Trump fiddles while Europe’s political elite burn
Tomorrow is D-Day for the US-China trade war as Donald Trump’s tariffs on $34 billion worth of Chinese imports will go into effect as will Chinese counter-tariffs targeting $34 billion worth of US imports. Meanwhile, the European Union has already retaliated against Washington’s imposition of a 25% tariff on steel and a 10% tariff on aluminium. However, it is Trump’s renewed threat to put a 20% import tariff on European made cars that has leaders throughout the EU scrambling in all directions for a solution to what could be a potentially devastating blow from Washington.
Thus far, Europe has talked tough regarding its ability to counter both the current and potential near-future tariffs from the US while also rhetorically holding a firm line on preserving the JCPOA (aka Iran nuclear deal) against Washington’s wishes. In reality though, European leaders are in full panic mode as a perfect storm of tariffs, the threat of additional tariffs on cars, the US threat of sanctions if EU companies continue business with Iran and a populist political storm within Europe over the old guard’s failure to cope with the migrant crisis has put long standing EU leaders like Germany’s Angela Merkel in the proverbial geopolitical and domestic hotseat.
With Donald Trump apparently looking to exploit Europe’s internal divisions and lack of options when it comes to both the JCPOA and tariffs, China has decided to throw Europe a potentially game changing lifeline. The only question is: will sinking Europe grab this Chinese lifeline?
China shines a light at the end of Europe’s tunnel
Chinese Premier Li Keqiang is set for major meetings across Europe beginning with a summit of central, eastern and south-eastern European states in the Bulgarian capital Sofia. In Bulgaria, Li will meet with representatives including heads of state from EU members Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. Also at the summit will be non-EU Balkan states Albania, Bosnia and Herzegovina, Macedonia, Montenegro and Serbia.
During this meeting, Li is likely to discuss not only the EU’s immediate crises including the US trade war and JCPOA, but will also discuss more long term projects such as One Belt–One Road connectivity initiatives with eastern European states who are already in the early stages of wide reaching connectivity projects in their own region which could easily link up with China’s Eurasian roads and Afro-Indian to Mediterranean maritime belts.
But while bringing One Belt–One Road connectivity to both southern and northern Europe remain long term aspirations shared by both China and its European partners, Premier Li’s meeting in Berlin with Angela Merkel represents a make or break moment not for China but for the EU and particularly Germany which is Europe’s largest and most prestigious car manufacturing nation.
The EU has a Chinese win-win option on one side and ignominious defeat at the hands of the US as an alternative
If the EU and China were to sign an agreement freeing up trading restrictions on goods travelling in both directions, this could be an historic win-win for a European Union that ought to be regretting its historic reticence to sign anything approximating a free trading agreement with the world’s most dynamic economy, China.
At a time when the EU will be looking for effective and plentiful alternatives to American goods, while ever more wealthy Chinese consumers continue to want easy access to European luxury goods ranging from cars and haute couture to wines and unique foodstuffs, Europe could consecrate a new era of global economic openness at a time when China is doing the same in respect of its substantial domestic market.
China has made it clear that the responsible powers of the world must reject the crude temptations of vulgar protectionism and embrace a spirit of cooperation, dialogue and openness in respect of trade and the issues surrounding economic cooperation. China is leading by example as Beijing is in the midst of opening its markets to new inflows of capital and goods from throughout the world.
While the EU has pioneered a free internal market, the economic mentality of ‘fortress Europe’ is now haunting leaders in Brussels, Berlin and Paris as their once reliable American partner has decided to project itself as an economic rival in the Trump era. Ironically, at a time when the borders of the EU are more disorganised and porous than ever, much to the chagrin of millions of ordinary Europeans, the EU’s single market remains overly protectionist in its relations with potential trading partners to the east including Russia and especially China.
The time to hesitate is through
The only win-win solution that Europe has as a viable option would be to allow China to supplant and ultimately overcompensate for the loss of US imports while likewise, EU goods in China could supplant some the US goods that will now be restricted from the Chinese marketplace due to the retaliatory tariffs Beijing has had to place on the US in the aftermath of the imposition of Trump’s protectionist barriers against Chinese imports.
The alternative for Europe would be continuing a policy of Sino-scepticism that leaves Europe with little leverage against the United States in a trade war. This would mean that the aggregate effect of tariffs and the threat of sanctions would embarrass Europe on the world’s stage by exposing the impotence of European leaders when it comes to preserving the JCPOA while also giving Donald Trump the kind of victory in a trade war that he cannot achieve with China for the simple reason that unlike the EU, China can and will use its economic diversity, diversity in global trading relationships and production might to leverage the US towards some sort of compromise as was recently seen when Washington compromised over its boycott of the Chinese tech firm ZTE.
Trump has already implied that while the trade war with China is motivated by a sense of envy for Chinese success and disappointment with previous US administrations for their approach to Beijing, his feelings towards the EU are those of disgust. The EU is living in denial if it thinks that its existing free trade agreements will be sufficient in giving Brussels leverage against Washington. They will of course help somewhat, but ultimately they fall short of the new reality needed to resurrect Europe at a time of manifold crises.
Underlying Europe’s historic scepticism regarding a more free and open trading relationship with China is a historic superiority complex that is out of place in the 21st century and clearly does not correspond with present economic realities.
If the EU continues to place prejudice above pragmatism, it will find itself on the losing end of Donald Trump’s zero-sum rabbit hole. If however, the EU embraces a win-win free trading formula with China, Europe will have solved one of its foremost problems which would simultaneously restore the EU’s geopolitical credibility which is now at rock bottom.