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Despite efforts by lawmakers to reduce economic ties with China amid deteriorating diplomatic relations, imports from China to the EU have continued to increase in recent years. Brussels classified China as a “systemic rival” in 2019 following trade tensions between the two global economic powers. However, data from Eurostat reveals that the value of goods imported from China nearly doubled between 2018 and 2022. In the first half of this year, China remained the largest supplier of goods to the EU.
The OECD has analyzed this trend and found that imports of sensitive technology and critical minerals, such as phones, computers, and machinery, have all seen significant increases. EU officials have expressed concerns that China could exploit these technologies to gain access to state secrets. Additionally, China is the EU’s top supplier of rare earths and other critical raw materials.
Experts, such as John Blaxland, a professor of international security and intelligence studies, argue that it is difficult for major industrial economies to completely disengage from their reliance on China. Blaxland stated that China has successfully persuaded these economies to heavily depend on the Chinese market. EU trade commissioner Valdis Dombrovskis noted the “staggering” trade deficit between the EU and China and emphasized the need for Beijing to open its markets. However, EU officials recognize that fully severing ties with an economy that accounts for 14% of global goods exports will be a challenge.
While the US has made progress in reducing its reliance on China, particularly through the imposition of tariffs under the Trump administration, the EU has capitalized on gaps left by the US in the Chinese market. European carmakers, for example, have experienced significant sales growth in China after US companies were excluded from the market. Nevertheless, Chinese carmakers are now threatening European manufacturers’ market share both domestically and internationally. Chinese imports accounted for 3-4% of total European car registrations last year, compared to zero a few years ago. Sales of Chinese-made cars in Europe could reach 1.5 million vehicles by 2030, equivalent to 13.5% of the EU’s 2022 production.
As for the EU’s approach, it is differentiating between de-risking and decoupling. De-risking involves targeted actions to reduce dependencies and build national resilience in sensitive technologies crucial for national security. It aims to diversify sources and reduce excessive reliance. Decoupling, on the other hand, involves broader actions such as imposing sweeping tariffs. France and Germany have adopted different strategies in response to China’s rising influence. France has introduced legislation to only provide subsidies for new electric vehicles based on the emissions of their producers, which will impact Chinese carmakers heavily reliant on coal-powered electricity. Germany has unveiled a de-risking strategy, urging companies to decrease their dependence on China or bear more financial risk themselves.
In summary, the EU faces challenges in reducing economic ties with China due to its significant reliance on the Chinese market. Efforts to de-risk the economy by producing crucial goods within the EU are being implemented, but complete decoupling appears to be unfeasible. The US has made progress in reducing its dependence on China, but Chinese carmakers are posing a threat to European manufacturers. The EU is considering different strategies to address the issue, such as implementing emissions-based subsidies and urging companies to decrease their reliance on China.
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