Why the EU-U.S. trade relationship is the primary mover in the international economic order

    Why the EU-U.S. trade relationship is the primary mover in the international economic order

    Thursday, 29 August 2019
    Trump's visit to China in 2017. Credit: The White House/ Flickr.

    Although China seems to be the main target of the U.S. trade war, from the perspective of the global situation, the competition between Europe and the U.S. is the real prime mover of the world.

    The U.S. is launching assaults on China and Europe simultaneously over trade issues and the impact is global. 80% of international trade is accounted for by trade between China, the European Union (EU), and the U.S. If there is a trade war between the three, it is definitely going to be on a global scale.

    International trade is facing complicated and daunting circumstances; it is very important to understand the situation well. At the Central Foreign Affairs Working Conference, President Xi Jinping pointed out that, in order to grasp the international situation, it is necessary to establish the correct perspectives on history as well as the current situation.

    He emphasized that there is a need to grasp the historical trend as well as the essence of the whole situation. He also mentioned that China needs to understand its position and role in the changing global situation. These “three perspectives” is not only applicable to foreign affairs, but also to the analysis of the current international trade situation.

    China’s perspective 

    From China’s perspective, the mainstream view in China is that the trade war between China and the U.S. is China’s top priority. In China, the perspective is that China is the trade opponent that the U.S. is assaulting the most and it is also the main strategic opponent that the U.S. wants to beat in terms of technology and comprehensive national strength.

    Based on the “intensity” and the scale of the recent China-U.S. trade friction, this perspective makes sense. The scale of the first trade war between China and the U.S. was 2 x US$50 billion, the total amounting to US$100 billion. U.S. President Donald Trump also threatened the escalation of the trade war and imposed tariffs on US$400 billion worth of Chinese exports to the U.S.

    In contrast, the current U.S.-EU sanctions only total a few billion dollars, merely a fraction of the size of the China-U.S. trade war. In addition, the U.S. has clearly identified China as the foremost strategic competitor, while major trade entities such as Japan and the EU are strategic allies of the U.S. Therefore, for the China-U.S. trade war, many people in China are worried that Europe, Japan, and the U.S. will become one single trade bloc and take advantage of China.

    China is less of a threat

    However, if we objectively assess economic and technological competitiveness, China, Europe, and Japan present completely different competition threats to the U.S. Although the U.S. regards China as its foremost strategic opponent in national security, China is still at the learning stage in terms of technology; the region and countries that can really constitute major competitions and conflicts with the U.S. are Europe and Japan, not China.

    EU and Japan are U.S.’s greatest competitors

    From the perspective of trade, the U.S. is EU´s largest trading partner. According to Eurostat statistics, the two largest trade partners of the EU in 2017 were the U.S. and China. The trade volume between the U.S. and Europe was €631 billion, accounting for 16.9% of the EU’s total trade. Among them, in 2017, the U.S. exported €255 billion to the EU, and EU exported €376 billion to the U.S.

    EU-China trade was €573 billion, accounting for 15.3% of EU’s trade. In terms of U.S.-Japan trade, according to statistics from the Japan Customs, the U.S. and China are Japan’s top two export trading partners.

    In 2017, Japan’s exports to the U.S. and China were US$134.79 billion and US$132.86 billion respectively. China and the U.S. were also the top two importing countries of Japan, with imports of $164.42 billion and $72.03 billion respectively. Among them, the U.S. is Japan’s largest source of trade surplus, with a surplus of $62.76 billion in 2017. If we consider the technological capabilities and trade structure, EU and Japan are clearly strong competitors of the U.S.

    Economics are being politicised

    From the perspective of bilateral relations, economic issues between the U.S. and Europe have begun to be politicized. A typical example is the Nord Stream-2 project that builds two natural gas pipelines crossing the Baltic Sea from the Russian coast to Germany. The total gas transmission volume is 55 billion cubic meters per year. Currently, the project has obtained construction permits in Germany, Finland, and Sweden, while Denmark will issue licenses to relevant companies.

    However, U.S. Assistant Secretary of State Sandra Oudkirk said recently that the U.S. hopes that the E.U. will stop the construction of the Nord Stream-2 natural gas pipeline. Oudkirk said: “I think people ask for U.S. sanctions because they think Nord Stream 2 is a done deal. It’s not. There are still levers available to the EU”. The reason for the U.S.’s opposition is simple; the U.S. is ambitiously promoting its own plan to export liquified natural gas to Europe. To be sure, under the Trump administration, the U.S. will not hesitate to choose political means to solve economic problems.

    Automobile tariffs 

    From the EU-perspective, EU is ready to start a trade war with the U.S., albeit unwillingly. European countries are paying attention to a greater risk: the U.S. is investigating whether car imports also pose a threat to national security. According to the EU assessment, the investigation may make about US$58 billion of EU-made cars and auto parts the target for tariff increases.

    Trump warned on Twitter on 22 June that unless the EU lifts barriers to U.S. products, cars made in the EU will soon be hit by a 20% tariff. This will force the EU to consider more retaliatory measures. Although EU has no wish to make the trade war a reality, it also worried that it will be dragged into a “cowardly game” with the U.S. This game is increasingly contrary to EU’s wishes, but EU is unable to stop it. Once this trade war has started, EU will not be able to avoid the escalation of the trade war.

    Chen Gong