US President Donald Trump has initiated a global trade war by imposing tariffs, including on European allies. Given the impact of these measures, should the EU seek to mitigate its losses by deepening economic ties with China?
In a collection of commentaries published by the "Carnegie" Endowment, experts in international economics and trade analyze the opportunities and risks facing European policy in the face of global tensions.
Piotr Dzierzanowski
Analyst for International Economic Relations at the Polish Institute of International Relations
No. The economic ties between the EU and China are causing many negative effects for the European economy. As the "China Shock 2.0" is underway and hitting EU industry hard, we face the risk of a "Rust Belt over the Rhine". If we allow for negative economic and social consequences similar to those that the United States suffered after China joined the World Trade Organization (WTO), we should expect similar political effects - increasing polarization, increased populism and a general shift to the right. This would be another existential crisis for the EU.
However, the latest American actions may require diplomatic maneuvers to mitigate the losses. The future of international trade - and more generally of the rules-based order - is uncertain. If the West as an alliance continues to deteriorate, closer cooperation with China will be imperative. For now, however, it seems that any rapprochement must be tactical, aimed at strengthening the bloc’s position in transatlantic relations and for the EU and the US to recognise a shared interest in correcting China’s predatory economic policies.
Cecilia Malmström
Former EU Trade Commissioner, Visiting Fellow at the Peterson Institute for International Economics
While trying to find a solution to US President Donald Trump’s tariffs, Europe must also strengthen its trade relations with other partners to diversify and reduce the risk from the United States. The European Union already has trade agreements with seventy-six countries, but ratifying the agreements with Mercosur and Mexico would be urgent. Similarly, finalising negotiations with Indonesia, Malaysia and Australia is an important task. The EU should also join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), where most of its allies and trading partners are already participating and where much of the future rules and standards will be developed.
As for China, this is difficult to assess unequivocally. On the one hand, Europe trades with China and needs access to its green technologies. On the other hand, Europeans have concerns when it comes to subsidies, unfair trade practices, etc. Europe is also too dependent on China when it comes to rare earths and critical minerals. Many countries are worried that China will supply the overcapacity products to Europe as well. Let us not forget the frozen Comprehensive Agreement on Investment (CAI), which has been suspended due to sanctions against twenty European citizens. If they are cancelled by Beijing, I think there will be a desire to try to ratify the agreement and thus partially increase trade with China.
Sandar Tordoar
Chief Economist at the Center for European Reform
Both the EU and China are trade surplus blocs: they rely on external demand and need buyers, not sellers, as the United States reduces its demand. China will not act as a buyer: it suffers from weak demand and continues to rely on net exports to grow its economy. Beijing could offer to remove tariffs on EU imports, but many of its markets are burdened by overcapacity, meaning that European firms cannot export profitably. The only sensible suggestion China can make is to boost its domestic consumption.
EU exports to the United States are worth about 3 percent of GDP, and many specialized engineering items are difficult to replace in the United States. The loss of some of these exports to Trump’s tariffs poses a much smaller threat to European industry than the explosive exports of cars, machinery, and industrial kits from China. These will increase as China redirects its surplus to Europe in response to U.S. tariffs.
Either China must voluntarily curb its exports, or the EU will eventually deploy trade defence instruments as a safeguard. But Europe will still lose other export markets to the glut of Chinese exports. Europe is caught between the hammer of Chinese overcapacity and the anvil of US tariffs. The only way out for the EU is to channel demand into its own industry through industrial policy.
Zuzsá Anna Ferenczi
Assistant Professor at National Dong Hua University, Hualien, Taiwan
By imposing large tariffs on the rest of the world, then announcing a three-month pause while warning that no country would be exempted from them, US President Donald Trump has unleashed massive geopolitical uncertainty and economic reinsurance, probably far from the United States. In response, Europe has suspended its countermeasures, and China has retaliated with counter-tariffs. European Commission President Ursula von der Leyen said the bloc wanted to “give negotiations a chance” but warned that countermeasures would come into effect if the talks “are not satisfactory”.
The offer of negotiations is the right European approach. The transatlantic divide is bad for both Europe and America. Europe’s trust in the United States has already been broken. We hope that it can eventually be restored.
However, restoring trust in EU-China relations is a different story. To claim that this can be done easily is naive and dangerous for Europe. The EU should resist the temptation to join China in responding to Trump’s attacks. This will not bring relief. On the contrary, it would weaken Europe economically and politically. Offloading China’s overcapacity in manufacturing through exports has already undermined Europe’s industrial base, and Beijing’s goal is to separate Europe from the United States.
Europe must remain focused on addressing the fundamental challenges posed by China, including state intervention in the market—ironically a shared transatlantic concern. The return of normal trade practices in China is in the interest of both Europe and America.
Georgios Papaconstantinou
Acting Director of the Florence School of Transnational Governance at the European University Institute, former Minister of Finance of Greece and Minister of Energy, Environment and Climate Change
Back in the day, before Trump 2.0's attack on the global order - and US domestic affairs - and faced with a bipartisan American strategy of disengagement from China, the EU developed its own response: "risk reduction", not disengagement. In other words, a noble attempt to find a middle ground, reduce risks and limit strategic dependencies in a relationship that sees China as a partner, competitor and systemic rival.
With the US becoming a global predator, in an incredible turn of events, Europe’s risk-reduction strategy is now as much about the United States as it is about China. In this world, however difficult, where the new US president demands absolute loyalty, Europe now has no choice but to move closer to China.
One can start with the win-wins across all policy areas: the EU and China are leading a global coalition of those willing to save the planet from climate change. Europe must also move on to the more complex areas of trade, finance, data, critical minerals and artificial intelligence (AI). In these areas, negotiations can find a middle ground that upholds non-predatory economic interdependence and agrees on shared global governance norms while accepting fundamentally different preferences and value systems.
Should Europeans consider lifting some restrictions on high-tech exports, particularly ASML’s advanced deep-ultraviolet chips? That would please Beijing and send a message to Washington that Europe can no longer follow the United States at every step of its technological rivalry with China. But it is a risky strategy that is unlikely to ease China’s drive to rely on its own strength.
If today’s crisis is to be turned into an opportunity that serves Europe’s long-term interests, the best way forward is for the EU to invest in its own competitiveness, especially in critical and emerging technologies, while positioning itself as a standard-bearer for the multilateralism from which the United States is retreating.
Cooperation with partners such as Japan, South Korea and India is crucial to show countries in the Global South that alternatives to the United States and China are real.
Noah Barkin
Senior Advisor on China Engagement at "Rhodium Group"
Trump’s trade war has not reduced Europe’s problems with China. In fact, it has exponentially increased the risk that Chinese overcapacity will flood Europe. The good news is that these tariffs and the ninety-day reprieve granted to the EU and other countries have increased Europe's leverage over China.
Europe should use this leverage in the run-up to the EU-China summit scheduled for July to pressure Beijing to rebalance economic relations. The proposal is simple: the EU market will remain open only to Chinese green technology products - from electric vehicles and batteries to wind turbines - if China agrees to limit its exports and invest massively in European manufacturing.
These investments must meet European conditions for technology and know-how transfer, local job creation and respect for data and cybersecurity criteria.
If Beijing does not agree to these conditions, the EU will follow the US example in shutting out Chinese exports.
If China is prepared to meet the EU's demands - a very big if - then economic relations between the EU and China can converge. If not, then Europe will have to focus on protecting its industry. The worst course for Europe right now would be to weaken its demands on China because of Trump.