from Warsaw, Poland
The escalation of the war
A new round of tariff war took effect on September 1st, with the new measures introduced by both governments. Following Trump’s policy, Washington has begun collecting 15% tariffs on more than $125bn in Chinese imports, including Bluetooth headphones, smart speakers and different types of footwear (The Guardian, 2019). In retaliation, Beijing has imposed additional tariffs on some of the US goods on a $75bn target list (The Economic Time, 2019). Nevertheless, the Chinese government did not indicate the value of the goods included in the measures launched in recent weeks. These acts show a significant escalation in the tariff war between China and the U.S. which could create a negative and positive spill-over within the European area (Plummer, 2019).
How the US tariff on China affects Europe, the connection between Beijing and Berlin.
First of all, the U.S. and Chinese economies constitute almost two-fifths of global GDP (Plummer, 2019). Following the OECD data, the latest escalation of tariffs has significant potential to disrupt global growth (Organisation for Economic Co-operation and Development, 2019). In particular, the European economy is strongly connected with the US and Asian markets. The EU exports towards those areas are stimulated by the German industry, which is the catalyst of the European production (Il Sole 24 Ore, 2019). Considering how other EU countries play a supporting role inside this supply chain, any potential trouble in the German production generates a negative spill-over in all the European area.
In this context, Beijing is the first commercial partner of Berlin, especially in the automotive sector. Clear examples are provided by Audi, Volkswagen and Daimler, which have gained more than 30% profits in the Chinese market (Automotive News Europe, 2019) . Thus, the tariff war directly affects German exports, generating a negative spill-over in other countries, such as Italy itself.
The European structural problems
Moreover, the EU is facing some structural problems further complicating its political, economic and commercial status (The Guardian, 2019). First of all, the European economy is in poor health due to different elements. Beyond the low investments and the stagnating productivity, specific European and national policies have promoted low salaries and low-quality jobs (Il Sole 24 Ore, 2019). Consequently, the most competitive firms and industries are investing in other global areas, such as the US or different parts of Asia (India, China, South East Asia and Indochina)
Secondly, the European Union seems dramatically divided in crucial issues strongly connected with the economy. Despite various declarations, there is a lack of a shared vision on the common Eurozone budget, banking union, innovation and employment. Further pressures are generated by the Chinese infrastructural investments in key sectors and the potential interferences of external powers in the democratic systems of different European countries (Carnegie, Endowment for International Peace, 2019).
The great challenge of Donald Trump against the global system make troubles for a weakened Europe
In general, the EU seems unready for reacting to the inward-looking instincts of the ‘America First’ Trump Administration, including its scepticism for the liberal global system and institutions created in the past decades by the European states and the U.S (Plummer 2019). A clear example of this is the controversy raised in the last spring between Washington and the World Trade Organization (WTO), one of the most relevant intergovernmental economic organizations. Essentially, Trump decided to impose tariffs on steel and aluminium, considering the principle of national security (The NYT, 2018). Following this principle, countries have the chance to derogate international trade agreements. Nevertheless, the Panel of WTO in an historic sentence on April 5th declared how it can determine if a security threat warrants such a restrictive decision (Bloomberg, 2019).
In a similar way, other aggressive measures launched by Trump against other economic and political powers could create a negative spill-over for the European area. One of the most significant concerns the tariff and sanctions against Russia on the energy sector. On July 19th, the US Senate Foreign Relations Committee approved a bill that sanctions all companies which help Gazprom, the Russian state-owned gas company, complete the controversial North Stream 2 pipeline from Russia to Germany (Financial Times, 2019). Thus, this measure penalised all the European companies involved in this project (Il Sole 24 Ore, 2019).
The European bright side of the war
In this context, there is some good news for the EU economy. First of all, American and Chinese firms are losing competitiveness, which favours the European industries. Following data released by UNCTAD, the EU will be the top beneficiary on exports due to the US-China trade war (United Nations Conference on Trade and Development, 2019). The UN body estimates the EU will catch $70 billion ($50 billion of Chinese exports to the United States and $20 billion of US exports to China).
Secondly, despite the last tariff escalation between Beijing and Washington, both sides have economic and political incentives to make a deal. A potential accord would be important for Trump’s administration considering the upcoming US election in 2020 (South-China Morning Post, 2019). Washington demands concessions related to forced technology transfer, intellectual property, non-tariff barriers, agricultural purchases, services and enforcement (Reuters, 2019). An agreement in most of these sectors would have a positive spill-over effect on European firms. As well, a potential agreement will promote the Chinese market, which is the first commercial partner of the EU.
Considering these aspects, the threat to the European Union is not directly connected with the short – term trade friction between Beijing and Washington. The most important issues are related to the integrity of the liberal global system which is challenged (Plummer, 2019).
The European opportunity to reform itself
Thus, the real question concerns how the new European Commission should act in the face of the new needs of the global markets. Following the EY’s Europe Attractiveness survey 2019, the EU should innact specific economic and political reforms in order to attract Foreign Direct Investments (FDI) (Ernst & Young, 2019). According to 42% of surveyed businesses, the most important priority concerns reforming economic governance to achieve sustainable economic growth. Secondly, the EU should enhance its international role avoiding future situations such as Brexit, considered the most important threat for the FDI investments.
Another problem pointed out by the survey is related to the skill shortages which are undermining the business performance of European firms. Almost three quarters of businesses affirm how skills shortages are strongly damaging productivity and profitability. The access to skilled labour is considered key in attracting investments. Thus, a potential solution could be a better communication between firms and governments at local, national and European levels. Businesses can evaluate which skills are needed and they can communicate this to the institutions.
The global powers and the new/old economic centre of the world
Moreover, the EU is called to sign new trade agreements with emerging markets in order to strengthen its position. In particular, the Asia-Pacific region seems the most sought -after area by the economic super power (Plummer, 2019). Washington spent eight years of diplomatic negotiations in order to create the Trans-Pacific Partnership (TPP), a comprehensive trade agreement (The NYT, 2018). In spite of the decision of Trump to pull out of the TPP, the remaining 11 TPP countries moved forward by signing Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP) which went into effect in late 2018 (Global Affairs Canada, 2019). Other countries, such as Indonesia, Korea, the Philippines, Thailand and Taiwan are taking into consideration the possibility to join CPTPP. Beijing itself is studying a possible membership inside the agreement.
The EU itself has been focused on this region, signing agreements with different countries of Asia and America. Currently, bilateral deals have been reached with Canada, Chile, Colombia, Japan, Korea, Mexico, Peru and Singapore. At the same time, Brussels is negotiating with other key countries, such as India, Thailand and Vietnam. An increment of the European diplomatic efforts in order to reach trade agreements may update market rules, reducing border impediments and subduing the inward-looking trends.
A new start for the EU
In general, the trade friction between China and the US creates some direct costs for a weakened Europe. Nevertheless, Washington and Beijing will probably soften their positions, thus a long-term conflict seems difficult to imagine. In this background, the European countries should be aware of how the balance inside the global system is changing, jeopardizing the institutions and the ideas affirmed in the last decades. Thus, Brussels is firstly called to promote policies in order to improve the competitiveness of European firms. Secondly, European institutions should strengthen their economic relations with emerging markets, in particular with the Asia- Pacific partners.
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Autore dell’articolo*: Mario Ghioldi, Dr. in International Studies and Diplomacy presso L’Università degli Studi di Siena; Master in Diritti Umani presso SIOI.
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