Countries containing half the world’s population are holding elections this year, and over the past week we’ve had some pretty spicy results. The EU had an expected outcome — the rightwing gains in the European parliament (EP) — but an unexpected response, President Emmanuel Macron calling a new French parliamentary election. In India, the result itself was a surprise, voters doing pretty much what they did 20 years ago and showing displeasure with a BJP government that seemed keener on creating millionaires than addressing poverty. Today I have a look at what these elections mean for trade policy. Charted waters is on EU imports of Chinese electric vehicles.
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Yeah, Right
Macron’s gamble shows EU elections are still heavily intertwined with national-level politics: it’s designed to stop Marine Le Pen’s far-right Rassemblement National’s momentum in France rather than being directly concerned with its power in the EP itself.
Still, the EP is very far from just a cipher for domestic politics in the member states, especially given its influence over preferential trade agreements (PTAs). Does this mean the swing to hard-right and far-right nationalism will weaken the EU’s attachment to open trade? As it happens, despite the highly worrying threat to democracy and liberalism, the answer is probably no. For one, European rightwing populism tends not to be particularly protectionist. (The same can be true even in the US: Donald Trump is one thing, but the Tea party wave of conservative congressmen and senators elected in 2010 turned out to be pretty keen on trade deals.) For another, the tools that matter are now largely out of the EP’s hands.
Here are some things to keep in mind.
1. Trade policy will continue mainly to be decided in capitals, and MEPs’ attitudes are often national as much as ideological. David Kleimann of the Overseas Development Institute says: “Where domestic economic interests are concerned, national attitudes remain primary in determining MEPs’ attitudes to trade, with political ideology and groupings a distant second.” A French liberal is much more like a French conservative than a liberal from Sweden. An updating of an existing EU-Chile trade agreement was passed in February in the EP by 376 votes to 114 with 56 abstentions, but the French MEPs as a whole voted strongly against. The main EU leader of opposition to ratifying the EU-Mercosur deal, which has stalled on environmental grounds, is alleged modernising centrist Macron. Although the MEPs from his movement sit in the centrist Renew grouping, whether they vote for Mercosur will depend on France’s position, not fealty to a supposedly liberal bloc.
2. In the European parliament it’s the Green and Left groupings who have reliably been against PTAs, and the Greens lost heavily in these elections. Some of the biggest obstacles faced by trade deals these days, Mercosur being a prime example, aren’t protectionism of domestic industries but an insistence that trading partners meet standards on the environment and human rights. The far and hard right, who are also keen on relaxing green standards for EU agriculture, are likely to be much less concerned with enforcing those.
3. You have to go quite a long way to the right before economic protectionists outnumber free-traders, at least as far as PTAs are concerned. In recent years, fears of a shift to populist protectionism inside the EU have largely been unfounded. Governments dominated by populist parties in Italy (the Five Star Movement, the League, now Giorgia Meloni’s Brothers of Italy) haven’t blocked trade agreements. Hungary’s Viktor Orbán may rail against immigration, but his economy depends on the supply chains of a globalised car industry. The hard-right European Conservatives and Reformists (ECR) grouping, to which Meloni’s MEPs belong, voted for the EU-Chile deal by a comfortable majority. Even the far-right Identity and Democracy (ID) bloc, which includes Marine Le Pen’s RN, split about 50-50 among those who voted.
4. The trade tools the EU has recently designed for itself — the foreign subsidies regulation, the anti-coercion instrument, the carbon border adjustment mechanism — are already in place, or at least in train, and the EP doesn’t have much say over their use.
One final point on the EU. Of all the MEPs who are now leaving the parliament, it would be remiss not to tip my hat to long-standing Trade Secrets favourite Reinhard Bütikofer, the German Green. Bütikofer is not only tremendous box office for journalists but also staked out a role as the parliament’s tireless chief hawk on China. A successful one, too: mainstream opinion has swung considerably towards his longtime views. Witness the EP blocking the Comprehensive Agreement on Investment deal with China in 2021. Around the same time Beijing put a ban on Bütikofer travelling to or doing business with Chinese companies, and I’ve never seen anyone regard being sanctioned by a hostile foreign power as such a badge of personal pride.
A blow for Modi
And so to the Indian election, where populist nationalists did badly. What does this mean for India’s trade policy? At the margin, probably a bit negative rather than a bit positive, but as before it’s probably not a dramatic change.
Prime Minister Narendra Modi has followed the standard BJP business-friendly shtick, keen to shake off India’s traditional stultification and turn it into a manufacturing superpower, in which area he aims to take advantage of geopolitical tensions and multinationals’ urge to diversify by snaffling some market share from China. The problem is that even with an overall majority, there’s still a lot of antitrade or at least anti-PTA sentiment in India to address. Hence, Modi considered but drew back from joining the Regional Comprehensive Economic Partnership (RCEP), which might have exposed India to too much Chinese competition.
To square the circle, Modi has offered round a pretty thin preferential deal to trading partners. The only ones of any size to take it (United Arab Emirates, Australia) did so to send a political signal of a diversified trading and security relationship that wasn’t just dependent on China. Partners that wanted more substantive deals (the EU, to a lesser extent the UK) have seen talks progress much more slowly and in the EU’s case probably slow to an indefinite crawl.
As it happens Modi’s ambition to attract parts of the electronics supply chain (specifically iPhones) has had more success than you’d expect, but that has a lot more to do with a more business-friendly environment at home than it does with trade policy.
Charted waters
Imports of Chinese-made electric vehicles have shot higher in Europe so far this year, underlining the pressure on the EU’s subsidy investigation that is likely to result in corrective tariffs.
Trade links
Written before the election, this European Council on Foreign Relations (ECFR) paper looks at green and trade policy, and the turn to the right.
The FT examines the US-China battle over access to graphite, a key ingredient for car batteries.
In one of his regular takes on globalisation, academic Richard Baldwin looks at whether it’s still possible for low-income countries to develop through export-led growth.
The FT reports on European companies trying to reduce their dependence on China by sourcing from elsewhere.
The FT’s Energy Source newsletter reports on the US increasing its manufacture of solar panels amid a trade conflict with (guess who?) China.
Trade Secrets is edited by Jonathan Moules