HomeTop StoriesThe EU continues China's trade offensive after years of being played

The EU continues China’s trade offensive after years of being played

(Bloomberg) — European Commission President Ursula von der Leyen is unleashing a barrage of trade restrictions against China as she tries to follow through on a pledge to make the EU a more relevant political player on the world stage.

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In addition to an investigation into Chinese subsidies for electric vehicles, the European Union is investigating whether Beijing provided illegal support for wind farms on the continent. It has also conducted subsidy investigations into solar energy and railway companies and will soon launch an investigation into Chinese procurement of medical equipment.

The flurry of investigations reflects the EU’s increasingly assertive approach to China, which threatens restrictive trade measures that could result in tariffs, cutting China off from European markets and potentially sparking a trade war. But for some it is a matter of the EU finally taking steps to make international trade fair again.

“We recognize what we see as the Chinese playbook,” EU competition chief Margrethe Vestager told Bloomberg Television last week. “Knowing that you have been played teaches you that you have to be careful, be much more attentive and take better actions.”

European officials, including former European Central Bank President Mario Draghi, have argued that China’s trade abuses are at the heart of the biggest social and political problems that have plagued Europe and the US over the past two decades. The lack of international rules and dispute settlement created unfair competition, causing voters to turn against democratic values ​​because, Draghi said in a speech in February, they “rightly felt that they were being abandoned.”

The EU’s approach is in line with that of some Western allies, who are taking a stronger stance against Beijing. US Treasury Secretary Janet Yellen traveled to China earlier this month and said the massive output from its factories had become a global problem. The US will “take nothing off the table,” including the possibility of additional tariffs, to stem the flood of Chinese goods, she told CNN this weekend.

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German Chancellor Olaf Scholz, who is visiting China this week, warned officials in Beijing to tackle overcapacity and treat foreign companies better. He said that ‘competition must be fair’.

EU leaders will step up efforts this week to defend the bloc against unfair trade practices as part of their efforts to come up with a new agreement on competitiveness, according to draft conclusions for the summit seen by Bloomberg. The document highlights that the bloc is facing increasingly “assertive policies” from rivals, especially when it comes to subsidies.

It is in the area of ​​clean technology where the EU is fighting most fervently to stave off competition from cheap Chinese imports of everything from electric cars to solar panels. An industry backlash has raised concerns that domestic green technologies could be hijacked during the transition to net zero by mid-century.

Over the past decade, China has come to dominate the clean technology market, with the domestic industry supported by massive state support. Take the wind sector as an example. Companies can sell products on average 20% lower than European and American peers, supported by deferred payment systems. According to the commission, the EU had a trade deficit of €462 million last year.

The EU said last month it had found “sufficient evidence” that imports of new battery-electric vehicles from China received subsidies, including direct cash transfers, tax breaks or public provision of goods or services below market prices. This means the bloc could impose provisional tariffs on Chinese imports by July, while final duties could come into effect in November.

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The EU is also using a new tool – foreign subsidies regulations – to crack down on Beijing’s bids for a railway tender in Bulgaria and solar farms in Romania. Vestager announced last week an investigation into Chinese involvement in wind farms in Spain, Greece, France, Romania and Bulgaria.

“We are fully using our trade tools and our foreign subsidy regulatory tools to restore fair competition,” Vestager said.

The bloc has also started to probe its industry into the use of old Chinese chips, which could see action against older – but widely used – semiconductors in the future.

The investigations are part of a coordinated EU effort to keep global markets open and rules-based, protect supply lines and bring production closer to home. The moves have tested relations with Beijing, which has begun its own investigation into the EU’s trade practices.

French Finance Minister Bruno Le Maire also warned against fair competition on Monday. “Europe must assert its economic interests amid increasingly protectionist US and Chinese industrial overcapacity, which threatens to spill over into the European market,” he told reporters.

The EU is also poised to launch an investigation into Chinese procurement of medical devices in an effort to address concerns that Beijing is unfairly favoring domestic suppliers, Bloomberg reported on Monday.

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These trade measures are not just “symbolic,” said Maximo Miccinilli, head of energy and climate at consultancy FleishmanHillard EU. “The EU is working very hard, on a case-by-case basis, and will continue to do so, provided there is no downturn in trade after the elections, which I do not expect,” he added, referring to the mood in the region in two months.

When the EU put forward the Net Zero Industry Act last year – a plan to ensure that 40% of the EU’s clean technology needs would be produced domestically – the focus was clearly on trying to rival the enormous US aid package under the Inflation Reduction Act. Since then, the focus has shifted entirely to China, including the inclusion of provisions in the NZIA to ensure that Chinese companies find it more difficult to bid for renewable energy contracts.

But getting rid of cheap Chinese clean technology could hamper its ability to cut emissions by 55% this decade, with the bloc already on the wrong track. Vestager has warned that other sectors, such as electric cars or chips, could share a similar fate to solar panels, something the EU has lost since investing heavily in the technology more than a decade ago. Now more than nine out of ten are produced in China.

“The EU must ensure that all rules applied to domestic players are also applied to foreign players active in its market,” said Simone Tagliapietra, senior researcher at the Bruegel think tank. “It’s all about a level playing field, not trade wars.”

–With help from Tom Hancock.

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