by Nicholas Wallace
European Commission President Ursula von der Leyen on Tuesday criticised Chinese trade distortions, while reminding Americans of their interdependence with Europe.
In a speech at the World Economic Forum in Davos, von der Leyen warned of a "China shock" to world trade caused by Chinese export subsidies. In a nod to the protectionist rhetoric of new US President Donald Trump, whom she did not name, von der Leyen also said millions of American jobs depend on European trade.
Trump took office the day prior, having promised to impose tariffs on several of America’s main trade partners, including Europe. In the run up to Trump’s inauguration, there was a surge in imports of European wine and cheese as Americans scrambled to stock-up before tariffs can bite.
In Davos on Tuesday morning, the contrast between von der Leyen’s handling of Chinese and Trumpian protectionism was stark.
Recalling fears of a "China shock" from rising Chinese exports when the country joined the World Trade Organization in 2001, von der Leyen said that "today, some are talking about a second China shock – because of state-sponsored over-capacity."
Last year, the Commission increased import tariffs on Chinese electric vehicles in response to Beijing’s subsidies, which artificially reduce the cost of exports, undercutting foreign competition.
"Many believe – including in China – that it would be in China’s long-term interest to manage more responsibly its economic imbalances," she said. "It is time to pursue a more balanced relationship with China, in a spirit of fairness and reciprocity."
’Ready to negotiate’ with Trump
Von der Leyen did not explicitly refer to the new US president’s plan to put up trade barriers. Instead, she made a case for what’s at stake for Americans in their country’s trading relationship with Europe.
"No other economies in the world are as integrated as we are," she said. "European companies employ in the United States 3.5 million Americans, and another million American jobs depend directly on trade with Europe."
She also underscored the interdependence of European and American supply chains for the production of aeroplanes and medicines, and highlighted the importance of Europe as an export market for American goods and capital.
"Europe imports twice as many digital services from the United States as we do from the entire Asia-Pacific. Of all American assets abroad, two thirds are in Europe. And the US provides over 50% of our LNG," meaning liquified natural gas.
"A lot is at stake for both sides. So our first priority will be to engage early, discuss common interests, and be ready to negotiate," von der Leyen said.
Supply chains ’weaponised’
In her speech, von der Leyen contrasted the new protectionist winds with the enthusiasm for globalisation that prevailed at the start of the 21st century, 25 years ago.
"This century started with great expectations. 25 years ago, the era of hyper-globalisation was nearing its peak. As supply chains went global, hundreds of millions of people were being lifted out of poverty, especially in India and China."
She also noted that "technology was seen as an unambiguous force for prosperity and peace," a veiled reference to today’s concerns about the impact of social media on demoracy.
"The world today is still nearly as connected as ever. But it has also started fracturing along new lines," she lamented. "International trade institutions have often struggled to address the challenges posed by the rise of non-market economies that compete by a different set of rules" – an apparent nod to China.
"Our supply chain dependencies are at times weaponised, as shown by Russia’s energy blackmail," she said. "And the very interconnectors that bring us together, like undersea data cables, have become targets."
’Global race to the bottom’
The Commission president also noted global competition for access to "raw materials, new technologies and global trade routes."
"We will likely continue to see frequent use of economic tools, such as sanctions, export controls, and tariffs, that are intended to safeguard economic and national security," von der Leyen said.
"But it is important that we balance the imperative to safeguard our security against our opportunity to innovate and enhance our prosperity," she added. "In this spirit, we will need to work together to avoid a global race to the bottom."
*first published in: Euractiv.com
By: N. Peter Kramer
