The EU Role in the Sino-US “Trade War”

Donald Trump on March 22 signed a Presidential Memorandum, which announces that under “Section 301” investigation, the U.S. plans to impose tariffs on $60 billion of Chinese imports, lodge a dispute with the World Trade Organization over China’s technology licensing and restrict China’s investment in strategic industries and technologies.

On March 23rd, the Trump administration began imposing a 25 percent tariff on imported steel and 10 percent on aluminum imports. At the same time, Trump further exempted the European Union, Australia, Argentina, South Korea, and Brazil, albeit only through May 1, 2018.

It is suspected that Trump’s tariff measures are intended to launch a “trade war” against China. If so, what role will the EU play?

Three Possible Roles the European Union May Play in a Trade War

Theoretically, there are three possible roles the EU may play in such a “trade war”:

The EU could act as an opponent to the US tariff measures.

It would be a hard decision for EU to stand against the United States in the context of the relationship between the United States and Europe. Judging from the current countermeasures that the EU is committed to adopting, the EU wants to take countermeasures, but also hopes to reach a compromise in the hope of securing a long-term exemption.

This also reflects the ambivalence of the EU on the issue of the United States.

However, as one of the world’s most important economies, it is highly possible that the EU might take proper countermeasures against the U.S. tariffs.

The EU could benefit from Sino-U.S. confrontation without getting involved.

An economic and trade confrontation between the United States and China will only result in the destruction of both sides. Moreover, countermeasures between the two economies will seriously worsen the international economic and trade environment. No economy in the world will be unscathed.

The EU as a bystander will marginalize its position in the World economic and political system and lose its voice on major world affairs. Obviously, this is not what EU politicians want to see.

The EU could join the US camp and act as an accomplice in fettering China.

Being an active ally would consolidate the EU’s traditional relationship with the United States. However, it would surely be counterproductive if the EU were to provoke an all-out confrontation with China.

China is the EU’s second largest trading partner after the United States. According to data from the European Bureau of Statistics, in 2017 China’s trade with the European Union reached 573 billion Euros, only 58 billion Euros less than the United States. Moreover, China’s growing importance to the EU’s foreign trade gives additional momentum to trade between China and the EU. In 2000, China represented 5.5 percent of the EU’s total trade. That proportion had almost tripled by 2007, rising up to 15.3%. China has become the largest trading partner of major EU members such as Germany.

Besides, there is a great potential for trade cooperation between China and the EU, with much room for improvement in bilateral trade relations. Therefore, standing up to China regardless of international rules and morality just for the benefit of the United States could be a risky move for the EU.

EU’s Benefit Analysis in Trade War

On the one hand, as the defender of the multilateral trading system, the EU has grounds to oppose any attempt by the United States to violate multilateral economic and trade rules. The EU is one of the creators of the existing multilateral trade rules and has a very important position in the existing multilateral trading system.

At present, all EU members are WTO members and it is in the interests of the EU and its member states to maintain the existing multilateral trading system.

The US Section 301 investigation of China is a unilateral act that is expressly prohibited by Article 23 of the WTO’s Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). According to the WTO ruling and the U.S. commitment, the U.S. cannot determine whether other members’ practices violate WTO rules through a unilateral 301 investigation. When dealing with WTO-related matters, the United States must take action in accordance with WTO rules and DSB rulings.

This investigation sets a dangerous precedent. If the world continues to collude with this kind of behavior, it will do serious damage to the multilateral trading system and throw international trade into disarray. Although the investigation is targeted at China, everybody loses in the end. From this point of view, the EU should stand on the side of justice and strictly oppose and resist the United States’ measures, which violate the WTO’s basic spirit and principles.

On the other hand, as the defender of its own interests, the EU will take measures to avoid any harms by the new US tariffs.

Although the EU is exempted from the new tariffs, the exemption is only temporary until May 1, 2018. Once it has is expired, the EU will again have to apply to the United States to obtain approval before it continues to enjoy the tariff exemption.

In other words, when it comes to trade relations with the EU, the United States will therefore have a card that can be played in exchange for European Union support. But this will not go down well with the EU. From this point of view, unless the United States makes compromises, the EU has the incentive to oppose the United States measures.

Overall the most likely strategy for the EU to adopt is to take proper countermeasures as circumstances evolve, so as to maintain its favorable position in world trade. Whether from a perspective of morality or practical interests, the EU should not and will not take measures to hand money to villains.

Even if the EU is unable to introduce strong, active and effective countermeasures to uphold justice against the unilateral acts of the US, its current proposals and initiatives still reflect the international community’s barometer on this issue.

In other words, in the “trade war” between China and the United States, the EU should be one of the important partners with whom China ought to strengthen cooperation.

Xu Xiujun is an Associate Research Fellow, Institute of world economics and politics, Chinese Academy of Social Sciences（CASS）