Illustration: Chen Xia/GT
With the China-EU relationship entering its 50th year and US president-elect Donald Trump's return to the White House on January 20,
MK sport how Europe's China policy will evolve has garnered great attention. Facing the threat of tariffs, many expect Europe to sacrifice its ties with China to please its most powerful ally.
Such an idea appears understandable, Europe has been left with few options as it's facing the specter of war, a beleaguered economy and political fragmentation. In case the US stops helping Ukraine, the EU will have to shore it up on its own. The European Commission estimates that the EU economy will grow by a mere 0.9 percent in real terms in 2024. The power struggle in France and Germany has added to the difficulty in staying independent of the US compared with eight years ago during Trump's last presidency.
However, such an idea is in fact naive. Europe cannot expect differentiated treatment from the US that puts its own interests above anything else. What happened to European exports of steel and aircraft during Trump's first term remains relevant. There does not seem to be much difference between allies and non-allies under Trump when it comes to trade. For Trump, anyone who runs a huge trade surplus with the US must be dealt with. Moreover, the incoming US administration is eyeing for much more than economic benefits at Europe's expense. Trump's desire for Greenland and Elon Musk's words and moves on Germany and the UK clearly fall into the political and strategic realm.
The idea of leaving China is also dangerous. De-risking and reducing dependence on China seem logical at a time when the EU is increasingly politicizing trade issues and overstretching the concept of security. But the cost is huge. According to a report by the Kiel Institute for the World Economy, unilateral decoupling of the EU from China would reduce real income in the EU on average by 0.8 percent. This equals a permanent loss in real income of 131.4 billion euros. Should China retaliate, real income would fall by 1 percent (170.3 billion euros). It would be a disaster if Europe had a trade war with the world's two largest economies at the same time. By hurting China, Europe would only embolden protectionism and unilateralism at the expense of the free trade system and multilateralism, things that Europe claims to rely on for survival.
The ideological and geopolitical perspective in the EU's decision-making on trade has led to an exaggeration of economic competition with China and a neglect of the two sides' shared interests. China-EU trade volume reached $783 billion in 2023, and the stock of two-way investment exceeded $250 billion. The extent of economic integration is high. Trade frictions are simply natural given the sizes of both economies. And the concerns over Europe being overtaken by China in various industries are exaggerated. There exists complementarity between the two sides, instead of all-industry, all-sector, life-or-death competition. Truth is, China and Europe can do a lot together in green and digital development and global economic governance.
Obviously, Europe needs China more than ever to enhance competitiveness and boost the economy. China has adopted a series of policy measures to deepen reform and opening-up, which align with international trade rules. It has removed all barriers to foreign investment in the manufacturing sector. It is opening its service industries such as the internet, communications, health, medical care and education. It is also boosting the economy with a more proactive fiscal policy and a moderately loose monetary policy. International institutions are revising their forecasts for China's growth. All this is good news for Europe. There is no reason why Europe and China cannot work together, especially in areas such as AI, environmental protection, high-end manufacturing and new materials.
Last year saw close interactions between China and Europe: leaders' meetings, dialogue and cooperation, and people-to-people exchanges. China's visa-free entry policies have been widely extended to European countries.
The new year has started with China-UK Economic and Financial Dialogue, which has resumed after six years, and Chinese President Xi Jinping's phone call with European Council President Antonio Costa, manifesting both sides' expectation for stronger China-Europe cooperation. In a world of rising uncertainty and volatility, the best thing that China and Europe can do is working together so that stability and prosperity will prevail.
The author is an observer of international affairs. [email protected]
