Brussels fears divisions between member states will hamper its ability to combat a potential flood of cheap goods from China — dumped by Beijing in response to the prospect of higher US tariffs — with sanctions of their own.
President-elect Donald Trump’s threat to tax Chinese imports by up to 60 per cent during his second term has raised concerns that Beijing will seek to regain the market share lost in the US by dumping more goods in other markets — including the EU.
A flood of discounted Chinese goods would leave domestic manufacturers struggling to compete, raising the prospect of retaliatory trade action from the EU.
But policymakers are worried that the traditional trade measures it has at its disposal would be too slow to deploy and would rely on a strong consensus from member states, some of which may prefer to bow to Beijing than Brussels.
“With China we have seen how easily the EU fragments when others exert pressure,” said one EU lawmaker, who declined to be named.
They noted Germany and four other states voted against tariffs on Chinese electric vehicles in October after Beijing threatened access to its car market. China then slapped its own antidumping duties on cognac, hitting France, which backed the measures.
With the EU’s export-dependent economy heavily exposed to a global trade war — and the likes of the US and China able to impose tariffs and subsidies almost instantaneously — some officials fear the bloc’s commitment to following World Trade Organization rules will lead them struggling to protect their manufacturing industry.
They are pushing for more EU powers to respond.
“Our efforts must also include strengthening our [defensive] tools,” said Sabine Weyand, the European Commission’s top trade official, said this month. “[We] will only be able to maintain our commitment to openness if we are able to effectively defend the single market.”
The discussions, which are at an early stage, come after EU Commission vice-president Stéphane Séjourné warned in a Financial Times interview that the bloc could not be the outlet for global “overcapacities,” warning that permitting this to happen would lead to a “short-term economic crisis”.
Trump, who is able to impose tariffs using executive powers once he returns to office on January 20, vowed in late November to charge an additional 10 per cent on Chinese products, alongside new 25 per cent levies on Canada and Mexico. He threatened levies of up to 60 per cent on China during the campaign.
“The more that trade barriers go up in one part of the world to Chinese goods, the more Chinese exporters will direct them to other markets,” said Mark Williams, chief Asia economist at Capital Economics. “The EU tends to follow the rule book quite closely, which constrains what it can do.”
Ignacio Garcia Berrero, a former senior Commission trade official, told the FT that the EU could use existing so-called “safeguard measures”, which enable Brussels to quickly introduce tariffs or quotas when there are sudden spikes in imports.
Once the commission proposes tariffs, member states vote on whether to approve them. However, if four or more member states comprising at least 35 per cent of the population vote no, they do not apply.
The EU can also launch investigations if it feels particular sectors are being harmed by underpriced products. But a recent probe into Beijing subsidising its electric vehicle producers took more than a year as officials built up mountains of evidence.
The fact that four member states can block defensive measures has also led some policymakers to argue the Commission needs more tools of its own.
In a sign of how fractious the introduction of restrictions on Beijing could prove, the EU executive had to initiate the EV anti-subsidy case itself as no member state or company dared to file a complaint.
Martin Kocher, Austria’s economy minister, said in an interview with the FT in December the priority was still to “keep up the conversation” with Beijing while sticking to WTO rules. He argued that there was no need for any “additional tools to defend the single market against unfair competition”.
A renminbi devaluation could intensify the effects of China dumping cheap products on EU markets.
Ju Wang, head of Greater China FX and Rates Strategy for BNP Paribas, expected the People’s Bank of China to allow the dollar to strengthen up to Rmb7.7 per dollar under a 60 per cent tariff scenario, and within a range of Rmb7.4-7.5 under a 20-25 per cent tariff scenario.
Ju added that the PBoC will only act when US tariffs are made official, “to avoid the move being viewed as a trigger for a currency war”.
Many emerging market economies are already imposing restrictions on Chinese goods imports — potentially squeezing more of them to Europe.
“The cascade effect of Chinese exports is going beyond developed markets,” said Richard McGregor, a former FT journalist who is now a senior fellow of the Lowy Institute in Australia. “Many countries which China counts as friends in the global south are putting up barriers, like Turkey, Brazil and Indonesia among others.”
The Commission has already stocked its arsenal with new weapons since Trump’s first four-year term, which concluded in 2021.
They include an anti-coercion instrument, which allows it to quickly retaliate against countries introducing export restrictions or import embargoes.
The Commission can also penalise companies receiving subsidies that “distort” the internal market and take action against countries that do not open up their public procurement markets.
It has also opted to backdate any tariffs to the day the investigation was opened, preventing an import surge to dodge them.
However, Weyand said Brussels needed a new “doctrine” about how to use these new powers to create predictability.
Additional reporting by Thomas Hale in Shanghai
Data visualisation by Janina Conboye in London
Source link
