US, EU economic system struggling to ‘survive’ against China, US trade chief warns

The US and European market-based economies are struggling to survive against China’s “very effective” alternative economic model, a top US trade official warned on Thursday (4 April).

In a briefing in Brussels just hours before the two-day EU-US Trade and Technology Council (TTC) got underway in nearby Leuven, US trade representative Katherine Tai said that Beijing’s “non-market” policies will inflict severe economic and political damage on the two blocs, unless they are tackled through appropriate “countermeasures”.

“I think what we see in terms of the challenge that we have from China is… the ability for our firms to be able to survive in competition with a very effective economic system,” Tai said in response to a question from Euractiv.

She described China as a system “that we’ve articulated as being not market-based, as being fundamentally nurtured differently, against which a market-based system like ours is going to have trouble competing against and surviving”.

“Unless we figure out a different way to defend the way our economies work, we know what’s going to happen,” she said, “and it’s going to have significantly damaging economic and political outcomes for our systems”.

Tai alluded to Chinese overproduction of steel, aluminium, solar panels, and electric vehicles (EVs) as specific causes of concern but emphasised that the country’s overproduction of EVs, in particular, has become “very motivating for Europe”.

A global push towards protectionism?

In recent years, the US has increasingly attempted to move away from openly supporting free trade to advocating more protectionist policies.

In a speech delivered at the Brookings Institution in Washington in April last year, US National Security Advisor Jake Sullivan criticised the “old assumption” held by previous administrations that “that markets always allocate capital productively and efficiently—no matter what our competitors did”.

“Now, no one — certainly not me — is discounting the power of markets,” Sullivan noted at the time. “But in the name of oversimplified market efficiency, a large non-market economy had been integrated into the international economic order in a way that posed considerable challenges.”

On Thursday, Tai called for US-EU countermeasures to include “defensive” policies such as tariffs as well as measures that are “more on the offense,” including “incentive measures to correct for a market dynamic that is not playing out in our favour”.

Notably, a draft of this week’s TTC joint statement seen by Euractiv, to be publicised at the end of the bilateral talks on Friday (5 April), denounces the “non-market policies and practices” pursued by third countries.

The text simultaneously emphasises the importance of deepening EU-US cooperation on export controls and investment screening in order to counter the threat such measures pose to European and US economic security.

US increasingly hawkish on China

Meanwhile, the US’s push towards protectionism also comes amid increasingly hawkish comments on China by senior members of the Biden administration.

US Commerce Secretary Gina Raimondo stated in 2021 that Washington needed “to work with Europe” in order to “slow down China’s rate of innovation”.

Last month, Raimondo similarly noted that the US would do “whatever it takes” to prevent Beijing from getting access, for its military advancement, “to our most sophisticated technology”.

Such comments represent a potential source of friction between the EU and Washington, with EU officials having previously explicitly affirmed that, while they are committed to “de-risking” from Beijing, they wish to see China’s economy continuing to develop. 

“We will continue to buy a lot of materials from China, and we will be very happy that China continues its economic development by selling materials to us,” a senior EU official told Euractiv last week.

The official added that the EU’s recently-agreed Critical Raw Materials Act is not meant to “antagonise” China but is rather aimed “simply [at] diversifying sources of supply”.

Tai refused to be drawn on the issue of whether slowing down China’s economic development is an official US policy objective.

“I’m not going to speak for Secretary Raimondo,” she said, adding that despite very frequent collaboration, the US Commerce and Trade Departments follow separate files.

China’s ‘incredible’ growth the root cause of US tensions with Beijing

Tai’s remarks came during an event hosted by Brussels-based think tank Carnegie Europe, where she explained that a key cause of the tension between Beijing and Washington is China’s “incredible” economic growth over the past several decades.

“As a result of that incredible story of economic development and growth, you have increasing pressures being created between economic systems.”

While she saw clear pressures on the US economy, national economies in Europe, as well as the EU economy as a whole, were not immune from such strong effects either.

“This is something that will require intervention,” she added, stressing the need for the EU and US to work together to “secure and safeguard” their economic and social models.

[Editing by Anna Brunetti/Zoran Radosavljevid]

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