The trade truce between the European Union and China

Yesterday, in a surprise move, the People’s Republic of China and the European Union announced a near-agreement – or rather, a truce – in the potential trade war between Beijing and Brussels. When Maros Sefcovic, the European Commissioner for Trade and Economic Security, arrived in Beijing two days ago, the prospect of a new clash over the trade deficit and hybrid vehicles seemed very real, but talks with the Chinese Minister of Commerce, Wang Wentao, instead resulted in a broad agreement which the parties are presenting as a step forward, although its actual content remains largely unclear.

According to Sefcovic, the agreement could halve Chinese exports of hybrid cars to the EU within four years; however, details of the implementation mechanism are lacking, and the Chinese statement specifies neither quotas nor quantitative limits. Beijing has opened up to the possibility of reducing or eliminating tariffs on certain categories of European products and has committed to continuing to facilitate, through a fast-track procedure, licences for exports of rare earths and permanent magnets to Europe – a crucial issue, particularly after China blacklisted 14 European companies in July, including two Italian firms and giants such as Rheinmetall, which are vital to Europe’s manufacturing sector and defence industry.

China’s overture comes just a few days before the European Council meeting on 15–16 October, which is expected to set out a new, perhaps more aggressive, policy towards China – at least according to the demands of France and Germany. Yet yesterday, some in the Chinese business media were already talking of a capitulation to European ‘protectionism’. Jon Sindreu wrote in Reuters that the risk is that a vague agreement will prolong uncertainty without resolving the structural problems facing European industry. Meanwhile, Beijing has managed to retain its leverage over rare earths and export licences, which allows it to influence the negotiations with Brussels, forcing European leaders to adopt a more cautious tone at the next Council meeting so as not to jeopardise the truce that has just been reached.