A fresh trade war is brewing as China flexes its muscles

[view original post]

While the policy isn’t specifically directed at China – it could, for instance, be used as a trade weapon against the US should the Trump-era trade policies towards the EU be revived – there is little doubt that China’s increasing aggressive use of the threat of denying access to its markets as geopolitical leverage (as Australia has experienced) is the major motivation for bringing the proposed EU sanctions off the drawing boards.

Within the EU some member states, like Sweden and the Czech Republic, regard the proposed measures as another distortion of free trade and would prefer the EU to use the World Trade Organisation as the forum for dealing with these kinds of disputes, despite the extraordinarily lengthy timelines and questionable effectiveness of the WTO’s processes.

EU executive vice-president Valdis Dombrovskis said that the “anti-coercion instrument” would send a clear signal to the EU’s trading partners that the EU would stand firm in defending itself and wouldn’t hesitate to push back when under threat.Credit:Getty

There are states that regard the proposals as a breach of WTO rules – even though it is clear the global trade rules have been torn up and the WTO rendered irrelevant and powerless by Donald Trump and Xi Jinping – and others that want to protect their trade relationships with China.
The largely repaired relationship on trade, indeed the larger relationship, between the EU and the US since the Biden administration displaced Trump’s trade hawks has, however, seen the EU gradually harden its attitude towards China.

Almost a year ago China rushed to sign a trade pact with the EU, making last-minute concessions to try to get the deal done before Joe Biden could take office. The EU ignored Biden’s pleas to delay signing until the new administration had the opportunity to discuss the common concerns the US and EU had about China’s economic policies and practices.

In March this year the EU joined the US, UK and Canada in sanctioning some Chinese individuals and entities for their treatment of the Uighurs in Xinjiang. China retaliated by imposing its own sanctions on a number of EU lawmakers and other individuals and organisations.

That triggered a backlash from members of the European Parliament who were being asked to ratify the agreements even as their own members were targeted by the sanctions. That investment agreement has yet to be ratified and in the meantime the EU has expanded those Uighur-related sanctions amid a general hardening of its attitude towards China and an improved relationship with the US.

EU executive vice-president Valdis Dombrovskis told a press conference on Wednesday that the “anti-coercion instrument” would send a clear signal to the EU’s trading partners that the EU would stand firm in defending itself and wouldn’t hesitate to push back when under threat.

He referred to the “weaponisation” of trade for other geopolitical purposes and said the EU and its member states had been targets for economic intimidation in recent years.

The new “tool,” he said, would be first and foremost a deterrent and the option of last resort, to be deployed only after attempts at negotiation or mediation and after the EU had sought co-operation from other international partners. Only if dialogue and international co-operation failed to remove the coercion would the EU apply countermeasures, he said.

He also said the EU would work with other countries to address global concerns about economic coercion.

Even concerted demands by the US, the EU and other like-minded countries probably wouldn’t cause Xi Jinping’s China to re-think its use of its markets as geopolitical leverage or punishment.

The most obvious and blatant example of attempted economic coercion is, of course, China’s efforts to use bans on Australian products as punishment for the federal government’s commentary and actions on a range of issues – the origins of the pandemic, the Uighurs, Hong Kong, Taiwan among them – the Chinese regard as “no-go” zones.

The threat of losing access to EU’s markets is, however, unlikely to cause China to back off and lift the effective sanctions it has imposed on Lithuania.

Loading

Even concerted demands by the US, the EU and other like-minded countries probably wouldn’t cause Xi Jinping’s China to re-think its use of its markets as geopolitical leverage or punishment. There’d be domestic political implications in his newly-assertive China being seen to be backing down under pressure from the West along with the loss of leverage and geopolitical power.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.