EU Trade Policy Amid the China-US Clash: Caught in the Cross-Fire?

Abstract

The combination of China's rapid rise and unique economic system, and of the increasingly aggressive and disruptive US trade policy, is putting the global rules-based trade and economic system under unprecedented and possibly vital threat. The European Union has critical interests at stake in the current escalation, even as it has so far been comparatively spared from US trade policy belligerence and China's reactions. In this context, the European Union should adopt an independent and proactive stance, building up on recent efforts and going beyond them. While in the past the European Union has been unambiguously closer to the United States than to China, it now has shared interests and differences with both countries. It does not currently have to make a general choice of one against the other. And like many other jurisdictions around the world, it should aim at defending its continuing ability not to make such a general choice, even as this stance will generate tensions with both. The recent China-EU summit success illustrates the credibility of this approach, and the objectives stated in its conclusions should be delivered upon. The European Union, even more than the United States or China, has a strategic interest in the preservation of the global rules-based order embodied by the World Trade Organization (WTO). It must take leadership for steering WTO reform and modernization, working closely with broadly aligned third countries such as Japan and other players. It should expand its outreach beyond its immediate negotiating counterparts in both the United States and China, and specifically work at a better understanding of China on the part of its (EU- and member state-level) leading officials. While strengthening its domestic policy instruments to address new challenges, such as the screening of foreign direct investment for security purposes, it must also resist its own temptations of protectionism and economic nationalism. In support of these objectives, the European Union should prepare itself for difficult decisions, which may involve revising some of its current red lines in international trade negotiations. Conversely, the European Union should stand firm on principles such as refusing one-sided agreements and rejecting abusive recourse to national security arguments in trade policies. In working with the European Council and the European Commission, the European Parliament will have a critical role to play in steering the European Union through these challenging times.