Since President Trump took office, U.S. trade relations with China have seen escalating tensions. Many in China are worried that Europe may side with the United States and pile pressure on China. Yet, the G7 Summit, which just concluded at the French seaside resort of Biarritz, showed that Europe and the United States diverge with and even increasingly confront each other on trade issues. Considering its fading influence, the continued value of the G7 has been thrown into doubt, even by European academia.
The G7 Summit culminated in a one page statement, reiterating G7 commitment to open and fair world trade and world economic stability, aspiration to deepening WTO reform, more effective protection of intellectual property rights, swifter settlement of trade disputes and addressing unfair trade practices. That said, due to glaring differences between the United States and the other six countries, the summit ended without any plan for concrete actions. The summit became the first G7 to close without a declaration in its 44-year history and will be remembered as a meeting shrouded in trade tensions.
The trans-Atlantic alliance has evolved significantly in the post-WWII years. With the end of the Cold War, trans-Atlantic competition became more prominent. The America First policy of the Trump administration has aggravated competition and led to sustained trade tensions between the two sides.
Escalating tensions began in March 2018, when the United States announced the imposition of tariffs on steel and aluminum products from the EU. In July 2018, European Commission President Jean-Claude Juncker called a truce before his visit to the White House, but the confrontation continued to simmer. The EU stood ready to retaliate in the face of ongoing threats from the United States to impose higher auto tariffs. This year, a trans-Atlantic spat over aerospace product subsidies and a digital service taxation argument between France and the United States only served to fuel the confrontation.
According to media reports, the EU has prepared a 173-page document on countermeasures in EU-U.S. trade tensions, including a plan to allocate 100 billion euros for a European Future Fund to invest in strategic industries to challenge competition from Google, Apple and Alibaba.
In spite of these plans, the EU remains reluctant to go into a trade war with the United States. After all, European countries rely heavily on export, which has become a casualty of U.S. trade policy. This year, the IMF, World Bank and European Commission downgraded economic forecasts for the EU and Europe as a whole. It was estimated that the EU economy would only grow at 1.5% for 2019, partly because the German economy, which has been an anchor of stability, would likely grow at a paltry 0.5% and Italy at 0.2%. Many believe that trade tensions between the United States and China are the primary driver for Europe’s economic doldrums.
Trade tensions have laid bare key differences between the EU and the United States. First, Europe upholds multilateralism, whereas the United States champions unilateralism. Europe and the EU believe trade should be discussed under the WTO framework and that unilateralism would imperil global trade order. Second, the EU upholds free trade and stands opposed to such naked protectionism of the America First ethos. This year saw rapid progress in expanding inter-region free trade zones between the EU and other economies, such as the EU-Japan free trade zone, followed by the conclusion of free trade zone negotiations between the EU and Mercosur. These are gestures made by the EU to convey dissatisfaction of U.S. trade protectionism. Third, the EU insists that trade negotiations must be based on mutual respect and equality. The EU regards U.S. behavior as pointing a gun at another country’s head and therefore unacceptable to any sovereign government.
Thus concerns that Europe may stand in unity with the United States against China appear to be unfounded. The EU has not sided with the United States, given that, as EU Trade Commissioner Cecilia Malmström so concisely put it, Trump is on the wrong side of history.
European countries increasingly see China as an economic competitor. But they also share common ground with China in upholding free trade and opposing unilateralism and protectionism. China and the EU should work jointly to promote WTO reform in order to safeguard the multilateral trade order. They should work together to deliver on the China-EU leaders’ meeting commitment to conclude a bilateral investment treaty by 2020, address each other’s concerns on trade and advance a feasibility study on the China-EU free trade zone.