EU’s China trade weak spots hide in plain sight
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
By George Hay and Afiq Fitri Alias
LONDON, July 9 (Reuters Breakingviews) -“The supreme art of war is to subdue the enemy without fighting”. Chinese strategist Sun Tzu may have been referring to actual conflicts rather than trade disputes when advancing his famous maxim. Still, President Xi Jinping and European Commission boss Ursula von der Leyen have good reason to scour their imports and exports to see if they can achieve a similar outcome.
China’s immediate motivation is tariffs on electric vehicles. Last week the European Union formally outlined provisional charges as high as 48% on the value of some Chinese-made cars. As these do not become permanent until November, Xi has an opportunity to persuade von der Leyen to rethink. Given that the EU last year exported goods worth $282 billion to the People’s Republic and received products with a value of $502 billion from its trading partner there is much to play for.
The art of trade spats is to target goods where restrictions hurt the exporter more than the importing nation. Beijing might therefore focus on products which account for a large proportion of the EU’s total exports but are of marginal importance to China. To get at this data, Breakingviews trawled through around 5,000 product categories compiled by the International Trade Centre, a joint agency of the World Trade Organization and the United Nations. We then filtered the numbers to focus on items where the EU’s exports to China exceed $1 billion a year.
Methodological complexities and statistical revisions mean Europe’s export data and China’s import figures don’t always perfectly align. But there’s sufficient clarity to gauge which imports may be too important for China to meddle with. For example, the ITC data shows that pharmaceuticals sourced from the EU accounted for 62% of China’s overall drug imports in 2023. Motor cars and parts made in the bloc were 59% of China’s total auto imports, while Beijing relies on the EU for 47% of its imported food and agricultural products. Retaliation here might hurt the Middle Kingdom’s own interests.
The EU’s weaknesses appear similarly easy to spot. The bloc’s biggest dependency is agricultural products: 28% of its overall exports go to the People’s Republic. Similarly, China is the destination for 22% of consumer goods, like Louis Vuitton handbags, that Europe sends overseas. This might make European farmers and luxury groups like $390 billion LVMH LVMH.PA good targets for Beijing. Carmakers appear less vulnerable: only 10% of European global exports of vehicles and vehicle parts head to the world’s second-largest economy.
These headline figures aren’t a foolproof guide to where China can exert pressure, though. Beijing will also weigh up how vital the product is to China’s national interest, whether it can be easily substituted, and whether it constitutes a small proportion of the country’s overall consumption. Trade negotiators also pay close attention to which EU country produces the imported goods.
Take brandy. In 2023 China imported $1.8 billion of the spirit, with fully 99% coming from the EU. But unlike, say, the $14 billion of semiconductor equipment that made the same journey, brandy hardly counts as an essential material. This helps explain why China has already opened a probe into alleged EU dumping of the liquor.
Two other factors come into play. Nearly half of EU brandy exports come from France, which has been one of the driving forces behind the EU’s targeting of EVs. Handily, Xi’s government also frowns on Chinese elites’ conspicuous consumption of expensive imported luxuries.
Indeed, LVMH and other European luxury giants like Kering PRTP.PA have reason to be nervous. A third of the $4.8 billion of EU leather and plastic handbags that headed to China in 2023 came from France. Luxury luggage is more expendable than, say, the $9 billion of Airbus AIR.PA planes and parts China imported last year.
The People’s Republic may also be more relaxed about restricting imports which account for only a small chunk of domestic consumption. Half of China’s imported pork comes from the EU, but this is only a small fraction of what the country eats: most of the latter is produced at home. Yet two-thirds of Spain’s swine offal exports go to the People’s Republic, giving Xi a potential way to exert pressure on one specific EU state.
Cars offer further proof that trade negotiators have to look beyond the headline numbers. Though the $20 billion of petrol-fuelled autos that China bought from the EU last year accounted for two-thirds of China’s imports of the vehicles, they might be ripe for tariffs.
Click here for an interactive version of the graphic.
One reason is that China is rapidly pivoting away from petrol cars and has a glut of internal combustion engine vehicles in its home market. Moreover, the gas guzzlers it imports from European carmakers like Porsche and BMW BMWG.DE are more expensive than the cars it sends the other way, according to HSBC analysts, making them more like a luxury product. So when a government-affiliated research body suggests China should hike tariffs on petrol cars from 15% to 25%, it’s a credible threat.
How Xi will retaliate is hard to predict. China might prefer to use societal pressure to encourage its citizens to consume less of a particular product: a similar campaign saw domestic sales of South Korean cars plummet after 2017, Rhodium Group analysts point out. EU diplomats will be braced for different forms of reprisals. Yet as other governments flirt with protectionist policies, Beijing and Brussels will be mindful of a separate Sun Tzu pearl of wisdom: “There is no instance of a nation benefitting from prolonged warfare”.
Follow @gfhay and @a_fitri_alias on X
CONTEXT NEWS
The European Union will impose additional tariffs of up to 37.6% on imports of electric vehicles made in China, EU officials said on July 4.
The European Commission’s provisional duties of between 17.4% and 37.6% are designed to prevent what Commission President Ursula von der Leyen has said is a threatened flood of cheap EVs built with state subsidies.
There is a four-month window during which the tariffs are provisional and intensive talks are expected to continue between the two sides as Beijing threatens wide-ranging retaliation.
China’s anti-dumping probe into Europe’s cognac industry is a tit-for-tat reaction to EU tariffs on Chinese electric vehicles, the finance chief at Hennessy cognac owner LVMH said on July 6, a day after Beijing announced plans for a hearing on European brandy imports.
Graphic: China’s import sectors most reliant on the EU in 2023 https://reut.rs/3KZMae7
Graphic: European exports most exposed to China in 2023 https://reut.rs/4binQ1v
Graphic: China’s imports mask key vulnerabilities in specific products https://reut.rs/3xEJlMj
Editing by Peter Thal Larsen and Oliver Taslic
متعلقہ اثاثے
تازہ ترين خبريں
دستبرداری: XM Group کے ادارے ہماری آن لائن تجارت کی سہولت تک صرف عملدرآمد کی خدمت اور رسائی مہیا کرتے ہیں، کسی شخص کو ویب سائٹ پر یا اس کے ذریعے دستیاب کانٹینٹ کو دیکھنے اور/یا استعمال کرنے کی اجازت دیتا ہے، اس پر تبدیل یا توسیع کا ارادہ نہیں ہے ، اور نہ ہی یہ تبدیل ہوتا ہے یا اس پر وسعت کریں۔ اس طرح کی رسائی اور استعمال ہمیشہ مشروط ہوتا ہے: (i) شرائط و ضوابط؛ (ii) خطرہ انتباہات؛ اور (iii) مکمل دستبرداری۔ لہذا اس طرح کے مواد کو عام معلومات سے زیادہ کے طور پر فراہم کیا جاتا ہے۔ خاص طور پر، براہ کرم آگاہ رہیں کہ ہماری آن لائن تجارت کی سہولت کے مندرجات نہ تو کوئی درخواست ہے، اور نہ ہی فنانشل مارکیٹ میں کوئی لین دین داخل کرنے کی پیش کش ہے۔ کسی بھی فنانشل مارکیٹ میں تجارت میں آپ کے سرمائے کے لئے ایک خاص سطح کا خطرہ ہوتا ہے۔
ہماری آن لائن تجارتی سہولت پر شائع ہونے والے تمام مٹیریل کا مقصد صرف تعلیمی/معلوماتی مقاصد کے لئے ہے، اور اس میں شامل نہیں ہے — اور نہ ہی اسے فنانشل، سرمایہ کاری ٹیکس یا تجارتی مشورے اور سفارشات؛ یا ہماری تجارتی قیمتوں کا ریکارڈ؛ یا کسی بھی فنانشل انسٹرومنٹ میں لین دین کی پیشکش؛ یا اسکے لئے مانگ؛ یا غیر متنازعہ مالی تشہیرات پر مشتمل سمجھا جانا چاہئے۔
کوئی تھرڈ پارٹی کانٹینٹ، نیز XM کے ذریعہ تیار کردہ کانٹینٹ، جیسے: راۓ، خبریں، تحقیق، تجزیہ، قیمتیں اور دیگر معلومات یا اس ویب سائٹ پر مشتمل تھرڈ پارٹی کے سائٹس کے لنکس کو "جیسے ہے" کی بنیاد پر فراہم کیا جاتا ہے، عام مارکیٹ کی تفسیر کے طور پر، اور سرمایہ کاری کے مشورے کو تشکیل نہ دیں۔ اس حد تک کہ کسی بھی کانٹینٹ کو سرمایہ کاری کی تحقیقات کے طور پر سمجھا جاتا ہے، آپ کو نوٹ کرنا اور قبول کرنا ہوگا کہ یہ کانٹینٹ سرمایہ کاری کی تحقیق کی آزادی کو فروغ دینے کے لئے ڈیزائن کردہ قانونی تقاضوں کے مطابق نہیں ہے اور تیار نہیں کیا گیا ہے، اسی طرح، اس پر غور کیا جائے گا بطور متعلقہ قوانین اور ضوابط کے تحت مارکیٹنگ مواصلات۔ براہ کرم یقینی بنائیں کہ آپ غیر آزاد سرمایہ کاری سے متعلق ہماری اطلاع کو پڑھ اور سمجھ چکے ہیں۔ مذکورہ بالا معلومات کے بارے میں تحقیق اور رسک وارننگ ، جس تک رسائی یہاں حاصل کی جا سکتی ہے۔
