Watching China in Europe—October 2024
Reporting for Duty
On October 4, if all goes according to plan, EU member states will vote to impose additional duties of up to 35% on imports of electric vehicles (EVs) from China. To those who have not been paying close attention, the move may look anything but groundbreaking. After all, the United States announced back in May that it was introducing tariffs of 100% on Chinese EVs, a move that was matched by Canada three months later. But make no mistake, the vote on Friday is significant. If it does result in the introduction of duties, it will be a major inflection point in European policy toward China—the meat on the bones, if you will, of the EU’s strategic outlook document of 2019 that labeled China a competitor and systemic rival.
The vote is the culmination of a one-year battle that started with European Commission President Ursula von der Leyen’s state of the union speech of September 2023, in which she surprised European capitals and many of her own staff by announcing an anti-subsidy probe into EV imports from China, proclaiming that “Europe is open for competition. Not for a race to the bottom.” This battle has had an internal and an external dimension. Within the EU, the Commission and other European capitals have faced intense pressure from German Chancellor Olaf Scholz and the CEOs of the leading German carmakers to cut a deal with Beijing. From outside the EU, the Commission has had to contend with an aggressive campaign by China to undermine the EV case. Beijing has resorted to threats of retaliatory trade measures and promises of Chinese investment.
That Brussels appears on the verge of winning this two-front battle tells us a thing or two about the EU’s readiness to wield its economic leverage with China, about the shifting balance of power within Europe on China policy, and about the role of the German auto industry in shaping policy in Berlin. It throws up important questions about how China will respond to an EU that is not as susceptible to raw pressure as it once was. And it sends a signal about the future of transatlantic cooperation on China, on the eve of a new European Commission and a pivotal election in the United States. The duties debate in Europe has been revealing on multiple fronts.
Turning the Tables
For years, when push came to shove, Europe would invariably blink in the face of Chinese pressure. Threats of economic retaliation from Beijing, in response to trade cases related to solar energy equipment or infrastructure decisions on issues such as 5G, were enough to send European member states into a tizzy and force EU institutions to backtrack. The bloc hailed as victories small concessions by China on process. And market opening crumbs, such as the short-lived Comprehensive Agreement on Investment (CAI), were gobbled up and washed down with champagne, with little regard for geopolitical dynamics or consideration of Europe’s true leverage.
The biggest takeaway from the EV duties case so far is that Europe has resisted, in the face of enormous pressure, falling back into these old self-harming habits. Quietly, the Commission has learned, in the words of High Representative Josep Borrell, to speak the language of power with China. “The Chinese complain these days that we’ve become more difficult to read,” a European diplomat told me. In other words, China can no longer count on Europe to cave in. There were signs of this last December when the EU and China held a summit in Beijing and the Commission spoke out forcefully on China’s support of Russia. And there were more signs in May when Chinese President Xi Jinping visited Paris and was unable to wring trade concessions from his French counterpart, Emmanuel Macron, and von der Leyen.
A Brick Wall
But the true test came last month when Commerce Minister Wang Wentao passed through Rome and Berlin on his way to Brussels for a meeting with EU Trade Commissioner Valdis Dombrovskis. A week before, Spanish Prime Minister Pedro Sanchez had gotten weak in the knees during a visit to China, after learning upon landing that Chinese officials were backtracking on a series of investments in his country that the two sides had agreed to announce during the trip. The blackmail worked. After an hours-long meeting with Xi in Beijing, Sanchez caved, calling on the Commission to reconsider its case against EVs from China. Wang traveled to Europe days later with momentum on his side. If he could get the government of Italian Prime Minister Giorgia Meloni to flip like Sanchez had, and then fly into Brussels with the Germans, Italians, and Spanish in his pocket, the Commission would have little choice but to back down and swallow a subpar deal from Beijing.
Instead, Italy held firm, and Wang ran up against a brick wall in the form of the stone-faced Latvian Dombrovskis. In a meeting that dragged on for most of the day, Dombrovskis signaled a readiness to compromise, extending the deadline by which the Commission would consider Chinese offers. But he refused to budge on what counted most: the EU’s high-bar criteria for a deal (effective, enforceable, monitorable, and WTO-compatible) and the early-October deadline for calling a member state vote on the duties. Last week, Chinese trade negotiators were still wandering in and out of the Charlemagne building in Brussels, hoping to deliver a last-minute deal for Wang. But by opening the door to continued negotiation after the duties were in place, Dombrovskis appears to have turned the tables on Beijing. Wavering member states can now back the duties, or abstain from the vote, in the knowledge that the door to a deal has not been completely shut. If the duties are approved, Europe’s leverage in negotiations with Beijing will only rise.
Echoes of Nord Stream
The last time a German chancellor ignored the concerns of the country’s closest European allies, the European Commission, and the United States out of blind fealty to German industry, it ended with a strategic catastrophe: the Nord Stream pipelines. That has not stopped Scholz from repeating the mistakes of his predecessors Angela Merkel and Gerhard Schröder with a campaign to convince other European capitals to break with the Commission and vote against the duties. He has done this in three stages, according to people privy to the lobbying from his team in the chancellery.
In a first stage in June, he leaned heavily on von der Leyen to try to prevent the imposition of provisional duties on Chinese EVs. This included threats, which ultimately proved empty, to withdraw his support for her second term as Commission president, according to several people with whom I spoke. When this did not work, Scholz turned his focus to other member states, trying to convince them to turn on the Commission. This was complemented by calls from the CEOs of German carmakers to senior European government officials, including at least one conversation with a prime minister, to warn that a vote for the duties would put plants in their countries at risk. The government of Czechia, home to Volkswagen’s Skoda, came under acute pressure from German carmakers, I was told. In a third and final stage over the past weeks, Scholz has reverted to pressuring von der Leyen herself. One EU official described the chancellor as going “ballistic” in his attempt to kill the case.
Doomed to Fail
During a trip I took to several European capitals last week, officials with whom I spoke used the words “incomprehensible”, “depressing”, and “pathetic” when talking about the Scholz pressure campaign. In some of the largest member states, he is seen to be sacrificing Europe’s leverage with China, Germany’s relationship with France, and Berlin’s standing within the G7 to win German carmakers a short-lived reprieve in China, a market that no longer seems to need or want them. What may be most remarkable about Scholz’s campaign against the Commission, however, is that it appears doomed to fail. If member states vote to approve the duties on Friday, then one of the most important messages will be that Germany’s sway over China policy has been greatly diminished.
In the Merkel years, European policy toward China was made in Berlin. Under Scholz, Germany is being forced to swallow a European China policy that is made in Brussels (and supported by other big member states, from France and Poland to the Netherlands). With a government in turmoil, a stagnating economy, and a foreign policy record stained by strategic myopia, Germany is unable to convince European capitals to yield like they once did. The good news? Many officials within the German government share the reservations about Scholz’s approach.
Berlin’s decision to send two navy ships through the Taiwan Strait last month for the first time in 22 years was due to the growing sway of Defense Minister Boris Pistorius, the German government’s most popular politician and a threat to replace Scholz as the Social Democrat’s chancellor candidate in the country’s general election one year from now. As the German foreign and economy ministries work to upgrade relations with India, explore closer EU cooperation on export controls, and assess the risks tied to connected vehicles, some officials are questioning whether biannual government consultations with China, due to take place in Beijing in 2025, will happen.
China’s Response
The big question that officials in Brussels, Berlin, Paris, and elsewhere are wrestling with these days is how China will respond if and when the EU duties are approved. In conversations with their European counterparts in recent weeks, Chinese officials have sent the message that threats to slap tariffs on European brandy, pork, and dairy products are just the beginning. In Berlin, the big concern is that Beijing will restrict the export of critical minerals needed to make EV batteries. But there are also compelling reasons to believe that China will avoid retaliating too forcefully. “It is so obvious to me that China does not want a trade war with the EU,” one official from a member state in Beijing’s sights told me.
Many Chinese carmakers can live with the targeted duties that the EU is contemplating. The last thing they want is an escalatory trade conflict with Europe that could shut a large, lucrative market to Chinese goods. The last two times that Beijing responded forcefully to Europe it backfired badly. Its sanctioning of EU lawmakers and think tanks in March 2021 in response to Brussels’ very limited punitive action related to human rights violations in Xinjiang ended up killing the CAI. And the decision to impose a trade embargo on Lithuania in December 2021 in response to moves by Vilnius to establish closer ties with Taiwan brought European countries closer together, putting the bloc’s anti-coercion instrument on the fast track.
Transatlantic Discussion
Regardless of how the EV duties vote goes, and how China responds, the transatlantic discussion on China policy is likely to remain challenging—especially if Donald Trump returns to the White House in January. Brussels may have a new commissioner in charge of economic security, but EU capitals remain skeptical of von der Leyen’s push to establish red lines in the EU’s trade and investment relationship with China at a time when lagging European competitiveness has become a major concern.
The EU is unlikely to match the restrictive measures on connected vehicles with Chinese technology that the Biden administration unveiled last week. And some European countries remain reluctant to impose costs on China for its support of Russia. Whether Trump or Kamala Harris is the next US president, the EU will have a cooperation agenda ready to present to the White House. But the bloc will also be prepared to respond if a new administration lashes out, senior officials in Brussels say. Closer cooperation on China policy could be one of the first casualties.