Are the Chinese particularly pragmatic?

The EU's announcement of new trade data is usually not a major media event. But when the statistics agency Eurostat presented its preliminary estimates for EU foreign trade in 2020 in mid-February, the waves hit high: China overtook the USA as the EU's most important trading partner, read the headlines from the BBC to the Spiegel. However, if you look closely, the supposed turning point is not one. The fallacy is based on the same narrow view that seems to have shaped many trade policy decisions in recent years: only the trade in goods is considered.

If, on the other hand, one includes the increasingly important trade in services and looks at the more relevant current account, the US remains by far the most important economic partner of the EU. In second place is Great Britain, which has just been lost as an EU member. Only in fourth place comes China, whose importance in the EU's foreign trade relations is roughly comparable to that of third-placed Switzerland. The distorted perception of the actual situation - and an unspeakable US president - have in recent years led to the USA and other Western partners being neglected in terms of trade policy. In addition, decisions were often dogmatic instead of being pragmatically based on economic relevance. It is high time to change that.

Goods trade statistics sign US importance

The income of the 27 EU countries through transactions with the USA amounts to 823 billion euros (as of 2019). It is followed by the United Kingdom with 760 billion euros, Switzerland with 361 billion euros and China with 357 billion euros. These current account totals contain income from exports of goods and services as well as investment income generated abroad, so-called primary income. This also includes the profits of subsidiaries abroad. Secondary income is also included, i.e. payments without recognizable consideration such as development aid or fines that German banks had to pay in the USA.

Adrian Zenz almost single-handedly uncovered the human rights violations in the Chinese province of Xinjiang. China has now imposed sanctions on him. He accuses German companies of duplicity.

In the opposite direction of trade, the USA and Great Britain are also the most important transaction partners: 670 billion euros flow from the EU countries to the USA and 526 billion euros to the UK. China follows in third place with 421 billion euros and then Switzerland with 274 billion euros.

Statistics focused on goods, on the other hand, underscore the importance of the USA as a trading partner and exaggerate that of China. The EU's exports of goods to the USA make up only about half of the total volume of the current account, while imports of goods only make up about 35 percent. In China it is 70 and 85 percent, respectively. China is growing in importance, but the US will remain the most important economic partner for the foreseeable future.
Strategic foresight in trade policy not recognizable.

It is noticeable that in the EU's trade policy towards all four top partners there is no discernible consistent strategy: In relations with Great Britain, the EU Commission almost accepted the failure of a Brexit agreement at the end of 2020 because of economically almost irrelevant fishing rights. Recently the EU Commission then went wrong with vaccine export controls, which obviously violated the Northern Ireland regulations and thus provoked the next conflict with Great Britain. She took them back the same day.

But against the background of the great importance as a trading partner for the EU, dealing with the British seems strange. A long-term economic strategy looks different.
The same goes for the USA. Instead of accommodating the new government and initiating talks about the withdrawal of the tariffs imposed under Trump, the EU Commission imposed new tariffs six days after the election of Joe Biden as a result of the ongoing dispute over subsidies for the aircraft manufacturer Boeing.

An exchange of blows in Alaska, sanctions battles between Brussels and Beijing, revenge on western fashion companies: there has rarely been so much tension between the USA, the EU and China. It is pulling a geopolitical test of strength.

by Max Haerder, Julian Heissler, Jörn Petring, Silke Wettach

The British, however, settled their part of this dispute in Donald Trump's final days of office. It was not until March that the EU succeeded in suspending the Airbus Boeing tariffs on both sides for an initial four months. Given the extremely important role of the Americans as trading partners, there is an urgent need to present a strategic plan for the development of trade relations and to prepare the Europeans for the necessary concessions, for example in the agricultural sector.

Apparently under considerable German pressure, the EU concluded an investment agreement with China in December 2020 - something like a framework for further economic relations. It promises better market access. The investment protection was put on the back burner, also because the EU is not clear about its strategy on this issue itself. While the European Parliament was preparing a resolution to boycott goods from the Chinese province of Xinjiang because of the use of Uighur forced laborers, the Commission is already using its new, much more useful set of instruments for targeted sanctions against individual companies and individuals. The EU has not yet found a long-term strategic plan for dealing with China.

Pay more attention to Western partners

The supposedly small Switzerland, with which there is considerable potential for conflict, is often overlooked. Of the four main trading partners mentioned, the EU has the closest contractual ties with the Swiss Confederation. The EU would like to replace over 100 bilateral treaties that currently regulate Switzerland's relationship with the EU with a framework agreement. She insists on the automatic adoption of European regulation and the monitoring of the agreement by the European Court of Justice. This is meeting with fierce resistance in Switzerland and threatens to let the agreement fail. After the Brexit, there is now a threat of a Schwexit.

It is time for the EU to set strategic priorities in its trade policy and pragmatically align them with the importance of its trading partners. Most economically relevant would be a comprehensive free trade agreement with the USA. However, this would have to include the agricultural and service sectors, otherwise the Americans would hardly be willing, even under a benevolent president, to accept an agreement that also takes EU interests into account. For the countries of the European neighborhood, agreements should be found that do justice to the respective national sensitivities as well as the common foreign trade tradition. In addition to Great Britain and Switzerland, Turkey, with which the EU is linked in a customs union that is no longer up-to-date, must not be overlooked.

An honest formula has to be found vis-à-vis China, which promotes further economic exchange, but also contains a clear demarcation from the local political system. The EU should not embark on a harsh economic conflict with China in the American convoy. But the Europeans should accept the political systemic competition. You can rightly point out that, based on liberal societies, you have been advocating a reliable and multilateral world order for decades, which was an important prerequisite for China's rise in the world economy. If the Europeans can then show that they are excellent in business with their Western-oriented partners and not only dependent on China's markets, then they have some good cards in hand.

More on the subject: The EU’s recently concluded investment agreement with China is directly under strong criticism. Human rights experts accuse the EU of betraying its principles.

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