The first "shots" have already been fired: the EU is preparing taxes for the Chinese electric vehicles, and Beijing is investigating European subsidies for some products exported to China.
Hundreds of billions of dollars at stake for both the EU and China
Ursula von der Leyen has presented her new team , with which she begins a new term as head of the European Commission. This team, together with Kaja Kallas, the new head of European diplomacy, will have to find a way to come to an understanding with China on such sensitive issues, which, as of this summer, threaten to degenerate into a full-scale trade war.
On a formal visit to Beijing, Spain's Socialist Prime Minister Pedro Sanchez appeared like a European emissary to the Asian country, saying at the end of the visit, which also included a meeting with Xi Jinping, that the EU and China should build bridges and avoid trade war.
Relations got tense this summer after the EU announced plans to impose tariffs of up to 36.3 percent on Chinese electric vehicles. Beijing then reacted by saying that this could trigger a trade conflict; moreover, it opened a retaliatory anti-dumping investigation into European pork imports. Then, in August, China stepped up and opened an investigation into the EU’s dairy subsidies.
If we take a look at the trade between the two giants , as shown by the official European statistics, we can see that at least last year, China was the third largest partner for EU goods exports (8.8%) and the largest partner for imports of goods from the EU (20.5 %), i.e. almost 400 billion euros. The data also show that, among all European countries, Germany was the most important exporter of goods to China.
Most of the freight comes by sea, but there is already a rail line, included in the Belt and Road initiative, a reinvention of the Silk Road in which the Chinese have invested more than 100 billion dollars . This route covers China’s most important trade points and goes as far as Madrid, the southernmost point in Europe, hence the presence of Gonzales in Beijing at such a tense moment.
The EU wants to impose taxes on Chinese electric vehicles subsidized by Beijing
Last fall, the European Commission opened an investigation after gathering enough evidence that this increase in low-priced and subsidized imports of electric vehicles from China into the EU posed an economic threat to the EU's electric vehicle industry. As the Commission's statement at the time showed, the investigation started ex officio - that is, not at the request of the EU car industry - would end in November.
Last month, the Commission released a draft of the findings of that investigation that included some revisions to the proposed punitive tariffs. It is actually the Commission's draft decision that will confirm by October 30 whether it will apply final charges, known as definitive charges, which are usually applied over a period of 5 years. The document, however, needs the approval of member states and will not apply if a qualified majority of 15 EU states, i.e. 65 percent of the EU population, votes against it.
The Commission is in uncharted territory with this investigation, given that such investigations typically concern multiple products that do not involve supply chains as complex as those for electric vehicles.
It is also the first time in a long time that the commercial arm of the EU has started an investigation on its own initiative and not – as is usually the case – based on a complaint from the industry.
By controlling subsidies for battery manufacturing, car design or steel supplies, the EU is targeting a sector where Chinese carmakers have gained momentum, but often with technological input from joint ventures with their EU counterparts. At least three European car giants have factories in China and depend on the world's biggest car market for most of their revenue, so it's no surprise that European carmakers don't quite share the Commission's enthusiasm.
When we talk about the Sino-European trade conflict, we must specify that the EU did not stop at electric cars only. It has also opened an investigation into flat-rolled iron and steel or sheet-coated products from China, to assess whether imports into the European Union are being sold at excessively low prices. This time, following a complaint from the European Steel Association, Eurofer. It also launched an investigation into food additives. None of these investigations, however, have captured the attention that the electric vehicle sector has. And things don't stop there as Europe prepares to use a combination of trade and competition tools to tackle Chinese bids for European tenders for wind farms and sales of airport security scanners. But the battle is on electric vehicles.
China responds by hitting European exports worth billions of euros
China has challenged the EU's planned countervailing duties at the World Trade Organization, citing the EU's investigation and its findings as unfounded and in violation of WTO rules. Therefore, the World Trade Organization also opened a case on these EU-assumed charges.
In addition, the Chinese again demanded that the EU immediately correct the "erroneous practices" and jointly maintain the stability of China-EU economic and trade cooperation on electric vehicles.
As Brussels seems unfazed by the Chinese claims at the WTO, Beijing counterattacked on August 21, the day after the EU announced the tariffs.
So, it opened an investigation into countervailing measures on dairy imports from EU countries. The Chinese Ministry of Commerce is leading this investigation requested by the China Dairy Association and the China Dairy Industry Association. Reason given: the products under investigation received subsidies from EU governments. Subsidy projects within the Common Agricultural Policies are also mentioned, with Beijing naming several countries, including Romania, which it accuses of subsidizing the dairy industry. The investigation will be completed within one year. In other words, Beijing claims that Europe is making fat profits from over-subsidized cheese.
This investigation adds to the one on pork, based on essentially the same reasons cited by Beijing, the only difference being the products. In 2023, China imported pork, including entrails, worth six billion dollars, customs data show. More than half came from the EU. If Beijing, after the investigation, decides to restrict pork imports from Europeans, this would mean huge losses for the European producers. .
The game of escalation that could lead to a trade war
Thinking back to the solar panel row a decade ago, when the EU threatened 47 percent anti-dumping import tariffs, accusing Beijing of unfairly subsidizing its solar panel firms and putting European manufacturers at a disadvantage, a dispute that ended in favor of the Europeans, I wonder if this time, the 27 will go to the end and especially what that end is. While in the case of the Russians the decoupling was simpler, we gave up their gas and oil, in the case of China things are complicated, given that it holds a quasi-monopoly on the extraction and processing of rare metals , vital for last-generation technologies and industries. Considering the hundreds of billions China has invested in the new Silk Road in Europe, I find it hard to believe that Beijing wants an all-out trade war, but to get its point across, it might try to play hardball and go as far as blocking some imports from the EU.
But such an escalation could be a miscalculation, because today's EU is no longer the EU of 10-11 years ago. So, this time around, we may see these sharp statements from East to West and vice versa turn into something more.
