The Trade War and Europe’s Market

From US President Donald Trump’s announcement of no deadline extension or possibility of a trade agreement after the US presidential election in November 2020 to the pending ratification of the phase-one trade deal with China, whether the US has been successful in extracting concessions from China or merely buckled under the pressure of growing Chinese exports to Europe is a question worth examining.

A year ago alarm bells were ringing in China’s business community over declining exports to the US. But as the old saying goes, “necessity is the mother of invention.” The US-China trade war allowed the Chinese business community to explore new markets and cement their place at the cost of the US. Chinese exporters have expanded their reach by focusing on new markets and big customers.

China Responded To US Tariffs By Dominating New Export Markets

In the Trump tariff era, Chinese exports to the rest of the world have increased, and exports to smaller markets in Southeast Asia, such as Malaysia and Vietnam, have boomed. Above all, Chinese exports to Europe are likely to surpass exports to the USA this year. The business community is of the view that increasing Chinese exports to Europe is what caused panic in the US administration.

Why Has Trump Made A Deal?

Chinese penetration in the European markets poses a severe threat to the US, as it will reduce the US’ bargaining power and foothold among formerly sure markets. This has compelled Trump to come to the negotiation table and agree to the phase-one trade deal. Over the past several years, Chinese entrepreneurs made deep inroads in European and other markets in line with the government’s policy of promoting economic ties with Europe, Asia, and Africa under the theme of “flourishing together along One Belt, One Road.”

On reaching an agreement with China, Trump tweeted that peace is at hand in his trade war upon China. “We have agreed to a huge Phase One Deal with China. They have agreed to many structural changes and massive purchases of Agricultural Products, Manufactured Goods, Energy, and much more,” he wrote. Beijing also announced that the two sides had reached an agreement. Ostensibly Trump made more noise on signing the phase-one trade deal than China as the US had to minimize its losses due to the trade war.

Details Of The Phase-One Deal

Reportedly, under the deal, China will buy $40 billion to $50 billion of American farm products per year. China has also made promises to improve its protection of intellectual property. But data from the United States Customs and Border Protection shows that the ongoing trade war has cost $40 billion in additional taxes to American companies that import parts and finished products from China since Trump imposed his first tariffs. While Trump said that China is paying those tariffs, most economic studies have proved that the burden of the levies fell on American businesses and consumers rather than on Chinese ones. In other words, the United States gained little from the self-destructive trade war that Trump started.

Europe’s Perspective On Chinese Trade

The European nations’ refusal to heed to the United States’ demand of barring Chinese companies from doing business in Europe is a case-in-point to indicate the level of penetration China has made in various European markets. German Chancellor Angela Merkel’s reiteration that she is against singling out any individual company for exclusion from the 5G rollout also highlights the fact that China can retaliate if Huawei were excluded from Germany’s 5G rollout.

While Trump might rejoice and trumpet his success at supposedly compelling China to bend due to his tariffs, various compelling analyses indicate that with Europe’s willingness to open up more for the Chinese goods China would have outwitted the US in the long run if the trade war had continued. Erstwhile American allies teaming up with China on trade demonstrates that the US has more to lose than to gain when it comes to a trade war with China.