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EU trade commissioner Maroš Šefčovič meets China's commerce minister Wang Wentao in Beijing next week to address a widening trade deficit and rising tensions.
EU trade commissioner Maroš Šefčovič will travel to Beijing next week for highly charged trade negotiations with China, meeting commerce minister Wang Wentao on Thursday and Friday. The talks aim to assess progress in rebalancing the EU-China trade relationship since their last meeting in Brussels in June. The EU imports €1 billion more in Chinese goods each day than it exports to China, a gap that has widened over the past year.
Trade Deficit and China Shock
In her State of the Union address last month, European Commission President Ursula von der Leyen said the trade deficit with China had reached a tipping point. She compared the situation to the China shock after Beijing joined the WTO in 2001, when a surge of low-cost Chinese manufactured goods hurt European producers of textiles, clothing, toys, and furniture.
Von der Leyen warned that a second China shock is already here, leading to deindustrialisation in Europe's industrial heartlands. She said the dialogue with China must now lead to results, noting that China's weaker domestic demand means it also needs the European market. She added that the EU would use all tools at its disposal to rebalance the trade relationship.
EU Considers New Trade Powers
The European Commission is expected to propose additional trade instruments at this month's European Council meeting. These include a diversification instrument that would oblige companies in some sectors to have at least three suppliers in several countries, and a solidarity fund to support firms hit by retaliatory measures in a trade war.
Noah Barkin, a China expert at Rhodium Group, reported last Monday that Germany and France are finalising a joint proposal to give the EU new powers to shut China out of the European market within 24 hours. The mechanism could be based on the US government's Section 301 powers, which allow immediate imposition of unlimited tariffs in response to foreign practices that discriminate against American companies or breach US rights under international trade agreements.
China's commerce ministry described the reported Franco-German proposal as a protectionist and unilateralist measure inconsistent with the EU's proclaimed commitment to multilateralism. A spokesperson said the move would not help solve problems but would backfire on the EU itself and disrupt China-EU trade as well as global industrial and supply chains.
The spokesperson added that the EU itself has been a victim of such tools and should not impose on others what it does not desire for itself. As an important WTO member, the EU has consistently portrayed itself as a defender of multilateralism. If it fails to lead by example and instead takes the lead in violating WTO rules, it will seriously undermine the rules-based multilateral trading system.
Economic Interdependence and Risks
The EU is China's second biggest export market after southeast Asia, accounting for about 15 per cent of goods exports every year. The European market has become more important for Chinese manufacturers of everything from electric vehicles to batteries and semiconductors since the US market has become more difficult to access and as domestic demand in China remains sluggish.
But the EU is caught in a bind because while it would like to limit imports of Chinese finished goods, its industries depend on China for many inputs. These include components, critical minerals, rare earths, and permanent magnets, without which much of Europe's advanced manufacturing would grind to a halt.
Beijing complains the EU is blaming China for its own failure to integrate European capital markets, the red tape it imposes on businesses, and the high cost of energy. It warns that any move by the EU to adopt its own version of Section 301 powers will be met by retaliatory measures hitting politically sensitive European sectors.
For China, the best outcome from next week's talks would be modest compromises that slow down, de-escalate, and extend the trade negotiations. But Beijing will be reluctant to make significant concessions to the EU, in case they are seized upon by its other trading partners around the world, many of whom share the same worries about the impact of Chinese exports on their own industries.
EU China Trade Maroš Šefčovič Wang Wentao Trade Deficit Ursula Von Der Leyen Beijing Talks Section 301
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