China bolstered ties with the European Union this week with more large markets in the pipeline to keep its exports healthy as the United States levies import tariffs, analysts say.
At the 20th China-EU leaders' meeting Monday in Beijing, Chinese President Xi Jinping said his country stands ready to promote bilateral economic development. Premier Li Keqiang noted at the summit China had recently cut import tariffs on autos, medicine and consumer goods from the EU.
The 28-member European Union, including some of the world’s wealthiest countries, received $437 billion in exports with China last year, which accounted for 20 percent of the bloc’s total shipments from overseas.
Officials in Beijing have also pledged to ease trade friction with India this year.
“The EU is the second largest trading partner to China,” said Felix Yang, an analyst with the financial advisory firm Kapronasia in Shanghai. “While Trump’s tariffs hit the prospects of the Chinese economy, the EU is becoming a more important market for China.”
A reserve in case of trade war
China and the United States have headed toward what economists call a “trade war” for much of the year. U.S. President Donald Trump believes China trades unfairly, giving it a $375 billion trade surplus in 2017.
This month Trump approved import tariffs of 25 percent on more than 800 Chinese products. The taxes, already in effect, hit Chinese goods worth about $34 billion. Trump has threatened tariffs on goods worth another $450 billion, and China’s commerce ministry said it would make a “necessary counterattack.”
China counts the United States as its No. 1 trading partner, but major markets such as the EU, India and Southeast Asia are high on the list. The summit on Monday with EU leaders should help China solidify EU trade, economists say.
“You have to explore opportunities to grow your next largest set of trading partners, and this is where it’s really all about,” said Song Seng Wun, an economist with the private banking unit of CIMB in Singapore. “In case the trade fight with the U.S. were to escalate, it’s good your trading relationship with your remaining partners can improve and hopefully over time pick up some of the slack.”
China will need Europe to buy technology that the United States might sell if relations were better, said Liang Kuo-yuan, president of Taipei-based think tank Polaris Research Institute. The threat of a trade war now “slows” China’s acquisition of tech for R&D, he said.
“If they can’t develop their own, they would still look for Western technology,” Liang said. “At that point, the EU becomes a major source. If the route to Europe hasn’t been blocked, then the slowdown wouldn’t be so slow.”
The European Union will avoid a trade war, European Council President Donald Tusk said after the summit. But the bloc that has its own trade deficit with China advocates new global trade rules and World Trade Organization reforms.
Europe, like the United States, worries about China’s protection of technology and other intellectual property rights. In April the EU brought a case to the World Trade Organization against Chinese legislation that it said “undermines the intellectual property rights” of European companies.
The EU wants to “bravely and responsibly reform the rules-based international order,” Tusk was quoted saying on the EU’s website. “This is why I am calling on our Chinese hosts... to jointly start this process from a reform of the WTO.”
China voiced support for the WTO reforms at the Monday summit, the European side said in a statement.
India and Southeast Asia
China’s commerce minister said in April his country would keep working with India to ease trade differences caused by market access issues — resulting in a deficit for India.
Southeast Asia might be next for lighter treatment, Song said. China and the 10-member Association of Southeast Asian Nations are finishing talks on a 16-nation Regional Cooperation Economic Framework, a trade pact that some see as an antidote to the Trans Pacific Partnership deal that Trump exited in 2017.
Eventually other countries may join China in facing the United States as many expect trade problems, said Zhao Xijun, associate dean of the School of Finance at Renmin University of China. A tariff battle with China could spill into other parts of Asia, and Trump has rattled other countries with an “America First” policy that's often regarded abroad as protectionist.
China’s trade ties with Japan, South Korea, India and Southeast Asia will “continuously be promoted,” Zhao said. Those countries link to the same supply chain with its own “rules” that cannot be broken by a single country, he said.
“It’s not such a simple matter,” Zhao said. “The supply chain has its own rules. It’s not something the American government can break because it says it wants to break it.”