Brussels and Beijing clash: Trade tariffs ignite tensions
Brussels has decided to impose tariffs on Chinese electric cars, representing one of the three key engines of economic growth in China. In response, Beijing is introducing restrictions on brandy, signalling a potential escalation into a trade war, cautions sinologist Professor Bogdan Góralczyk.
Last week, Brussels officially entered the trade warpath with China. The agreement by most European Union countries to impose tariffs on Chinese electric cars starting in November is resonating loudly.
According to many commentators, China's current response to Brussels has been mild. This is particularly notable since the EU targeted a sector considered a main driver of Chinese economic development, alongside battery production and photovoltaics.
If Brussels does not back down, China plans to impose tariffs on imported brandy from the EU, with 99% originating from France. Starting Friday, October 11, importers of this alcohol from the European Union will have to deposit "security deposits to the customs authorities."
According to sinologist Professor Góralczyk, the restrictions related to brandy may mark the beginning of China's response. The expert notes that Europe is just one aspect of a broader trade war between the West, which has primarily involved the United States and China.
Key presidential elections in the USA
When asked about the potential developments between Brussels and Beijing, Professor Góralczyk suggests waiting for the U.S. elections, as their outcome could have significant implications. If Republican Donald Trump defeats Democrat Kamala Harris, one might expect a tougher stance on China, including increased tariffs on imported goods.
For now, Professor Góralczyk believes that the Chinese will delay further actions. They will stick to tariffs on brandy and possibly take a couple of symbolic steps. However, if tensions rise after the American elections, further escalation is a possibility, he emphasizes.
Europe is part of the West, and China is clearly shifting its focus, as demonstrated by the China-Africa Cooperation Forum in September. They are increasingly turning toward the Global South, moving away from the West. In practical terms, they are already targeting emerging markets. They are selling cars and equipment to Russia, and this is becoming more evident.
However, as Professor Góralczyk notes in his interview with money.pl, Brussels isn't solely dependent on the outcome of American elections. He reminds us that the composition of the new European Commission has yet to be finalized, and the EC itself has not been constituted. In his view, China's response will also depend on whether the EC maintains a hard stance against Beijing.
In a recent podcast by the Center for Eastern Studies, Dr. Jakub Jakóbowski, deputy director and head of the Chinese team at OSW, openly discussed the EU-China trade war. He highlighted concerns about Xi Jinping's regime targeting the German combustion engine automotive industry, which has thrived in China since the 1980s.
He also noted that China is scrutinizing EU subsidies for the dairy and pork industries, along with imports of cars with large combustion engines. SUVs are particularly concerning, as increased export costs would hit Germany and Slovakia the hardest. Both countries opposed the tariffs on Chinese electric cars.
An IV drip for the Chinese economy
Dr. Jakóbowski believes China is losing in the tariff skirmish with Brussels. He mentioned that Beijing's envoys have been attempting to dissuade European countries from supporting tariffs by threatening to suspend investments, a tactic that worked in Spain.
Broadly speaking, China couldn't stop what I would describe as a march of forces in the EU, aiming to curb Chinese industrial expansion. Whether it's the EC, France, or industrial groups supporting the tariffs, everyone views this as a battle. The conflict extends beyond electric cars to encompass all green technologies in the EU. The goal is not only to adhere to EU regulations and focus on energy and climate transformation but also to ensure European industry takes the lead, rather than allowing China to supply the world's technologies.
Dr. Jakóbowski explained that despite the EU tariffs on electric cars, exporting them to the EU remains profitable for China, as prices would be at least twice those in the price-competitive Chinese market. He added that China cannot easily afford to give up on Europe amid significant economic challenges, as supporters of the tariffs argue. He speculates that EU actions may eventually prompt China to invest more in Europe, potentially opening production facilities there instead of escalating the tariff conflict.
Professor Góralczyk cautions, "Let's see what unfolds in China this week, as unprecedented events are happening." He notes that on Thursday, October 10, the central bank announced a $70 billion economic stimulus package, with plans to inject an additional 200 billion yuan into new investments. If China successfully boosts its economy, it could forcefully retaliate against Brussels.
The EU intends to introduce tariffs on Chinese electric cars because the sector receives substantial state subsidies. These subsidies span every stage, from lithium mining and processing to battery assembly and car manufacturing. Such investments result in Chinese cars being shipped to and unloaded in Europe, explained Dr. Jakóbowski.
