We should not be surprised if there are soon levies on Airbus planes – especially as China has now started manufacturing its own passenger jets – on pharmaceuticals and on machine tools and chemicals. The list will be a long one. It may be a while before every handbag sold by an LVMH brand has an extra 50pc added by tariffs to its price, but just about every other major European product will eventually be targeted – and British companies could well be collateral damage as things escalate.
Over the next year, we can expect to see escalating rounds of tariffs and counter-tariffs on both sides. But for all the bluster, the harsh reality is that the EU, especially under the hopeless leadership of Ursula von der Leyen, is on course to lose. It faces three big problems.
First, it is internally divided. Just take a look at the way the German finance minister Robert Habeck was on his way to Beijing this weekend to open separate trade talks with his Chinese counterparts. The German auto industry is already putting huge pressure on the EU to relax the rules on auto imports to preserve their sales in China, one of its key markets.
The Spanish government might follow on behalf of its pork farmers. And any hint of tariffs on Airbus, which is dominant in China, will have whoever emerges as prime minister of France in the next few weeks pleading for a special deal.
China will weaken Europe’s resolve
Britain, meanwhile, is unlikely to align itself with the EU if the £233m of Scotch whisky that China imports is under threat. It would be almost comically easy for China to play different European nations off against each other, create splits and weaken the Continent’s resolve.
This problem is heightened by the point that Europe has no clear strategy. The United States has been engaged in a trade war with China since 2018, but with a difference: the Americans have a clear-eyed strategy for building up their own industries and boosting manufacturing capacity, allowing for the substitution of imports with domestically produced goods. True, we have yet to see how well the strategy will work out, but at least there’s a direction of travel.
In Europe, on the other hand, we see punishment for Chinese manufacturers but no coherent sense of how to compete across key industries. Then again, even if there were a plan that seemed workable, whether the bloc would have the strength to go through with it is another question entirely.
Frankly, after decades of over-regulation and massive welfare spending, coupled with the energy shock resulting from the Ukraine war, Europe appears to be simply too weak economically to take any real pain. In a trade war, sacrifices have to be made to obtain long-term gains. But none of the major European economies appears to be in any position to sacrifice much of anything. Instead, they’re stuck in a doom loop of rising taxes, debt and stagnation.
Taking a robust stand against China’s growing economy might be the right thing to do. Its economy is taking some bumps, but still expanding at a decent clip. And with its automobile sector coming into its own, we are now seeing the start of China’s push into consumer industries that the European and American giants thought they had a lock on forever – posing a real threat to the economic dominance of the Western powers, and one to which we will have to figure out a way of responding.
Yet right now, today, it looks as if Europe has started a fight it will lose.