It was positive that European Commissioner for Trade Valdis Dombrovskis vowed to strengthen the European Union”s relationship with China to jointly solve global crises such as food security and climate change in his speech in Shanghai, ahead of the 10th China-EU High-Level Economic and Trade Dialogue that opens on Monday. That he also spoke of the need for the EU to “de-risk” was not.
Despite saying that the EU doesn’t seek “decoupling”, he complained that the EU has a trade deficit of €400 billion ($426.1 billion) with China. He has long insisted that the EU’s trade deficit with China is too big and he reportedly plans to call for China to ease the limits on the EU’s exports at the Shanghai dialogue.
But in saying so, Dombrovskis and those EU politicians holding similar views ignore the fact that the trade deficit is the comprehensive result of industrial structure, division of labor and other factors. The EU produces high technology, luxury goods and high-end agricultural products compared to China, which is lower down the value chain. This constitutes the basic scenario of their bilateral trade, namely the EU exports designer clothes and accessories, wines, and high-end electronic products to China while buying automobiles or parts and solar panels from the latter.
Besides it is quite common for EU enterprises to run businesses in China for higher profit, which, statistically, is added to China’s exports to the EU, even though it is European companies that make the money.
However, it is the EU’s blind following of Washington and its curbs on high-tech exports to China, such as lithography machines, that is the major reason for the trade deficit. It is natural that the EU should end up paying more than it receives when Europeans enjoy the convenience of Chinese products and refuse to send China high-tech products in exchange.
In an interview, Dombrovskis said that “On one hand we must discuss how we advance our relationship, but also we need to be able to discuss if there are some issues or trade barriers to be addressed.”
If he hopes to narrow the EU’s trade deficit with China, he can call for the easing of the curbs on its high-tech exports to China.
There are some trade barriers visible to all. The European Commission launched a probe against electric vehicles imported from China on Sept 13 claiming that subsidies from the Chinese government have made their prices artificially low. From all kinds of definitions, the EU’s move is trade protectionism. Leading German automakers’ executives have expressed that competition leads to innovation while German Chancellor Olaf Scholz said that “Competition should spur us on, not scare us.”
Those are topics that should be discussed at the dialogue on Monday.
