Over the last two decades, the EU became dependent on Russia for energy and on China for trade. Of the two, the dependency on China is of an order of magnitude greater. This dependency is going to become a big geopolitical problem going forward.

You cannot see this from the trade data alone. It is about how the European and Chinese economies are inter-connected. European companies source inputs from China, produce intermediate components in third countries, assemble the final product, both at home and in China, and from their export back to the European market. In other words, it’s complicated.

Josep Borrell, the EU outgoing High Representative for Foreign and Security Policy, said last week that a trade war between Europe and China was “in the logic of things”. 

I agree with on his prognosis. But his shoulder-shrug response is also telling me that he has not thought this through. A trade war with China would be an absolutely disaster with the EU. 

Germany sits at the epicentre of the China crisis. The economies of central and eastern Europe are largely dependent on Germany, as are the Benelux countries. An EU-China trade war could do to manufacturing what Lehman Brothers did to finance in 2008. The world of finance was more interconnected than we knew back then. The same is true for manufacturing today.

In the previous twenty years, Germany in particular helped China build its manufacturing base, not realising that one day China would start to compete. China is no longer in the copy-cat business. It is ahead of Europe in most areas of high tech, except defence. With German help, China also managed to leap ahead of Europeans in many classic industrial segments like solar panels. It is not just electric cars. 

The US identified China as a strategic adversary under the Trump presidency. The Biden administration extended that policy, and restricted exports of high-performance semiconductors to China. In May it imposed a 100 percent tariff on Chinese cars. The EU announced its tariffs on Chinese cars in July, albeit at lower rates of between 17.4 percent and 38.1 percent. The Chinese Chamber of Commerce to the EU said last week that it had been informed that China would impose tariffs on cars with “large displacement engines”. This is another way of saying: German cars. 

“politicians who indulge in loose talk about decoupling from China need a clear-eyed look at the facts.”

A trade war with China would have a lot of unintended consequences. When the EU announced the car tariffs, it became clear that non-Chinese companies would be targeted as well. The EU tariffs also apply to carps produced by VW and Tesla in China and re-imported to the European market from there. In both cases, the EU ended up reducing the tariffs after howls of protests. 

There is a parallel between the counter-productive nature of tariffs with the economic sanctions the West imposed on Russia. They are also not working, because the west misjudged the complexity of trades routes on the Eurasian continent. I see that politicians tend to rely too much on global trade statistics. The net balance in the trade between two countries does not tell you what you need to know. Russia gets its iPhones from Kazakhstan. And China has many ways to respond to our tariffs.

Geopolitics and economic geography impose conflict constrain on the EU right now. It takes an instant to declare China to be your strategic adversary. But it decades to build supply chains, and decades to untangle them. If the US and China go into war over Taiwan, prepare for the EU to be conflicted over whom to support.