The booth of Xpeng, a leading Chinese electric vehicle manufacturer, seen on September 5 at the 2023 International Motor Show in Munich, Germany (XINHUA)
As trade relations between China and the West continue to deteriorate, concerns are growing both domestically and internationally.
In October 2023, the European Commission (EC) formally launched an anti-subsidy investigation into the imports of electric vehicles (EVs) from China. On July 5, the EC began imposing provisional countervailing duties on imports of battery EVs from China, ranging from 17.4 percent to 37.6 percent. On October 4, the EC announced that it had passed a vote to impose punitive tariffs of up to 45 percent on Chinese battery EVs.
In response, China launched anti-dumping investigations into brandy as well as pork and pig byproducts imported from the European Union (EU) in January and June, respectively. On August 21, China started an anti-subsidy investigation into certain dairy products imported from the EU. On October 8, the Ministry of Commerce announced that it will impose temporary anti-dumping measures on brandy originating in the EU by requiring importers to pay a cash deposit on purchase.
Earlier, on September 9, China also launched an anti-dumping probe into Canadian canola exports, following the Canadian Government's announcement of a 100-percent tariff on Chinese EVs and a 25-percent tariff on China's steel and aluminum exports.
In both cases, the baseless allegations made by the EU and Canada not only violate established international trade principles and norms but also, from a broader historical perspective, betray their earlier commitments to promoting free trade and enhancing trade regulations.
Gamekeeper-turned-poacher
From the outset, the EU's probe was inconsistent with international trade standards. Article 11.1 of the World Trade Organization (WTO)'s Agreement on Subsidies and Countervailing Measures specifies that "an investigation to determine the existence, degree and effect of any alleged subsidy shall be initiated upon a written application by or on behalf of the domestic industry." However, no major automaker or government from leading auto-manufacturing countries within the EU applied for such an investigation.
Therefore, what the EU's unjust probe has transgressed is not just the rules of one country, but a set of universally accepted codes that have governed the world's multilateral trading system for the past 70 years.
In recent years, high-level European and American figures have talked about a "rules-based international order." But why then is the West so willing to break the very rules it helped to establish when it comes to trading with China?
The EU has long been known as "Fortress Europe" wherein trade would be liberalized internally but protected externally. The global impact of its economic agenda is not known for boosting innovation, but for tightening regulations, a feat often referred to as the "Brussels effect" (a term that describes the EU's unilateral power to regulate global markets—Ed.) As a result, the European economy has become ever less dynamic, with its share steadily decreasing in both the Western sphere and the global economy at large.
However, protectionism and trade restrictions weren't always the focus of the EU, which used to be a great promoter of free markets in Europe and beyond. It is important to recognize that the EU has played a major, even central, role in setting up a system of rules and agreements—the General Agreement on Tariffs and Trade (GATT)—that preside over today's multilateral trade framework. Its legacies are most evident in the fact that all four directors general in the history of the GATT are Europeans.
What's more, the EU and its predecessor, the European Community, were established to promote regional economic growth through the elimination of trade barriers among its members, not to strengthen protectionism and trade restrictions. The establishment of the European Economic Community (later renamed the European Community) in 1957 directly prompted the fifth round of GATT negotiations from May 1959 to July 1962, which resulted in tariff concessions on some 4,400 commodities and an average 6.5-percent cut in the bloc's Common External Tariff.
Compare the protectionist measures the EU has taken in a push to "de-risk" or "de-couple" from China with its earlier dedication to the idea of free trade. And consider the bloc's sluggish economic growth nowadays—perhaps now is the time for Europeans to do some serious self-reflection.
Countermeasures and reciprocity
In theory, free trade is the most effective way to maximize global economic welfare. As the world's largest exporter, one of its top importers, and the greatest success story of globalization since 1990, China has a strong interest in maintaining the current multilateral trading system. The country has no desire to initiate trade wars. When it does take
countermeasures, it is only in response to the protectionist and hegemonic actions of others, fully aware that such moves may disrupt trade and ultimately backfire.
A closer examination of China's countermeasures, particularly those targeting the EU and Canada, as well as some of its broader diplomatic actions, reflects the country's strong sense of responsibility as a major global power. China's decision to target Canadian canola exports and European pork, dairy and brandy exports was made after careful consideration of several key factors:
First, these products are some of Canada and the EU's top agricultural exports. While the West has relatively low employment in agriculture, the sector plays a key role in shaping domestic politics. By targeting the earlier-mentioned products, China can bring about the greatest political cost upon the governments who issued these sanctions, without causing too much direct harm to the people of those countries.
Second, the EU and Canada are among the world's top net exporters of agricultural products and food, while China is the largest net importer within these categories. According to the WTO's World Trade Statistical Review 2023, the EU was the world's number one agricultural product and food exporter in 2022, and Canada ranked fifth. China, on the other hand, held the top spot for imports of such goods. The country is such a powerhouse in global agricultural trade that neither the EU nor Canada can afford to lose.
Third, China is one of the largest importers of Canadian canola and European pork, brandy and dairy products—items whose prices are already hitting the lows of their respective cycles. This makes China's countermoves all the more powerful.
Fourth, there are many readily available suppliers within the global market for these products, including China itself.
Fifth, rising homegrown yields in these sectors, coupled with easy access to other alternatives, mean there would be no severe shortages of supplies or considerable price increases even if sanctions do backfire.
With a clear understanding of China's fundamental interests and its role as a major country, the countermeasures that China has announced showcase the country's strong determination to protect its own legitimate rights.
Several European countries have manifested a much friendlier attitude toward trading with China. Notably, Spain used to be one of the firmest advocates within the EU for imposing additional tariffs on Chinese EVs. However, its position on China changed after its Prime Minister Pedro Sanchez visited China in September. During several public events, Sanchez acknowledged that much of the tension between China and the EU stems from the latter's decision to impose tariffs on Chinese products. "We do not want a trade war, as it would benefit no one," he said, adding that Spain supports conversations within the WTO framework, champions the principles of free trade and open markets, opposes trade wars, and is committed to promoting the healthy development of China-EU relations. The leaders of Italy and Norway also visited China in late July and early September, respectively.
These positive changes show that China's goodwill and hard work are beginning to pay off. But the question remains: Can decision-makers in the EU, Canada and the U.S., among others, showcase the same level of wisdom and responsibility?
