The EU vs China: it’s complicated. With Bernd Lange

Soumaya Keynes (0:01)

How do you win a trade war with a country you depend on? The EU is trying to work it out, as it plans to get tougher with China.

Ursula von der Leyen (0:10)

Our trade deficit with China is now 1 billion euros a day. It has reached a tipping point.

Soumaya Keynes (0:20)

That's Ursula von der Leyen, the president of the European Commission, speaking in September. Cheap Chinese imports are piling into Europe in sectors from cars to chemicals. And unlike in the past, the Chinese are not buying much back. European leaders are treating it like an emergency, though it's still Europe. So quite a slow-burning emergency.

But is this a trade fight the EU can win? And if so, how?

This is The Economics Show with Soumaya Keynes. I'm joined today by Bernd Lange, Chair of the European Parliament's Committee on International Trade and a loud and important voice in the EU's trade debates. Bernd, hello.

Bernd Lange (1:08)

Hello.

Soumaya Keynes (1:09)

On this show, we always start with a silly question, where the answer is on a scale of 1 to 10

So on that scale of 1 to 10, a very scientific scale, how much trouble is the EU in when it comes to navigating trade wars? So is no trouble at all, everything is great, 10 is disaster zone and crisis is inevitable.

Bernd Lange (1:32)

I would say 6

Soumaya Keynes (1:34)

Okay. Near the middle, edging a bit.

Bernd Lange (1:37)

Exactly. We have some problems with some big trading partners, but we have also some chances to stabilize the global order.

Soumaya Keynes (1:46)

Okay. 6, though, isn't great.

You have been involved in the trade debate for a long time, and correct me, but it feels to me like the rhetoric towards China right now is particularly hawkish. What is your assessment of how the reality matches up to that rhetoric? On the one hand, it could just be that you've got protectionist interests gone mad. On the other, actually, no, this is a real challenge that's having effects on the ground challenging the European industrial base.

Bernd Lange (2:21)

I guess we should really look to the facts. You're quite right, here in the Parliament, but also in the European Union. As such, we have forces which really have China phobia. On the other side, we have forces saying we are so close in our trade relations with China, don't provocate China.

Both is not the reality. On the one hand, the export from China is quite aggressive. We have a lot of subsidies, more than 4% of the GDP is going in subsidies of industrial sectors, and we have to react to that. And at the moment in China, we have also a situation that the domestic demand is going down, car sales more than 20% down. So therefore, the export is so important for the economy in China that we, I guess, have a leverage, and the US market is more or less closed. So the key market is Europe.

Soumaya Keynes (3:23)

So as we are recording this, the EU Trade Commissioner is, I think, on his way or in China to talk to his Chinese counterparts, to try and get some sort of agreement rebalancing from the Chinese to address this huge export surge that we've seen. What do you think is reasonable to ask of the Chinese?

Bernd Lange (3:45)

To make clear to the Chinese side that this dramatic increase in specific products could be limited, I guess, should be reasonable for the Chinese side. But I guess the important issue is that we are not arguing with specific pressure.

That's my experience with the negotiations with the Chinese side as well, so that this change in the behavior has to be built on their mind and their activities. So yes, there could be some export restrictions in China. There could be some limitations for specific cars. But it has to be clear that China should start some measures which will limit the profit for Chinese companies to sell specific cars inside the European Union. And so that's for two or three years, not interesting for them to do it.

Soumaya Keynes (4:48)

It's interesting that you are talking about temporary measures, because there is a school of thought, which I suppose I do subscribe to, which is that this is a structural issue. It is a structural mismatch between the way that the Chinese economy operates. It does support companies to just export their excess, rather than responding to price signals to adjust. And so, if you believe that, then it's kind of hard to see what that kind of agreement would achieve, other than just a very temporary sticking plaster, for what is a sort of semi-permanent structural challenge.