Common approach to China key to easing EU-US trade tensions

Shared concerns about China’s economic and business practices could provide a useful conduit for Washington and Brussels to reset the transatlantic relationship, explains Christopher Ball.
Joe Biden and Ursula von der Leyen | Photo credit: Alamy

By Chris Ball

Chris Ball is the head of Dods EU Political Intelligence

29 Oct 2021

The inaugural meeting of the EU-US Trade and Technology Council (TTC) in late September produced warm words about future cooperation, but it remains to be seen whether these will lead to concrete outcomes. In a joint statement, the two sides said they would coordinate approaches to key global technology, economic and trade issues, and deepen transatlantic trade and economic relations. The TTC was one of the main outcomes of an EU-US Summit in June, which was meant to reset transatlantic relations under the Biden administration.

However, in a crucial few months for global trade cooperation, with the World Trade Organization’s key Ministerial Conference at the end of November, there’s little sign of tangible progress. It remains open as to whether the two can find enough common ground on the reform of the WTO and preservation of the global rules-based trading system. 

“For much of Europe, it feels like the US is still practicing its ‘America First’ policy”

Biden’s statements on working more closely with America’s traditional allies has fuelled hopes of an improvement in EU-US relations. “Europe is our natural partner, and the reason is we’re committed to the same democratic norms and institutions,” he said in June. The resolution of the long-running Boeing-Airbus dispute has also added to hopes that Washington’s change in tone would produce real-life results. However, the lack of US coordination with allies on the withdrawal from Afghanistan and the trilateral AUKUS security pact have left many in the EU questioning whether they can rely on Washington.

Negotiations are ongoing, but the US has yet to remove the tariffs on EU steel and aluminium imports introduced during the Trump administration. For much of Europe, it feels like the US is still practicing its ‘America First’ policy. There are also concerns that Biden’s pledge to put workers at the core of his trade policy could translate into a protectionist agenda. 

Both the EU and the US have expressed their desire to reform the WTO. Neither side can force through any changes unilaterally, and so the question remains as to whether common ground can be identified. The EU published a proposal in February entitled “Reforming the WTO: towards a sustainable and effective multilateral trading system”. This included a call for the WTO to focus on future trade issues, including sustainable development, modernising its rules and allowing plurilateral agreements. The European Commission’s proposal also includes plans to reform the WTO’s dispute settlement system. 

The Biden administration has yet to clearly define its over-arching trade policy. US Trade Representative, Katherine Tai, has stressed that Washington intends to work to “reform the WTO’s rules and procedures so it can be a relevant force for good in the 21st century global economy”. However, one of the key factors in the decline of the WTO in recent years has been the US veto of new appointments to the organisation’s Appellate Board - the seven-strong body that hears appeals on disputes and is the ultimate arbiter of global trade. This American approach, which experts say has hamstrung the WTO, has yet to be reversed. 

This lack of transatlantic progress comes against a backdrop of shared concerns over an increasingly assertive China. Following a meeting with European Commission Executive Vice-President Valdis Dombrovskis on the eve of the TTC, Tai said they discussed a broad range of issues, including WTO reform and “the challenges posed by non-market countries and economies, including China, that undermine American and European workers and businesses”.

“The road to the first meeting of the TTC, which both the EU and US have said is not a fresh version of the failed Obama-era Transatlantic Trade and Investment Partnership (TTIP), was far from smooth”

The European Union has hardened its view of China’s economic and human rights practices in recent years, although many European countries remain more open to Chinese investment and influence than the US. The EU classed China as a ‘systemic rival’ in 2019, and the Commission is now more proactive in its application of trade defence policies towards Beijing This has included several new trade defence instrument proposals, designed to counter China, including the foreign subsidies proposal and the upcoming anti-coercion file. 

The question of how to deal with subsidies and non-market behaviours is a common thread on both sides of the Atlantic. Speaking to the European Parliament’s Trade Committee (INTA) recently, EU Ambassador to the US, Stavros Lambrinidis, argued that both sides should focus on common interests, including finding a response to the China question. At the same event, former WTO chief Pascal Lamy argued for a full renegotiation of WTO rules on subsidies, which could mean a redefinition of subsidies to cover Chinese state-owned companies. 

The road to the first meeting of the TTC, which both the EU and US have said is not a fresh version of the failed Obama-era Transatlantic Trade and Investment Partnership (TTIP), was far from smooth. There were suggestions the EU might postpone, or even cancel, the meeting following France’s fury over losing out on a submarine deal with Australia through the rival AUKUS agreement with the US and UK. However, the fact that the meeting went ahead illustrated the commitment of both sides to at least talk about improving their relations.

The trade issues covered by the meeting and those destined for future work are clearly focused on trade defence and the need to combat perceived unfair competition from non-market economies. This suggests that finding a common approach to addressing the threat posed by China could provide the key to unlocking a new EU and US trading relationship.

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