BRUSSELS — Europe is already in a cold trade war with China. Can it handle a hot one with the United States?
That’s the conundrum facing Ursula von der Leyen as the U.S. holds a historic presidential election that could return protectionist Donald Trump to the White House. It’s a moment of vulnerability for the EU, with the chief of its executive Commission embarking on a second term and forming her new administration.
Trump has threatened to hit Beijing with punitive tariffs of up to 60 percent, and impose duties of 10 to 20 percent on all other countries. Those would have a direct impact on Europe, stemming transatlantic trade, while also redirecting rampant Chinese exports toward Europe’s relatively open market.
With its own protective duties against Chinese electric vehicles of up to 35 percent only days old, the European Union might soon find those are insufficient to hold back the Chinese tide. So should Brussels dial it back on China and deal first with Trump? Or should it double down?
Fighting with its two top trading partners is the last thing that Europe — and its stagnating economy — needs.
“We need to avoid trade wars, and shocks from the two sides,” said one EU official granted anonymity to speak freely. “We’ve had many shocks already,” they added, referring to the consecutive blows dealt by the Covid-19 pandemic and Russia’s all-out invasion of Ukraine.
Von der Leyen’s next trade commissioner, Maroš Šefčovič, has given some clues on strategy in written answers published before he is grilled by European lawmakers in a confirmation hearing on Monday, the eve of the make-or-break U.S. vote.
On trade with the U.S., he vowed “an assertive defense” of European interests while seeking “amicable solutions” to outstanding bilateral issues — which makes it sound a lot like Brussels still holds out hope that Vice President Kamala Harris will prevail.
Toward Beijing, Šefčovič highlighted “negative externalities of China’s state driven economic model and industrial policy.”
Shock avoidance
On the face of it, the lines from Šefčovič would indicate that Brussels still sees China as the greater threat.
At the same time, von der Leyen’s top aides have been busily war-gaming scenarios and briefing EU member countries on plans to strike back should a triumphant Trump launch a full-scale trade war. According to diplomats, the meetings have addressed what would happen if Washington pulls its military support for Ukraine and how high any Trump tariffs would go.
On the China front, the cold war climaxed last Tuesday when the Commission imposed duties of up to 35 percent on electric vehicle imports after an investigation found that Chinese manufacturers had benefited unfairly from state subsidies down the entire supply chain.
For now, the tit-for-tat retaliation is rather genteel, with Beijing so far only hitting EU brandy exports — a pinpoint measure to target French Cognac-makers in response to the lobbying by Paris to launch the EV investigation. (China has also opened probes into European pork and dairy.)
French Trade Minister Sophie Primas will visit Shanghai from Sunday to drive home the message that Europe is responding in a measured way to China’s strategy of promoting exports to compensate for weak domestic demand.
“I don’t want to get into an escalating trade war with China either,” Primas told POLITICO in an interview. “We need to avoid this escalation — and at the same time show our muscles.”
Germany, the strongest opponent of the EV probe and the top EU investor in China, expects Beijing to “naturally” respond to the “punitive” duties.
But neither side is talking about shock and awe.
“The countermeasures will be enhanced moving forward,” said a Chinese business insider who was also granted anonymity. “At this stage, it’s in China’s and Europe’s interest to water down and to control our trade dispute.”
The other side of the coin
Even if a Trump victory might tempt the EU not to stir the pot too much with China, there’s another scenario to consider.
That rests on the assumption that Trump’s tariff threat is merely an opening bid by the self-styled master of the art of the deal — and what he really wants to do is bring Europe to the negotiating table to forge a common front against China.
“The U.S. and EU could team up to pressure China to change its economic system,” said Henry Gao, a law professor at the Singapore Management University who specializes in international trade and China.
That happened in Trump’s first term, when the U.S., EU and Japan joined forces to clamp down on Beijing’s nonmarket practices, such as lavishing subsidies on companies that went on to aggressively undercut, and claim market share from, their European, American or Japanese rivals.
In her own first term von der Leyen developed an arsenal of trade defense tools and demonstrated increasing willingness to use them. Her second-term agenda has prioritized economic security — or ensuring Europe’s cutting-edge technology and research doesn’t fall into hostile hands — as part of a more assertive economic foreign policy.
In China’s own eyes the issue with the EU is an “insignificant skirmish” when compared with potential tensions between Beijing and Washington, Gao added.
And it’s not just Trump. In May, the Joe Biden administration quadrupled tariffs on Chinese electric vehicles to 100 percent — at a stroke making the EU’s own, far lower, duties appear inadequate.
“No matter who wins between Donald Trump or Kamala Harris, no matter the Republicans or the Democrats, they view China as a rival. But for Trump, it’s also damaging the transatlantic relationship,” the Chinese business insider said.
Threading the needle
For now, the bloc remains in damage-control mode — clinging on to the World Trade Organization’s trade rulebook as its two main trading partners slug it out in a geopolitical bare-knuckle fight.
Even after imposing the Chinese EV duties, the EU is negotiating into overtime on a face-saving compromise to set minimum prices that would render the tariffs moot. Negotiators are expected to head to Beijing soon — a mission they would only be sent on if there was a realistic prospect of landing a deal.
Dan Mullaney, a former assistant U.S. trade representative in Europe, said it should be possible to break the tit-for-tat cycle of escalating trade retaliation. But that could be easier said than done if an antagonistic Trump pours gasoline on the smaller fires already burning between Brussels and Beijing.
“We’re definitely in a key moment with respect to trade policy and tariffs in particular. The EU action on electric vehicles should not spur a trade war retaliation, since it’s basically a trade defense instrument of the sort that we’ve all been using for decades,” said Mullaney, who is now at the Atlantic Council.
“Ideally people would come to their senses on that issue and decide that that’s not something that’s worthy of retaliation and counter retaliation,” he added.
Giorgio Leali contributed reporting.