New Analysis: European trade policy and China

For the European Union, China is both an important trading partner and, with its different political system and industrial policy, a new competitor. From a European perspective, the main cause for concern is how China’s state capitalism has created distortions in economic competition which are increasingly affecting world markets.

Unfortunately, the world’s current multilateral trade regime has inadequate mechanisms for dealing with industrial subsidies and state-owned enterprises. Various constructive attempts by the EU and the USA to reform the rules of the World Trade Organization (WTO) have continued to meet with Chinese resistance. Nor, despite massive pressure, especially from the USA, has China so far made any substantial concessions on industrial subsidies in bilateral negotiations. The EU should therefore act unilaterally, making greater use of existing trade defence instruments within the WTO framework, as the USA has long been doing, and expanding its own toolbox. These measures will serve the dual purpose of preparing for a further increase in Chinese competitive distortions on the world market and of exerting more pressure on China to agree to new trade rules on industrial subsidies. After all, if the Chinese government continues to reject reform of the respective WTO rules, the multilateral trading system risks permanent damage.

Source: German Economic Institute                      Photo: Getty Images