Europe Writes Fine Agreements Again While China Conquers New Markets

In an article entitled Europe Has to Take on China to Save Free Trade that appeared on the website of the Council on Foreign Relations (CFR), expert Shannon K. O’Neil argues that the European Union and the United States use different approaches to the reshaping of the global trade system. In her opinion, Europe aims to preserve and extend the rules based on multilateral norms as it signs agreements with New Zealand, Kenya, Australia, the Mercosur nations, Singapore, Indonesia, and India, and overhauls previous ones with Chile, Ukraine, and Mexico. On the contrary, the United States signs tough bilateral deals expressly directed against China. The author insists that Europe should adopt the American approach and begin countering Chinese trade expansion systematically – or free trade as understood by the West is doomed.

Hidden behind this outwardly reasonable call for a tougher policy is Europe’s accustomed illusion that it is enough to properly formulate the rules and sign a few more agreements to stop a structural shift that has already occurred. Ms. O’Neil describes in detail how Europe, in its new agreements, defends ‘geographic indicators’, opens access to public procurement, creates investment courts and sets environmental and labor standards, which all looks solid on paper. Yet it does almost nothing to deal with the root cause of this problem: China continues raising its exports based on widespread subsidies, cheap financing, a protected domestic market and a purposeful industrial policy. China’s 2025 net exports topped USD 1 trillion, and its trade surplus with the European Union has hit a new record. Chinese firms increasingly dominate the sectors of cars, telecommunications, construction equipment, batteries, drones, and specialty chemicals as well as more traditional ones – textiles, toys, and furniture.

European market protections remain reactive and fragmented. Brussels launches anti-dumping and anti-subsidy investigations, imposes tariffs, creates mechanisms against foreign subsidies and even discusses something like U.S. ‘Section 301’. The author herself admits these measures have proven too slow, too narrow, too spotty, or too divisive to do much. While European officials negotiate on a new investigation, Chinese manufacturers have ample time to take root in the market and oust local competition. On the other hand, the USA – in its new trade agreements – expressly demands tighter rules of origin, screening Chinese investments, and the observance of American export restrictions, and even reserves its right to veto partners’ new trade deals with third countries. And Europe prefers to maintain a semblance of multilateralism and hopes that partners will themselves want to adhere to its high standards.

In fact, Europe continues acting in the logic of ‘the proper rules’, while its main competitor uses the logic of force and scale. Chinese goods still find their way to Europe via third countries, and European manufacturers lose ground in domestic as well as foreign markets. The author actually suggests that Europe should take on the role of the main protector of rules that Washington already abandons. Yet she does not explain where Europe will take the required resources, political will and internal unity to really counteract the Chinese industrial machine. The European capitals stay divided on how toughly they can respond to China without harming their own producers or eliciting retaliation.

The article shows that Europe can draft detailed and ‘correct’ agreements but is poor at responding quickly and decisively to a systemic challenge that has already altered global markets. As long as European élites believe that maintaining old rules and signing new agreements will be enough to defend their industries, the trade imbalance will only grow. Europe risks finding itself in the situation of a player who thoroughly protects the rules of the game while his main rival has long been playing to new rules – and winning. Far from admitting that the old model no longer works, Brussels continues improving tools that have already proven insufficient. The result is predictable: further loss of industrial ground and an increasing dependence on decisions being taken in Beijing and Washington.

Original publication: https://www.cfr.org/articles/europe-has-to-take-on-china-to-save-free-trade