As a Trump victory becomes likelier, Europe re-engages with China

Chinese President Xi Jinping, gesturing, met German Chancellor Olaf Scholz in Beijing in 2022, at a time when Germany held a tougher stance on China. KAY NIETFELD/ASSOCIATED PRESS
Chinese President Xi Jinping, gesturing, met German Chancellor Olaf Scholz in Beijing in 2022, at a time when Germany held a tougher stance on China. KAY NIETFELD/ASSOCIATED PRESS


A tepid economic recovery, fear of Russian aggression, and the prospect of Trump’s return to the White House are making Europe more receptive to Beijing’s overtures.

A tepid economic recovery, fear of Russian aggression, and the prospect of a Donald Trump electoral victory in the U.S. are nudging Europe closer to China.

On Sunday, German Chancellor Olaf Scholz will land in the southwestern Chinese city of Chongqing for a three-day, three-city tour of China focused on economic re-engagement with Beijing. Leading a blue-ribbon delegation of German companies and flanked by three cabinet ministers, Scholz will meet Chinese leader Xi Jinping on Tuesday in the capital, Beijing.

Next month, Xi will travel to Paris to meet French President Emmanuel Macron, according to diplomats there, capping a series of events and festivities to mark 60 years of diplomatic relations between the two countries. The talks, following Beijing’s lavish welcome for Macron last year, are expected to focus on trade.

The diplomatic ballet follows overtures by Beijing. In November, it allowed nationals from the European Union’s five biggest economies to travel visa-free to China, a privilege it has since extended to an additional six European nations—but not the U.S. In January, China reauthorized Irish beef imports, suspended last year on health grounds, and lifted a 2018 ban on Belgian pork.

This marks an inflection point. In just a few months, the EU has launched four investigations into China’s subsidizing of its train, wind turbine, solar panel and EV manufacturers in an effort to curb a flood of cheap Chinese imports. The EU is also pushing European companies to reduce their reliance on certain raw materials from China.

European governments have also largely heeded Washington’s calls to cut China off from advanced chip-making technologies. Germany, China’s biggest European trade partner, unveiled its first China strategy paper last July, calling China a partner and competitor but also a systemic rival and pledging to reduce Germany’s exposure to the Asian giant.

German companies have complained about increasing competition from Chinese rivals in sectors—from luxury autos to advanced industrial machines—that used to be Western preserves. Having largely weathered China’s rise to dominate consumer-goods manufacturing, German high-end engineering companies are being increasingly undercut by Chinese rivals, both in and outside China.

But as Europe’s economy struggles to recover from the Covid-19 pandemic and Russia’s full-scale invasion of Ukraine, the mood is shifting in some European countries—if not in Brussels. In the U.S., Trump’s steady poll lead over President Biden is raising concerns about trans-Atlantic tensions and a new global trade war.

“Brussels is moving aggressively against China," said Noah Barkin, a Europe-China analyst at Rhodium Group, an independent research group. “But some big European countries like Germany are more preoccupied with Ukraine and Trump…This raises questions about how forcefully they are going to push back against China."

The threats have led some to question why they should be following America’s lead while China represents a more distant threat—and a bigger economic opportunity—for Europe than Russia.

“We are a manufacturing, export-oriented nation. Our wealth depends on access to international markets," said Bernd Westphal, a lawmaker for Scholz’s Social Democratic Party who sits on the parliament’s economic policy committee.

Ding Chun, director of the Centre for European Studies at Shanghai-based Fudan University, said the stakes in the event of a Trump electoral victory were high for Europe, given that the U.S. is both a trade partner and the region’s security guarantor. Likewise, Chinese analysts said there was more potential for compromise and cooperation between Europe and China, which are economic competitors, than between China and the U.S., which are increasingly geopolitical rivals.

After Scholz’s election in 2021, Germany adopted a tough-on-China approach, cutting state guarantees for German investments there, intensifying export controls and blocking several prominent Chinese acquisitions of German companies.

Among the myriad products made by Trumpf, a private German engineering company with a large presence in the U.S. and China, are lasers essential for making high-end semiconductors. Berlin doesn’t allow those to be sold to China, but last year, the company’s CEO lashed out at the German government, saying it was slow-walking export permits for a range of innocuous products.

In recent months, however, “things have really improved," said Stephan Mayer, Trumpf’s China chief. “We are almost back to the speed of two years ago."

Chinese analysts said Beijing will use Scholz’s visit to defuse growing trade tensions with Europe and ask Berlin to help dilute antisubsidy investigations launched by the EU in recent months. Germany is skeptical about EU plans to place tariffs on Chinese electric vehicles because German car manufacturers, which have a strong presence in China, fear retaliatory measures.

“We don’t want to reduce trade with China. We want to increase trade with China while at the same time derisking and diversifying," said a senior German government official.

Despite Beijing presenting itself as a champion of free trade, there is hardly a level playing field between European and Chinese exporters, according to European economists. The Kiel Institute for the World Economy, a think tank, estimates Beijing lavishes subsidies equivalent to about 2% of the country’s gross domestic product on its companies, all the while setting barriers for foreigners operating in China.

(Source: WSJ)
View Full Image
(Source: WSJ)

Moritz Schularick, president of the Kiel Institute, said China’s approach means that any economic benefit that Europe would derive from re-engagement with China would only be minimal.

“China used to be this very supportive growth driver for Europe. People still have this model in their minds," he said. “What gets lost is that China is now a fierce competitor for exactly the products Europe is good at making."

Europe is struggling to adjust to the fact that it now finds itself competing against China in fields it used to dominate, said Wang Yiwei, the director of European Union studies at Renmin University of China in Beijing. “People will feel unsettled. It’s a transition process, it’ll take time for everyone to get accustomed to it."

While Europe-China trade contracted last year, Europe’s and Germany’s trade deficits have ballooned, reflecting China’s rise up the value chain. At the same time, European companies are increasingly producing inside China. New German direct investments in China reached a record in 2022, according to data compiled by Rhodium Group.

Wang said Chinese companies were willing to mirror such a “local-for-local" strategy in Europe by building local manufacturing facilities for batteries and wind turbines to create jobs and serve the European market, which could assuage European concerns about cheap imports.

The bigger worry in Europe, however, is manufacturers’ reliance on Chinese chemicals, raw materials and parts, some of which are hard or expensive to source elsewhere.

Jürgen Matthes, head of international economic policy at the German Economic Institute, a think tank, said trade data showed that German companies had made little progress in reducing these dependencies over the past two years.

“There is more inertia in this area than the government had hoped," he said. “Whether substituting these products just takes a long time, or whether some businesses are just not interested, it’s hard to tell."

An Allianz study released this week showed Germany’s share of critical components sourced in China had risen to 22% of imports, from 6%, over the past 18 years. And a survey by the Ifo Institute found that fewer than 40% of German companies wanted to reduce their reliance on intermediate goods from China compared with half two years ago.

Europe and China remain so intertwined that a sudden decoupling between the two on par with the Russia-Europe breakup of 2022 would cause the German economy to contract by 5%, a shock comparable to that of the Covid pandemic and the global financial crisis, according to a December study by the Kiel Institute.

The dependency isn’t one-sided, said Trumpf’s Mayer, noting that China remains dependent on a number of products from Western manufacturers. This means both “should find ways to work with each other in mutual respect," he said, “without being naive, of course."

Write to Bertrand Benoit and Sha Hua at

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.