necessary," Fenet said. "In fact, the fear now in Beijing is rather that the EU will accept an alignment with an anti-Chinese line that the American administration would impose on the sidelines of the trade negotiations." After initial sharp escalations and tense negotiations, China and the U.S. confirmed a trade framework agreement in June, including provisions around hotly contested rare earths and tech regulations. Earlier this year, Beijing had imposed export restrictions on several rare earth elements and magnets, which are often used in the automotive, defense and energy sectors, as part of its response to initial U.S. tariffs. The Mercator Institute's Stec argued that a solution is "unlikely to be found" on the lingering points of trade contention between Beijing and Brussels, instead foreseeing further issues. "The overcapacity and trade diversion issues paired with Beijing's willingness to use rare earths export controls as leverage in EV tariffs negotiations signal more turbulences to come," he said. Tensions over the EU's measures to boost its autonomy and China's attempts to prevent these efforts can also be expected according to Stec. Fenet struck a similarly skeptical tone. "The significant hardening of the European Commission's positions and the increase in the power of the protection tools it has equipped itself with in recent years, make it likely that there will be growing frictions, as shown by the recent measures taken against Chinese medical equipment and as we will undoubtedly see at the EU-China Summit on July 24th in Beijing," he added. His hopes for the summit — which sources told CNBC will include a meeting between European Commission President Ursula von der Leyen and Chinese President Xi Jinping — are also low. "The two parties already seem to be anticipating a difficult and probably inconclusive meeting," Fenet said.
CNBC
16-06-2025
- Business
- CNBC
Europe is trying to woo Southeast Asia — but it won't win it over the U.S. or China
European leaders are looking to Southeast Asia with renewed interest amid Washington's aggressive tariff agenda, but experts warn that the state of regional trade ties makes it challenging to disrupt the U.S. or China's hold. Southeast Asia is in a predicament: its ally China is ramping up its advances in the South China Sea, with state-of-the-art Chinese bomber planes. spotted in the disputed Paracel Islands in the region late last month as tensions flare with the Philippines. Meanwhile, its other ally, the U.S., hangs the threat of tariffs over the world, with uncertainty mounting as a 90-day reprieve is set to expire in July. Europe is now seizing the opportunity to surface as an alternative ally to emerging Asian nations, with French President Emmanuel Macron calling for stronger ties between the blocs at the 2025 Shangri-La Dialogue that wrapped up earlier this month. Southeast Asia brings Europe the opportunity to access another market for its defense sector, according to Bob Herrera-Lim, managing director at Teneo. Ifri's Pajon adds that the region could also provide Europe a diversified supply chain to hedge against economic reliance on the U.S. or China and significant raw material reserves essential for the EU's green and digital transition. Europe is ambitious in its hopes for emerging Asia, but analysts nevertheless doubt it can overtake the U.S. or China's influence in the region. "Europe, on its own, can offer Southeast Asia a valuable option to hedge against the risks of overdependence on either China or the United States," Céline Pajon, head of Japan and Indo-Pacific Research at Ifri's Center for Asian Studies, told CNBC by email. While ties span more than half a century, Southeast Asian and European relations have been mired in various challenges that Teneo's Herrera-Lim attributes to factors such as geographic distance and diverging views over politics or the environment. In his keynote speech at the 2025 Shangri-La Dialogue, Macron called for stronger ties between Europe and the Indo-Pacific's "new special relationship." He stressed that both blocs are facing the "potential erosion of long-time alliances" and the threat of countries vying for control or resorting to force, drawing direct parallels between China's advances in the South-China Sea and Russia's invasion of Ukraine. Yet similar experiences alone might not be enough to sway emerging Asia away from the U.S. or China, according to Herrera-Lim. "Form follows function in Southeast Asia," he told CNBC in a call, "Relationships are built on economic ties in Southeast Asia, more than anything else." While the EU has trade ties with Singapore and Vietnam, talks for other bilateral deals or an EU-ASEAN wide free trade agreements (FTA) have been stalled for years, and Ifri's Pajon said that the bloc "still has progress to make" in increasing its presence and investment in the region. Meanwhile, Beijing remains the Southeast Asia's largest trading partner since 2009, with total goods in trade reaching $982.3 billion in 2024. The U.S. follows behind in second place, with an estimated $476.8 billion goods in trade last year. The EU trails behind in third place, with roughly 258.7 billion euros ($299.7 billion) of goods in trade over the same period. Without any meaningful reform or the promise of increased trade in the future, Herrera-Lim said that it will be difficult for Europe to compete against the bloc's established trading partners. "If in the next week or next month, China says, 'We're doing reforms so that domestic markets are opened up in China for Southeast Asian goods,' [then] Southeast Asian countries would line up to get access to the Chinese market. Independent of their politics around many of these issues," he said. While Europe might not be able to replace the U.S. or China in emerging Asia, it can nevertheless offer transparent, reliable partnerships that aren't about zero-sum competition, Lizza Bomassi Research Analyst at the European Union Institute for Security Studies (EUISS), told CNBC by email. "Europe's value proposition lies in being a reliable partner in critical areas like energy security, green infrastructure, and digital governance," she said, "These are areas where Southeast Asian countries want to diversify and build resilience, especially given concerns about overdependence." Ifri's Pajon said that strengthening ties with Europe would allow Southeast Asia to diversify its strategic partnerships and enhance their capacity to resist hegemonic pressures. "The presence of more partners, including Europe, raises the diplomatic and reputational costs for China to escalate [territorial disputes in the region], particularly given Beijing's emphasis on a 'peaceful rise'," Bomassi said. "In this context, the EU-ASEAN partnership isn't about hard military deterrence, but it serves as a crucial symbolic defence mechanism. It reinforces that Southeast Asia isn't isolated and has multiple partners, making the region more resilient to coercion," she added.
