MNI: France An EU Outlier In Hawkish China Stance - Officials

French President Emmanuel Macron will brief European Union leaders on his recent visit to Beijing at their summit on Thursday, but his calls for tariffs on China and for demanding increased Chinese investment in the EU are unlikely to sway either major partner Germany or the European Commission for now, EU officials told MNI.

The summit will mainly be focussed on the Ukraine conflict, though the EU’s large and growing trade deficit with China will be discussed in a session on geoeconomy and competitiveness. The EU’s trade deficit with China rose to EUR305.8 billion in 2024, but while the European Commission is looking into possible violations of trade rules, officials said tools aimed at tackling unfair subsidies and dumping are of limited use when the main problem is China’s own weak domestic demand and overcapacity.

A recent report from European Central Bank staff economists warned that the pool of goods in China that could be redirected to the EU as a result of weaker domestic demand is much larger than the impact of trade diversion from the U.S.

DERISKING

The Commission is closely monitoring trade diversion data, but its strategy remains one of "derisking" its economic relationship with China, stressing the mutual benefits of partnership. Germany is also keen to reduce tensions with Beijing following the recent dispute over chip manufacturer Nexperia and the EU’s failure so far to negotiate significantly greater access to Chinese rare earths. (See MNI: Rare Earths Deadlock As EU Elevates China Economic Risk)

The EU could come closer to a joint China strategy at an informal summit in February, one official said. 

Commission adviser Alicia Garcia-Herrero, the China expert at leading thinktank Bruegel said the trade deficit with China is likely to rise above EUR400 billion.

"It is unsustainable, and I think that Europe will react in a very protectionist and maximalist way against all countries, or it'll do nothing. In either case, we have a big problem,” she said, adding that the euro has appreciated by 35% against the yuan since 2020 in real terms.

Targets for local content and production mooted by the Commission as part of its new economic security doctrine are the "wrong way to go," she said, when the EU's problem is specifically China and has nothing to do with "say Japan, for instance."  (See MNI INTERVIEW: Germany Needs Solid China Strategy - Wambach)