There's 'No Real Winner' in the US-China Trade War: Economy

Elizabeth Economy, Hargrove senior fellow and co-director of the U.S., China and the world program at the Hoover Institution at Stanford University, joins Bloomberg Surveillance to talk about the "total reset" in the US' relationship with China, whether the US or China are winning in trade negotiations so far, and whether we'll see meaningful change in Chinese market practices.

China’s widening trade surplus with the European Union is fueling fresh concerns that the 27-nation bloc risks becoming a dumping ground for cheap goods in the volatile tariff confrontation between Washington and Beijing.

As European officials step up vigilance to ward off a flood of Chinese goods facing higher barriers to get into the US, data already indicate that China’s surplus with the EU reached a record $90 billion in the first four months of this year.

For now, most of the rerouting of Chinese goods is passing through Latin America and Southeast Asia. But the quantity of Chinese exports already flowing to Europe since the pandemic raises alarm bells that the influx may accelerate as America’s higher import taxes take root.

“European and non-US markets are going to see an increase of Chinese shipments,” said Maxime Darmet, a senior economist at Allianz Trade. “China will want to keep global market share at a high level so will try to increase share in other markets.”

Europe and China’s fragile relationship will be on display as China’s Vice Premier He Lifeng meets with French officials in Paris on Thursday after he struck a temporary deal with US counterparts in Geneva to lower tariffs. Markets cheered the 90-day truce, though economists say it still leaves high barriers between the world’s two largest economies.

Even with both China and the US reducing their tariffs this week, Washington’s levies on most Chinese goods are still 30 percentage points higher than they were in January.

“China and France oppose unilateralism and protectionism, support the multilateral trading system, and bringing more stability to the global economy,” China’s He said in Paris.

French Finance Minister Eric Lombard said after the meeting that France and China have well-known and long-established differences, notably over growing trade and investment imbalances.

“France and China, the EU and China have a responsibility to resolve their economic and trade differences in dialog and with respect,” Lombard said.

Protectionist Pivot

The shifting tides of global trade are testing Europe’s strategy of moving carefully in the fast-evolving race to design new rules that run counter to a central tenet of the EU’s existence — economic openness.

While China responded to President Donald Trump’s aggressive policies with tit-for-tat levies that initially escalated to prohibitive levels, the EU instead prepared targeted measures to deploy only if talks with Washington fail.

Currency movements are compounding the challenge for Europe. Last month, the yuan slumped to the lowest level in more than a decade against the euro, making Chinese exports cheaper and more attractive to European buyers.

More fundamentally, there are also concerns the swelling trade imbalance with China may reflect a stark loss of competitiveness in Europe as Chinese companies rapidly move up value chains and challenge market leaders both at home and abroad.

“In an era of protectionism, you cannot have open trade — it’s just impossible, because it just destroys your industry,” said Alicia Garcia Herrero, chief Asia Pacific economist at Natixis SA. “We have to have barriers for products — it doesn’t have to be necessarily electric vehicles, but anything in which the EU thinks it wants to compete and it has a nascent industry” needs protection, she said.

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