There is a growing concern about a potential trade war between the European Union and China. On October 4, EU member states will vote on imposing definitive tariffs on China-made electric vehicles (EVs), despite China’s strong opposition. Regardless of the outcome, Brussels and Beijing are likely to continue discussions to resolve their differences. However, the threat of a trade war looms, which could harm both sides.
Recognizing the importance of finding a middle ground is crucial. In the worst-case scenario, while the EU may have vulnerabilities in its relationship with China, it still has key strategies to utilize. This includes using normative tools and leveraging market access against the world’s second-largest economy.
The EU’s Reliance on China
From a European standpoint, the potential for conflict is worrisome due to the deep economic ties between Brussels and Beijing. In 2023, China remained the EU’s top goods supplier, despite a 17.8% decrease in imports compared to 2022, resulting in a significant trade deficit. This trade imbalance highlights Europe’s strategic dependency on China, which has focused on dominating key sectors crucial to the European economy for over a decade.
A 2021 report by the European Commission revealed the EU’s heavy reliance on external sources for 137 strategic products, with 52% sourced from China. This dependency is especially evident in sectors like pharmaceuticals, where up to 40% of inputs come from China. Moreover, in green technologies, China dominates both raw materials and finished products, hindering Europe’s path to energy independence.
The import of Chinese-made EVs into Europe surged from 1.4 billion euros in 2020 to 11.5 billion euros in 2023, reflecting a growing reliance on Chinese technology. To address this, the EU plans to introduce tariffs of up to 45% on Chinese-made electric vehicles to reduce dependency and safeguard its industries.
China’s Dependence on the EU Market
Over the past decade, the EU has implemented tools to navigate an evolving world economy influenced by geopolitics. These mechanisms empower the European Commission to respond to politically motivated foreign trade restrictions and enhance European industrial production, ensuring competitiveness amid global competition.
In the event of a trade war with China, these efforts provide the EU with a robust foundation to engage with such a significant economic player. Additionally, China’s reliance on the EU market for exports offers Europe strategic leverage, particularly in green technology sectors where the EU is a crucial market for Chinese products.
Striking a Balance
Europe and China are closely intertwined, each possessing strengths and vulnerabilities. While Europe relies on Chinese goods, it also holds strategic leverage due to China’s dependence on EU market access. Balancing economic ties with strategic interests will be crucial for the future of China-EU relations, as navigating trade tensions will require asserting equal partnership without severing vital economic connections.