The summit between the European Union and China tomorrow and the day after tomorrow in Beijing, the first to be held in person after Covid and after the war in Ukraine (supported by Xi Jinping), has worsened relations between the West and the People’s Republic. This is happening against the background of a deficit gap that worries Europe: the trade balance with the Asian giant is deep red: a deficit of 400 billion.
This was not always the case; in the past, trade relations between the two economies were fairly balanced over long stretches, particularly thanks to German exports. Several factors explain the sudden and severe imbalance in Beijing’s favor. German exports are no longer as successful as they used to be, the technologies produced in Germany are no longer as attractive as they used to be, also because the Chinese have replaced them with their own (at least in the beginning they partially copy and plunder intellectual property). Weakened Chinese consumer demand, affecting foreign trade in two ways: the People’s Republic imports less; and its companies, unable to find sufficient outlets in the domestic market, become increasingly aggressive and sell below cost abroad. Finally and most importantly, a new Chinese invasion of Europe is underway, this time powered by sustainability technologies: electric cars, electric batteries, solar panels, wind turbines or components of all of these products. After destroying much of Europe’s industry in this sector through years of unfair competition, China is now by far the first beneficiary of European decarbonization.
Brussels has long since capitulated to the invasion of “Made in China” solar modules: it sees no alternative, as the People’s Republic now controls 90% of the world’s production capacity in this sector. While America has committed itself to protectionism (tariffs and other discriminatory measures) with Donald Trump and Joe Biden, the European Union has practically thrown in the towel on this solar front. The announced catastrophe in the automotive sector is more problematic due to its social and political dimensions. The automotive industry in Europe employs 14 million people. Here too, catastrophe is predicted by the arrival of Chinese electric cars, which are sold below cost and with which the European industry can hardly compete. In Germany there is high alert on this front. At least on the electric car front, Brussels is trying to react; it has initiated unilateral proceedings against unfair Chinese competition under the rules of the World Trade Organization (WTO). If the procedure ends as the European Union wishes, it can authorize the collection of tariffs. Meanwhile, an alarming observation is emerging: Green Europe will increasingly be a Chinese Europe.
America is in a slightly better situation for several reasons. First, at the beginning of the millennium, a champion of the electric car was born like Elon Musk’s Tesla, which has long been a pioneer and gave the US industry a long lead (even if Tesla’s largest factory is in China and that very important end market for Musk). Then, from Trump to Biden, America has unscrupulously maneuvered various forms of anti-Chinese protectionism: from tariffs to subsidies to lure car and electric battery factories into US territory. The same tax incentives offered in the United States to those who buy an electric car disappear if the Chinese product, or even an American brand, contains too many Chinese components. Finally, America is ahead of Europe in the strategy of rebuilding secure supply chains for the production of all materials essential to green technologies, such as lithium. There is more mining activity in the United States, while underground extraction often remains taboo in Europe (due to opposition from environmentalists). There is also a greater ability for the United States – both at the government level and in the private sector – to forge alliances with suppliers such as Australia, a heavyweight in rare minerals and metals.
Chinese dominance, which can turn into a semi-monopoly, has been built over decades and on multiple fronts. It is not just the finished products such as solar panels and electric cars that guarantee China overwhelming superiority in trade with Europe, but also everything that goes upstream, namely the chain of refining and converting minerals and metals used as components in green Technologies. These minerals and metals occur only in small quantities in the Chinese subsoil; China has largely secured ownership or trade agreements to exploit mineral resources in other countries, from Africa to Latin America. The European Union continues to lag behind in building alternative and more autonomous supply chains.
The paradox is that at home the People’s Republic is not afraid to resort to the same protectionism adopted by the United States, but rather to direct it against the Europeans. The EU Chamber of Commerce in Beijing, which represents European companies present in this market, has presented a list of a thousand demands to reduce Chinese protectionist barriers. Many of these discriminatory barriers are similar to Biden’s measures: They require a lot of local production on goods sold domestically, exempting them from tariffs and restrictions. While Made in China monopolizes the European green transition, European companies find themselves hindered in accessing this market in a thousand ways (it must be said). The bilateral summit in the next few days is unlikely to change this imbalance. Europe has managed to put itself in a situation of contractual weakness: it has decided that it cannot do without Made in China in accelerating decarbonization; He fails to make himself equally indispensable to the Chinese economy or to negotiate adequate compensation.
(modified December 6th at 5:40 p.m.)
December 6, 2023, 4:22 p.m. – modified on December 6, 2023 | 5:38 p.m
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