“Europe will not waver from making tough decisions needed to protect its economy and security,” said Ursula von der Leyen, European Commission president, on May 6, less than two hours after she and French President Emmanuel Macron met Xi Jinping in Paris at the Elysee Palace.
Europe is, in fact, wavering.
Von der Leyen made her resolute statement during Xi’s first stop on his first trip to non-Russia Europe in five years. True, the EU did not make any significant trade concessions, but neither did Xi. The Chinese ruler, for his part, was intransigent because the continent remained divided on how to deal with surging Chinese imports of cheap products.
Beijing should not, however, count on European division for too long. Economic necessity and geopolitical tensions will soon force Europe to match deeds with words.
Trade weighed heavily on the talks in France, where Macron gave his Chinese guest a bottle of Louis XIII cognac. The French leader was pleased that Xi promised not to impose threatened provisional anti-dumping duties on the drink.
China had threatened to attack cognac imports because, as the Guardian stated, the “EU has restated its readiness to launch a trade war with China over imports of cheap electric cars, steel and cheap solar and wind technology.” The allegation, also made by the Biden administration, is that the Chinese government provides large and illegal subsidies.
Last September, von der Leyen announced an EU investigation into China’s subsidies for EVs. In April, the EU started an investigation into Chinese wind turbines. The subsidies are large: at least three times larger than subsidies provided by Organization for Economic Cooperation and Development members to their companies.
Xi’s apparent strategy has been to stall the EU while Chinese companies move manufacturing to the 27-member trade bloc, the world’s largest market. For instance, China’s CATL will soon be making batteries in Hungary, an EU member and the third stop of Xi’s European tour, and BYD will be churning out inexpensive EVs there. The Chinese believe that, once inside the tent, Brussels will not be able to effectively move against their manufacturers.
In the meantime, Xi is making the argument that China’s market is even bigger than Europe’s. That is, in fact, not the case, but European governments and businesses still prize access to Chinese consumers.
“Fear of losing the China market has kept the imposition of sanctions and tariffs proceeding at a glacial pace,” long-time trade expert Alan Tonelson told me. “Heavily influenced by offshoring-happy multinational companies, Western governments still cling to the patently false belief that China has more leverage in these matters than they do. Indeed, this myth persists despite China’s burgeoning array of economic woes.”
At the moment, China’s economic woes are getting worse.
Consumption, for instance, is ailing, in large measure because Xi Jinping, for both ideological and institutional reasons, rejects empowering consumers, and he has at the same time abandoned the core property sector. His rescue plan for China — the economy is not growing anywhere near the 5.3 percent reported for the first calendar quarter of this year — is to build more manufacturing capacity to boost exports. He is, therefore, pouring money into “new productive forces,” such as EVs.
So far, Xi’s export plan is not doing especially well, even though the Chinese currency is weak, which makes China’s products especially inexpensive in export markets. The country’s exports to the EU in the first four months of this year fell 4.8 percent. Unsold Chinese EVs are sitting in parking lots in European ports by the thousands, with many vehicles stored for months.
For the moment, Xi is playing a weak hand extraordinarily well. He has been able to sell into Europe while severely restricting European access to China’s market.
He has a big problem, however. While Xi wants access to Europe’s consumers, he is fueling the biggest national security threat to their continent: Russia’s war against Ukraine. Beijing officially maintains a policy of neutrality in the conflict, but behind the scenes provides Vladimir Putin with economic, financial, diplomatic, propaganda and military support.
“It’s helping Russia perpetuate its aggression against Ukraine, but it’s also creating a growing threat to Europe because of Russia’s aggression,” said Secretary of State Antony Blinken to the BBC during his trip to China’s capital last month.
“The conundrum for Europe is that their threat to close their giant single market to Chinese exports is not believed by Beijing,” Theresa Fallon, director of the Brussels-based Center for Russia Europe Asia Studies, told me. She noted they have yet to invoke the national security exception of the World Trade Organization agreement.
“On both sides of the Atlantic and the Pacific, national efforts to contain China’s economic, technological and even military power are dogged by ambivalence and blinkered thinking,” says Tonelson, also the founder of public policy blog RealityChek.
“All these containment efforts have been, so far, reactive and piecemeal. American, European and Asian leaders have failed to recognize that all of the commanding heights of China’s economy comprise a nationwide system of economic predation. Without an equally comprehensive response, the multidimensional China threat will keep growing.”
In France, Xi made no commitment to change course on Ukraine. As Blinken intimated, however, China will soon have to decide what is more important: Selling to the EU or supporting Russia’s war efforts.
So far, it has been able to do both, but that cannot last much longer.
Gordon G. Chang is the author of “The Coming Collapse of China” and “China Is Going to War.” Follow him on X, formerly Twitter, @GordonGChang.