When the European Union’s trade commissioner met China’s vice-premier responsible for economic affairs in Beijing this week, the two sides sought to strike a positive note. Valdis Dombrovskis and He Lifeng agreed to exchange information about export controls and made progress on allowing more European food and alcoholic beverages into the Chinese market.
But they could not disguise the mounting tensions in a trade relationship that is worth €865 billion annually but which the EU complains is deeply unbalanced. The EU’s trade deficit with China is almost €400 billion and Dombrovskis told his hosts that it needs to be rebalanced to be mutually beneficial, fair and reciprocal.
Brussels has long complained about China’s failure to offer a level playing field to European companies seeking access to its market. Foreign firms must often fulfil onerous conditions to be considered for public procurement contracts and foreign products are sometimes excluded on the basis of disputable health and safety concerns.
China this week agreed to clear a backlog of applications licences for infant formula and to work with the EU to improve the flow of agricultural products and alcoholic beverages. But as these barriers are lowered, others have appeared.
Dombrovskis expressed concern about a counter-espionage law that could criminalise the transfer of data out of China. The EU Chamber of Commerce in China said the laws have left some companies considering their future in the country.
China counters complaints about the trade deficit by arguing that the EU is making it worse by restricting the export of some high-tech products. And it accuses Europe of using national security as an excuse for protectionist measures against Chinese companies such as Huawei.
The European Commission’s decision to launch an investigation into Chinese subsidies of electric vehicles has outraged Beijing, which views it as an act of protectionism. Some EU member-states, led by France, argue that if Europe does not act, China could dominate the electric vehicle market. But Germany’s car makers fear that China will retaliate against EU tariffs by penalising German players in the Chinese market.
These moves are the latest sign of the return of industrial policy internationally that has seen the United States introduce huge subsidies for its manufacturers through the Inflation Reduction Act. It is a worrying trend for an open economy like Ireland’s, and the Government should seek to ensure that any EU measures are proportionate and carefully calibrated.
But if China wishes to reduce tensions with Europe, it should heed Dombrovskis’s warning and act now to rebalance the trade relationship and offer more transparency and stability to European businesses in the Chinese market.