EU leaders ask Brussels to come up with new trade weapons to counter China shock
European Union national leaders have asked Brussels to come up with new trade instruments to deal with the economic threat posed by China, following a rare summit debate about Beijing late on Thursday night. After a two-hour discussion, the EU’s executive branch was told to engage with China to try to fix the persistent trade problems, according to a Brussels official. But it was also instructed “to develop and eventually complement the toolbox in the area of trade defence and industrial policy...
By Finbarr Bermingham
European Union national leaders have asked Brussels to come up with new trade instruments to deal with the economic threat posed by China, following a rare summit debate about Beijing late on Thursday night.
After a two-hour discussion, the EU’s executive branch was told to engage with China to try to fix the persistent trade problems, according to a Brussels official.
But it was also instructed “to develop and eventually complement the toolbox in the area of trade defence and industrial policy – to make sure the EU has all the instruments it needs to defend its interests and de-risk”.
The commission is now expected to prepare new tools aimed at countering Chinese industrial overcapacity and compelling European companies to diversify their supplier base, as it looks to wind down overdependence on the world’s second-largest economy in critical sectors.
It is expected that there will be a more robust use of existing tools as well, including safeguard measures, which can see tariffs and quotas slapped on entire sectors.
“Leaders agreed that the current global macroeconomic imbalances require a European response based on two pillars: European unity and dialogue with our main economic partners,” an official said, adding that “fair competition requires a level playing field”.
The agenda item did not name China, with leaders debating over dinner the euphemistic topic of “global macroeconomic imbalances”.
The aim was to have an open discussion, through which “powerful guidance” would be offered to the commission. Naming China directly could have raised tensions further still, sources said.
The bloc is set to ramp up dialogue with Beijing in the coming weeks, with Chinese Commerce Minister Wang Wentao expected in Brussels for talks before the end of the month.
The leaders told the commission – which laid out the scale of the China shock facing EU companies and what they believed the bloc needed to do in response – that “dialogue needs to provide results”.
They will reconvene early on Friday morning for more talks on the EU budget, after which leaders will speak to the press, when more details of the discussion – which was held on a top-secret basis, with no phones present – are expected to emerge.
Earlier on Thursday, upon arriving at the European Council summit, some national leaders offered their views on how the bloc should approach China, which made clear the diversity of opinion.
Spanish Prime Minister Pedro Sanchez, one of the most pro-engagement of his cohort, described Beijing as a “potential ally”.
“We need friends, balanced relationships, to be pragmatic and need to build bridges both with large economies, potential allies like China, or traditional allies like the US,” Sanchez told reporters.
“I believe that Europe needs friends. There is quite a bit of fragmentation, there is quite a bit of confrontation in global politics.”
Others were less effusive. Luxembourg Prime Minister Luc Frieden described China’s industrial challenge as “an existential threat”, while Ireland’s Taoiseach Micheal Martin said “a lot of products are being dumped onto EU market with consequences for EU industry”.
Martin suggested that Ireland – like some other members – was concerned that EU action could result in retaliation from China, which has been frequently threatened by Beijing.
“We have to be careful in respect of what we do with this in my view, very clear-eyed in terms of consequences from any actions that might be taken,” Martin told the press.
Despite the mixed public statements, Brussels has been awash with diplomatic briefings this week, suggesting the bloc is finally becoming more united on the diagnosis of what is frequently called the “China shock 2.0”.
Many European leaders are convinced that undeclared subsidies, currency devaluation and unreciprocated market access are giving Chinese companies an unfair leg-up. This is being compounded by low prices at which European firms cannot compete, sources said.
“China is pursuing an aggressive, hegemonic industrial policy with the clear goal of dominating the global market for industrial goods,” said Bernd Lange, the European Parliament’s top lawmaker on trade.
“China has now developed significantly and has become a serious competitor capable of manufacturing high-quality and complex products. China’s goals are clearly laid out in its five-year plans and should therefore come as no surprise to anyone.”