Why an EU-China trade war is unlikely

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

Escalated tensions between the European Union and China over solar panel tariffs is not going to cause a trade war. These disputes are short-lived, even if they are expected to continue in the coming years, explains George Friedman.

George Friedman is founder and chairman of Stratfor, a Texas-based global intelligence company.

"Tensions between the European Union and China escalated this week after Beijing announced that it is studying retaliatory tariffs against wine imports from Europe. The move was a response to the European Commission's decision to impose temporary anti-dumping duties on Chinese solar panels.

The latest in a long history of trade disputes between China and Europe, this quarrel does not presage a major break in trade relations over the long term. The issue does, however, highlight Europe's internal debate over protectionist policies and the steep economic challenges facing both Brussels and Beijing.

The dispute is taking place amid a slow reconfiguration of the international system. Two foundations of the post-Cold War world – a rising China and a consolidated European Union – have been shaken by the global financial crisis in recent years. The EU is now economically weak and politically divided, and the crisis has exposed the increasing weakness of China's export-oriented economy forcing Beijing to a take on a long-postponed economic transformation.

For decades, EU states have regularly denounced Chinese discrimination against foreign companies and the government's heavy intervention in the country's economy, as well as China's weak enforcement of intellectual property rights. Beijing, in turn, has continually objected to what it perceives to be EU attempts to obstruct Chinese imports. As China's emphasis on producing higher value-added goods increases, so too will the likelihood of trade conflicts with competing countries such as those in the European Union.

Still, the EU is China's largest trading partner, while China is Europe's second-largest, and partners don't need to like each other to do business. Currently, trade between China and Europe amounts to more than €1 billion per day, a volume that neither Beijing nor Brussels would seriously consider undermining. EU countries import mainly machinery, footwear, clothing and toys from China while selling it mainly machinery, vehicles, aircraft and chemicals. But China is also the world's main producer of solar panels, 80 percent of which are exported to Europe. In 2011, for example, Europe imported €21 billion worth of Chinese solar panels.

Bilateral relations are complex and go well beyond specific disputes. For example, China's threat to restrict wine imports are intended to hurt France, the world's largest wine producer and the main advocate for sanctions against Chinese solar panels. But in late April, Chinese President Xi Jinping and French President François Hollande signed a deal worth an estimated €5.8 billion for the purchase of 60 airplanes built by France's Airbus. Some of the planes will reportedly be built in the Chinese city of Tianjin. Meanwhile, French carmaker Renault is in negotiations to open a factory in the Chinese city of Wuhan, where it would produce 150,000 vehicles per year. Overall, French exports to China grew from €11 billion in 2010 to €14.7 billion in 2012.  

Thus, more than a possible trade war between Europe and China, Brussels' temporary measures against China highlight the European Union's internal differences. In addition to the varying levels of economic development and conflicting strategic interests, Europe is divided by trade policy. For example, while Mediterranean Europe tends to be more supportive of protectionist policies, northern Europe generally opposes such measures.

The current issue with China reflects this divide, since the anti-dumping duties were supported by France and opposed by Germany. Viticulture is much more important to France than Germany, so China's possible moves against wine imports would be clearly targeting a politically vulnerable sector (not to mention one that appeals to French nationalism). In December, all 27 EU states will vote on whether to apply permanent measures against Chinese solar panels. The issue will test the unity of the bloc, especially since diplomatic pressure from southern European countries for greater protectionism is likely to increase as the eurozone crisis deepens.

Considering the regularity of trade tensions between China and Europe, these sorts of short-term disputes can be expected to continue in the coming years, especially if the economic challenges facing each side grow. But beyond occasional limited protectionist measures, neither Brussels nor Beijing will attempt to provoke the type of crisis that could seriously threaten bilateral trade."

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