Sometimes it doesn’t matter what is right or wrong. What matters is what is practical.
After claiming for years that austerity was ‘right thing to do’, before eventually admitting growth was in everyone’s best interests, you’d have thought Brussels would have learnt its lesson by now.
Not so... it seems. For last week eurocrats went a step further and — having already exasperated many of the EU’s own members — they managed to alienate the one of the block’s biggest trading partners too, by slapping tariffs on cut-price Chinese solar panels.
China’s response was quick and calculated: it hit the bottle, so to speak, threatening sanctions on European wines. The scrap has become so petty that even the country which started it, Germany, wants no part in the fight, while France, which will be hit the hardest by any Chinese wine tariffs, is posturing angrily on the point of principle.
Speaking to me from Brussels this week, EU Trade Commissioner Karel de Gucht refuted the notion that his mission had not become a personal crusade. Looking somewhat tired of explaining himself on the matter, de Gucht said it was his job to stick up for European industry.
Certainly the Chinese strategy is canny and it’s one the country has exploited elsewhere, in other regions and in other sectors: flood countries with subsidised, cheap goods until local producers go out of business.
After cornering that market the Chinese can then begin selling the goods at the price they like, given that the local competition has been annihilated.
To prevent such a situation, the European Commission is imposing a tariff on Chinese-made solar panels to bring their prices into line with local alternatives.
The levy will start at 11.8 per cent for a couple of months, which means the Chinese products will still remain marginally cheaper than their European equivalents until summer. Should the Chinese suppliers fail to respond, the tariff will rocket to nearly 50 per cent and risk becoming permanent within five years.
Yet, given the state of Europe’s economy today, is it really wise to pick a fight with China over an industry which isn’t as key as the Commission would have us believe and one which to some extent is already artificial?
After all, for all their talk of China subsidising its panel makers, Europeans wouldn’t be buying so many solar panels if they hadn’t been incentivised to do so via subsidies granted by the EU itself. Ironic isn’t it?
The situation certainly says a lot about the warped logic of subsidies and the sanctions they sometimes prompt.
But let’s get back to the practicalities and to do so it’s worth looking at the economics of these two trading partners.
China and the EU exchanged over $550 billion worth of goods and services last year, a figure which has grown exponentially over the past two decades.
EU exports to China increased 5.6 per cent last year. That’s growth which is badly needed at a time when much of the region lingers in recession while unemployment soars.
And let’s remember, it wasn’t so long ago that Europe’s troubled countries were appealing to China to help them out of their economic travails — a point reiterated to me by Greece’s Foreign Minister.
Still during its prolonged economic boom, China has become increasingly fickle and one-sided. Rather than stimulating its own domestic demand, the nation still relies heavily on churning out cheap goods for customers beyond its own borders.
And with a $200 billion trade deficit to nurse, Europe doesn’t get as much out of Chinese trade as China gets out of dealing with Europe. Foreign Direct Investment is also paltry: with China accounting for only 1.4 per cent of FDI in Europe last year.
Solar panels and wine may have grabbed the headlines this week but these are just the latest battlegrounds upon which the EU and China’s subtle trade war is being fought.
In fact, the EU has more than 52 anti-dumping measures open against China already. But covering just 1 per cent of Chinese imports into Europe, such measures hardly seem worth the aggravation.
None of us is naive enough as to believe the recent action has anything to do with solar wafers or Bordeaux wine. The reality is China is by now the world’s second-largest economy.
Given its size and scale it should start playing by the rules but if it won’t Europe has no choice but to become more flexible.
— The writer hosts World Business Today on CNN International.