Trump's Trade Spat With China Squeezes Europe

(Bloomberg Opinion) -- Donald Trump isn’t shy about using trade as a weapon to get what he wants. He has slapped tariffs on $250 billion of Chinese goods as he tries to deliver what he claims will be an “epic” trade deal for the American people.

Now he’s using a similar playbook against Europe, just as it prepares to start trade talks with the U.S. The president is proposing to levy tariffs on some $11 billion of imports from the European Union, nominally in response to the latter’s subsidy of Boeing Co. rival Airbus SE. This kind of stand-off might normally be expected to drive Beijing and Brussels, the two chief victims of Trump’s ire, into each other’s arms. But that isn’t happening because the EU has its own bone to pick with China.

Brussels reckons Beijing’s unfair state subsidies, technology transfers and hefty protectionism have made it an unreliable “systemic rival.” Tuesday’s EU-China summit  may produce some warm words, but it’s unlikely to resolve the deep disagreements on trade that still exist between the two sides after six years of fraught negotiations over an investment agreement.

The world of robotics helps explain why the EU feels so hard done by. In 2017, China’s Midea Group Co. bought German industrial robot manufacturer Kuka AG, a move that generated much angst among politicians and business-people – but no counter-bid from a local firm. The fear of premium technology leaving the country was assuaged by Chinese promises to keep as much as possible on German soil. Now the CEO has stepped down and jobs are being cut, stoking worries about a strategic shift under Chinese ownership.

Needless to say, China wouldn’t let a Kuka-type deal happen on its own soil: Foreign investment restrictions are more stringent than in the EU in every sector bar real estate, according to the European Political Strategy Centre.

There is, more broadly, a sense of a desperately uneven playing field. European businesses complain of markets being closed off, foreign workers being restricted, and intellectual property insufficiently protected. These complaints are similar to those made in the U.S., where Trump frequently blames China for taking advantage of America. And China’s proposed foreign-investment law will satisfy few of the EU’s demands for reciprocal access.

To pressure Beijing to open up, Brussels is borrowing some U.S. swagger, while still paying lip service to multilateral institutions like the World Trade Organization and stopping short of unleashing a tariff war.

The EU has unveiled a screening system for foreign investments, although it isn’t as strict as its U.S. counterpart, which blocked Royal Philips NV’s $2.8 billion sale of a lighting components business on national security grounds. Heads of state and European policy makers have deployed strong language. French President Emmanuel Macron warned European “naivete” is over. Little by little, the EU is stumbling toward a more united position, despite its divisions, as I have written elsewhere.

It is hard to feel confident about big changes in the short term. Europe’s stance is, in a way, too late and too strong, as Jean-Francois Di Meglio, co-founder of the Paris-based Asia Centre, points out. The political environment isn’t conducive to big WTO reform or better bilateral ties. Next month’s elections to the European Parliament could see populist parties gain a bigger political footing. An awkward middle ground looks likely to be the strategy for now.

Even so, it is ironic that Trump’s own hawkish stance on Chinese investments looks so similar to the EU’s recent direction of travel. As Europe builds new frameworks and adopts unified positions on Chinese investment, there is clearly some overlap between Brussels’ and Washington’s thinking when it comes to Beijing. The rest will depend on Trump.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.

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