A savage squabble between China and Europe

IN THE EARLY months of America’s trade war against the world, speculation mounted. Could the two other major trading powers, China and the European Union, collaborate to intensify their bilateral trade links so as to compensate for America’s isolationism? A summit on July 24th in Beijing will show that the answer is emphatically “no”.  It was supposed to be a celebration of 50 years of diplomatic ties. Now it looks set to be a sputtering squib.

Earlier in the year relations between the pair seemed to warm. In May EU leaders said they were ready to “work hand in hand” with China to deal with “common challenges”. But the Europeans’ short-lived friendliness was as much an attempt to manipulate the Americans as it was a bid to woo the Chinese, Brussels insiders say. The EU is wary of Mr Trump, but even more so of China.

The summit was slated to be held in Europe. But the Europeans wanted a meeting with Xi Jinping, China’s president, instead of his number two, Li Qiang, who would normally be sent to EU leaders in Brussels. So the Europeans have decided to trek to Beijing in the hope of seeing Mr Xi. Resolve has stiffened in other areas. Recently the EU decided to forgo a seemingly pointless pre-summit economic meeting with the Chinese. Next China cancelled plans for Ursula von der Leyen, the president of the European Commission, and other bigwigs to see tech and car firms in Hefei while visiting the country.

There is more at stake than etiquette, however. The pair’s summitry squabbling reflects deep problems at the very core of the relationship. These centre on trade and security. The bloc accuses China of hammering industries by dumping government-subsidised goods on its markets; it fears Donald Trump’s tariffs will result in a surge of them in Europe. China’s stranglehold over rare earths is another issue. And a shadow is cast by China’s support for Russia in the war against Ukraine; by Chinese cyber-attacks against EU commercial and political targets; and by China’s military build-up aimed at threatening Taiwan.

When it comes to trade, Europe’s trouble is that China either sends far too much its way or far too little. Take the first complaint. The EU is furious that its massive trade deficit with China is widening further. New data show that in the first six months of this year Chinese exports to the EU grew by 7%, while imports from the bloc dropped by 6%. Last year China shipped some $560bn-worth of goods to the EU, about 30% more than its exports to America. The EU’s exports to China were much smaller: about $230bn, less than half the value of EU goods sold to America.

Cars are a particular crunch point. Electric vehicles, or EVs (not including hybrids) are expected to be more than 21% of the total European market for cars this year and Chinese firms should sell about one in ten of them, according to Schmidt Automotive, a data firm. These EVs are about 20% less costly than European-made ones and so are shaking up the cheaper end of the market. Last year the EU pointed to China’s subsidies and tax breaks to its industry as a reason to impose tariffs of up to 45.3% on Chinese EVs to prevent “imminent injury” to European firms. Even with the tariffs, Chinese carmakers can still profit in Europe. BYD, the biggest such, hopes to be the largest EV-maker in the region by 2030.

The EU’s second trade complaint, that China withholds stuff the bloc needs, particularly concerns rare earths. Sweeping new curbs on them and products incorporating them were announced by China in April as part of the trade war. They are disrupting European auto manufacturing, aerospace and defence industries and makers of semiconductors, among others. Some makers of car parts have even had to suspend production. At a meeting of G7 leaders in Canada in June, Ms von der Leyen accused China of creating a pattern of “dominance, dependency and blackmail” by controlling supplies of rare earths.

Meanwhile security concerns are growing more acute. For the EU, China’s supply of components to Russia’s arms-makers is the top one: the tech is vital for Russia’s war machine. But China is unbending: it sees its “no-limits” partnership with Russia as vital. It feels reassured by the presence of an authoritarian leader in the Kremlin who shares China’s worldview. And it considers the war in Ukraine as a useful drain on the West’s resources. Wang Yi, China’s foreign minister, told European officials this month that China feared a defeat of Russia could prompt America to shift more attention to his country, according to the South China Morning Post, a newspaper in Hong Kong.

The EU not only worries about the indirect threat posed by China’s support for Russia. It has also become increasingly vocal about alleged Chinese cyber-attacks on targets in the EU. In May, following news of an attack against the Czech Republic’s foreign ministry, the European Council, comprising the EU’s government leaders, alleged that China was behind a growing number of “malicious cyber activities”. The EU’s foreign policy chief, Kaja Kallas, has warned that the bloc is “ready to impose costs” for such behaviour.

For its part, China is anxious about support for Taiwan among EU countries: two German warships symbolically sailed through the Taiwan Strait last year, the first such transit in 20 years. China’s state media have blamed rising tensions on the EU and others in the West, accusing them of supporting Taiwanese “separatists”. China would like to peel the EU away from America, largely to undermine Western cohesion on such matters.

Yet China makes little effort to placate the Europeans. In April it lifted sanctions imposed four years ago on EU lawmakers who had expressed public concerns over human rights in the western region of Xinjiang. And in July it offered concessions to French cognac-makers to help them weather anti-dumping measures China imposed on the liquor last year.

Its main plan seems instead to involve splitting the EU where possible. China is pinning its hopes on individual members of the bloc, not least Germany and France, to which Mr Wang paid visits after his meetings in Brussels. Germany accounts for about 40% of the EU’s exports to China. The chancellor, Friedrich Merz, is reported to be planning a visit to China later this year—with a business delegation in tow. Expect a red carpet for him.

Jin Ling of the China Institute of International Studies, a think-tank linked to China’s foreign ministry, sees a growing gap between some member-states and the EU’s leadership on China. That makes it difficult, she says, for China to work out how to deal with the EU. It appears less and less keen to try. The hope in Beijing is that appeals to individual members will keep the bloc’s hawks at bay. ■