EU gambles on diplomatic approach with Chinese electric vehicles

Welcome to Trade Secrets. Today’s main pieces are on the EU’s measured action against Chinese electric vehicle (EV) imports and the absence of serious trade debate in the UK general election. Last week I wrote about immigration and the rise of the far right in the EU, which is also the subject of this week’s Charted Waters. The first round in the snap French national assembly elections, called by Emmanuel Macron to head off Marine Le Pen’s Rassemblement National, is at the end of this month. The question everyone wants answered: if the far right wins big, what will it do to immigration and trade policy in France and the EU? What do you think? Email me on alan.beattie@ft.com.

Don’t call it a war

There’s not a huge amount I can add to the vast screeds of learned news and analysis already published on the EU’s EV tariffs — Europe’s trade media-think tank complex is really quite impressive when it gets going — except to make a meta-point about the way the EU is conducting itself, perhaps especially salient for US readers. 

Main point: let’s not call this a trade war, and let’s not bracket it with Joe Biden’s 100 per cent tariffs on EVs. Biden used the Section 301 provisions of US law, which one acerbic commentator (me) recently described as a “make-it-up-as-you-go-along” system, and his aim was clearly to exclude Chinese cars from the US market pretty much altogether.

The Brussels anti-subsidy investigation has been going since September last year (so no, it isn’t following/copying/co-ordinating with the Biden tariffs) and the announcement of the probe wasn’t a massive shock. As it happens I was talking with some Chinese officials literally as news of the investigation broke, and they didn’t have the air of people hit with a bolt from the blue. And today, China quickly made the stakes of diplomatic failure clear by announcing its own anti-dumping investigation on EU pork products.

As Flint Global’s Sam Lowe pointed out in a post for the FT’s Alphaville, the tariffs have been calibrated to slow rather than stop Chinese sales into the EU. They might also incentivise Chinese companies to invest or form joint ventures with European companies rather than declaring the EU market off limits, depending on whether Chinese companies feel threatened by the foreign subsidies regulation, and for European companies to move production from China to the EU.

Tariffs won’t be imposed until July 4, so there’s time for negotiations to see how the Chinese government or its companies might react. (Indeed, this being the EU, there’s time for Germany to lobby internally to weaken the action to help its car companies.) Essentially the EU is using legal tools to structure a negotiation, somewhat similar to the EU-US Airbus-Boeing dispute. As with Airbus-Boeing, a WTO case remains a possibility — China almost certainly has one ready to go if it needs to — but that too will inform rather than replace diplomatic engagement. It’s better to meet law to law than to war, to adapt Winston Churchill. 

Now, the Americans may be completely right that the Europeans have brought pen-and-paper to a knife fight, and there’s no way to slow the surge of Chinese EVs short of pulling up the drawbridge and committing to a Fortress Europe. Let’s see. Managing the integration of two of the world’s biggest markets for one of the world’s most important products is a massive test for the rules-based approach to trade. More Churchill: this is not the beginning of the end of this issue but the end of the beginning.

Don’t mention the single market

I said two weeks ago that it was better for the UK not to do anything at all on non-EU trade policy and concentrate on improving post-Brexit relations with Brussels, including realigning with the single market as much as public opinion allows. If you believe the Labour party’s stances during the current election campaign, which is likely to return it a massive majority, that means barely realigning at all.

This isn’t exactly an original observation, but the lack of serious debate over relations with the EU is depressing. Until yesterday, the most in-depth discussion of the UK’s relations with the EU by any leader of the major parties was 20 seconds of a two-minute interview conducted by Ed Davey, leader of the Liberal Democrats, while on a teacup-themed fairground ride at a theme park. (Davey has spent the campaign doing stunts reminiscent of someone’s dad trying to get their money’s worth at a CenterParcs.) Britain used to be a serious country, you know.

In the FT yesterday, shadow chancellor Rachel Reeves said she would “look to improve [the UK’s] trading relationship with Europe”. But despite Labour’s manifesto going out of its way to say it will make Brexit work, it mainly drags a couple of the old unicorns out of the stable for another weary trot round the paddock. One is a plan for an agreement with the EU on the mutual recognition of professional qualifications, which already exists in a very limited way in the post-Brexit Trade and Cooperation Agreement with the EU but which Brussels doesn’t do in any substantial way outside the single market. It’s more than seven years since the EU signed the Ceta deal with Canada and it’s taken until now to finalise a mutual recognition agreement for architects. Labour might get the odd deal on it here or there, but it won’t be transformative.

More generally, see here for a take by David Henig of the ECIPE think-tank (who will definitely be worth reading on UK trade policy under a Labour government) on the process of London and Brussels agreeing such mini-deals.

Labour’s plan for non-EU countries, apart from pursuing the India bilateral — good luck making that substantive — is standalone digital deals (there’s already one with Singapore), which are fine as far as they go, which isn’t very far. Any deal focusing on services exports is unlikely to deliver much because it would mean a trading partner signing a one-sided deal benefiting the UK’s area of comparative advantage.

The best-case scenario is that Labour is planning to renege on its promises in spirit if not in letter and move closer to the EU. But that’s just another form of the double-dealing that I wrote about last week on immigration. It might help in the short term but it corrodes trust, and a loss of confidence in the democratic process rarely ends up benefiting liberal and progressive causes.

Charted waters

Given its disregard for unfortunate economic realities, the rise of the far right clearly threatens economic stability in Europe. The RN’s lavish plans for fiscal expansion and earlier retirement have pushed French bond yields sharply higher.

Trade links

Donald Trump’s latest far-out idea, to replace all federal income taxes with tariffs, is just as bad a plan as it sounds.

Mario Draghi, former European Central Bank president and Italian prime minister, has called for a judicious use of tariffs and other interventions ahead of his report due next month on boosting European competitiveness.

Writing in Foreign Affairs, Dev Patel, Justin Sandefur and Arvind Subramanian offer a requiem for the era of hyperglobalisation.

Javier Milei is making slow headway with his programme of economic reforms in Argentina, winning a narrow victory in the Senate for his package of privatisation, investment incentives and greater presidential powers.

The academic JW Mason at the City College of New York and the liberal Roosevelt Institute argues against the US trying to win a green trade war with China.

Shamaila Khan, head of emerging markets fixed income at UBS Asset Management, writes in the FT about the increasing number of bright spots in the emerging market world.

The FT’s Katie Martin continues the endlessly necessary intellectual clean-up work of correctly pointing out that no, the dollar is not about to lose its place as the dominant important international currency.

Trade Secrets is edited by Harvey Nriapia and Jonathan Moules