Escalated US – China trade war: What does it imply to Europe?

Last Friday, the Trump administration announced to impose more tariff on Chinese import goods, technically rising from 10% to 25% more. It seems that the trade war has not receded but risen more intense. Moreover, the tariff used to be targeted at Chinese agricultural produce but now has widened to manufacturing materials, industrial chemicals, electronics and technology products. (Detail list may be found on USTR)

(photo credit to: connectorsupplier.com)

US – China trade talks fell

The trade war talks apparently have not achieved to a mutual compromise. The US seemed firm to exert a punitive action pushing China to act on bilateral principles. China is willing to reach a deal but not conceded to core interest. The key dissolvement of US – China trade relation is the technology development. The US claimed that China deprived away the intellectual rights from those American firms in China. China blamed the US for detaining Huawei’s CEO from Canada. Not agreeing to the deal is China’s response to the US progressive action and imposing more tariff is the US’ punitive move. Both countries are not only the major economic bodies but also technology power. This is not just the trade war for the US and China but also an extended war affecting other countries.

Impact on Europe

The US – China trade war has affected Europe stock market, which has fallen to the lowest point since March. Particularly car makers, Peugeot, Volkswagen are those which fell the most. This is due to the fall of US – China talks. Investors should be braced for further recession as China’s counter action may produce more loss. In China, agricultural produces are dropping its price; for example, soybean has fallen to the lowest in the last ten years and it is due to the constant dissolvement of US – China trade talks. However, the EU should start equipping itself for the future. The US – China trade war seems to imply that multilateral trade talks are diminishing. The EU therefore should act as one unity to protect its economy.

Europe should act?

It is possible to envision a trade shift from Chin – US to China – EU as both trade relations used to be overlapping in manufacturing materials, industrial chemicals and technology electronics particularly the automobile sector may be benefiting. However, economy and politics are always meddled with each other. If the EU acts on standing side, the trade relation will be either deteriorating or prospering. Moreover, China has been investing a lot in the Belt Road Initiative and some EU member countries have signed agreement with China. The economic zone of Euro – Asia is establishing. Breaking the economic ties will certainly destroy the economic growth but also the political trust. The EU should act on a smart policy avoiding economic loss and political risk, take its part in facilitating US – China trade talks but carefully protect European market.

Other stakeholders might benefit?

As the tariff increased, the first comes into effect is those manufacturers in China. Long depending on the low cost labour will be capped by the tariff, these manufacturers may change to other Asian countries; especially South East Asia may come to the first choice. The EU should take this envision into preparation for reducing its loss in trade war. The EU – Asia relations is looking to establish a further greater regional development. How the EU act will generate perceptions on other countries. How ASEAN or other countries act will also produce understandings for the EU. Within EU and ASEAN, multilateral talk is the basis for member states to perform and interact. That the US – China trade talks may imply a downturn for multilateral talks; however, the EU and ASEAN should equip themselves up for not breaking such basis as principles.

Our View

ICRD concerns about the global affair, world economy and holds that the EU should act smartly not to generate further loss. The escalated US – China trade war should not defeat the Europe’s spirit of multilateral cooperation and confidence in greater regional development. The EU should unite together and prepare for benefiting its members as well as avoiding risks and loss.

Author: Yung Lin, Researcher at ICRD