Last Friday’s vote by European Union member-states to confirm the imposition of higher tariffs on Chinese-made electric vehicles was a strong endorsement of the commission’s tough approach to trade negotiations with Beijing. Only five countries, including Germany and Hungary, voted against the proposal, not enough to form a blocking minority under the EU’s qualified-majority voting system.
Ireland was among 10 member states to vote in favour of the higher tariffs, alongside France and Italy, while 12 abstained. Ireland’s vote came against the background of a Chinese ministry of commerce investigation into EU subsidies for the dairy industry that has alarmed Irish farmers.
Beijing is also considering other trade protection measures against EU exports but escalation into a bigger trade war between China and the EU is not inevitable and both sides have good reasons to avoid one. China went into its week-long national day holiday last week after a spectacular stock market rally as markets responded to a fusillade of stimulus measures designed to ease lending and support the troubled housing market.
The central bank cut key interest rates, reduced the amount of cash banks need to hold in reserve and pumped billions of yuan into the stock market, amid a range of other direct supports for the housing market. The Communist Party’s politburo has signalled further action, which could include payouts to families with more than one child and help for more than 300 million workers from the countryside who work in cities. The size of the package suggests Beijing is finally getting serious about stimulus and is focused on generating economic growth.
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Sliding into a trade war with the EU, its biggest trading partner, is the last thing the Chinese economy needs when domestic demand remains weak. And European farmers, manufacturers and other exporters can ill afford a hit to their exports to China at a time when wars in Ukraine and the Middle East are already disrupting trade.
The EU tariff hikes on Chinese electric vehicles are expected to come into force at the beginning of November but a negotiated settlement remains possible. Both sides have said they are willing to consider alternative measures and Chinese and European officials are due to meet today for technical talks. The EU is imposing the tariffs to prevent Chinese manufacturers from undercutting on price to the point where the European electric vehicle industry is wiped out, as the solar panel industry has been. One option under discussion is to set a minimum price and a cap on the number of Chinese EV imports, a complicated manoeuvre in respect of WTO rules.
Beijing and Brussels should make every effort to reach a compromise that protects European industry while avoiding the downward spiral of a trade war that will hurt everyone.