Collapse of EU-China political ties more dangerous than trade decoupling, top think tank chief warns

The main danger facing EU-China relations is not a complete collapse of trade links but a deterioration of political ties that would hamper global efforts to combat climate change, the head of a leading European think tank told Euractiv in an interview on Tuesday (7 May).

“What is potentially horrible is the collapse of the political relationship because we really need to cooperate with China on important global problems, first and foremost climate change,” said Jeromin Zettelmeyer, director of Bruegel, a Brussels-based EU policy research centre.

“For me, that is the big casualty, not so much the trading part,” he added.

Zettelmeyer cited research published in March by several leading economists that suggested that the impact of a full-scale economic decoupling between East and West—triggered by, for instance, a Chinese invasion of Taiwan or the re-election of former US president Donald Trump—“wouldn’t be that horrible” and would likely hurt China more than the EU.

“The intuition for why [such a decoupling] wouldn’t be that horrible is that the world is big and diverse enough to realise the gains from trade still, so long as each of these two sides that don’t trade with each other continue trading within their blocs, but above all with the rest of the world,” Zettelmeyer explained.

Zettelmeyer’s comments come as Chinese President Xi Jinping is in the middle of a six-day trip to France, Serbia, and Hungary. The visit is seen as an attempt to ease mounting European concerns over Beijing’s increasingly close links with Russia as well as Chinese state subsidies for green technologies, including solar panels, wind turbines, and electric vehicles- products for which China is the world’s leading manufacturer.

Xi arrived in Serbia on Tuesday night following a two-day visit to France, where he also met with European Commission President Ursula von der Leyen — who first outlined the EU’s strategy of “de-risking”, but not decoupling, from China in March last year.

Despite being “sympathetic to maintaining a constructive trade relationship with China”, Zettelmeyer emphasised that the EU should continue — and, indeed, step up — its efforts to reduce its reliance on Beijing in certain strategic sectors.

In particular, he argued that EU leaders have focussed almost exclusively on limiting Europe’s import dependency for critical raw materials but that insufficient attention has been paid to the bloc’s export dependency or the possibility of Beijing expropriating EU-owned production sites.

“The overwhelming emphasis so far has been on imports,” Zettelmeyer said. “But dependency via exports, via profits, and physical assets is also something that can be exploited and would hurt Europe if there is a big shock. So that probably requires more attention.”

Zettelmeyer stressed that de-risking measures are also necessary to prevent Europe from becoming victims of Chinese “economic coercion” through export controls and import boycotts, as has happened in recent years to Lithuania, Australia, and Japan.

He also suggested that such Chinese “blackmailing” explains Europe’s growing readiness to confront Beijing over its trade practices.

“We have worked in the past under the assumption that China was an authoritarian regime that projected its power internally in a way that we would not do, but that was no barrier to cooperation outside,” he said.

“So the premise has been a non-aggressive China, an internationally constructive China, a multilateralist China. And this is how China has sold itself. But that image contrasts with Chinese actions on economic coercion,” he added.

Is Trump a threat — or an opportunity?

Zettelmeyer stressed that it is impossible to forecast the precise consequences for EU-China relations if Trump wins re-election in November.

However, he noted that a full East-West trade decoupling—with China and Russia on one side and Europe, the US, and a handful of East Asian allies on the other—is just one of “at least” three potential future scenarios.

In particular, he noted another possibility: that Trump slaps general tariffs only on Europe, ultimately leading to an EU-US trade war that would likely be “bad” but not catastrophic.

“We’ve had trade wars with the US in the past,” he said. “The main difference is that the trade wars in the past were specific to particular sectors, [for instance] poultry or airlines. What we have not really done is a sort of generalised trade war.”

He added, “It will probably not be the end of the world, but it depends on how much it escalates on both sides.”

He noted a third scenario: Trump introducing tariffs on China but not on Europe. This, Zettelmeyer said,  “wouldn’t hurt us so much” and might “even benefit us in some cases by making European exporters more competitive.”

“If Trump puts tariffs on China but not the EU, that is essentially like an industrial policy benefiting European exporters to the US,” he explained.

[Edited by Alice Taylor]