Is Europe Looking For A Trade War With China?

The weakness of the German economy, the potential arrival of BYD electric vehicles in Europe and the elaboration of Europe’s Economic Security Policy (the policy on inward policy is clearer than that on ‘outbound’ and there will be consultations on both of these in the next two months) have been building a sense of urgency around Europe’s competitiveness.

All three of these factors come together with the arrival of Chinese electric cars on the European market and the growing alarm amongst European policy makers that this can disrupt EU auto manufacturers.

Indeed with Italy decoupling from the BRI (Belt Road Initiative), and German car firms significantly dependency on China as an export market, that this development has the potential to further disabuse’ the EU of China’s rise.

EC acts

Now the European Commission has, faster than many might have thought, made a speedy move to flag China for an investigation into commercial dumping of electric vehicles in Europe. While a reasonable assumption is that such an investigation would take some time to be enacted (largely because of German sensitivities) and akin to an earlier investigation into Chinese solar panels, that it would peter out. Instead, the war of words at least, is gathering pace.

China had responded angrily to the call by EC President for an investigation into Chinese EV manufacturers, and has now targeted German foreign minister Annalena Baerbock who referred to Xi Jinping as a dictator whilst on a trip to the US. In addition, the French ministry for the ‘Green Transition’ will recalibrate government grants for the purchase of electric vehicles so that these will no longer apply to the majority of EV’s from Asia. Also the German Bundesbank, oddly, has warned German industry of the need to ‘de-risk’ from China.

Overall, the stance taken by Europe is more aggressive than most had originally thought and the stance in tone has in part been triggered by further evidence of corporate espionage by China, its lack of engagement at the G20 and its unashamed ties to Russia. From a European point of view, the key vulnerability is the German car manufacturers (Volkswagen has 13% market share in China) and retaliatory moves (tariffs) against them or restrictions on battery materials (lithium) would mark a clear escalation by China.

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