Europe caught in a dilemma as Donald Trump and Xi Jinping fight a tariff war – Firstpost

The European Union is trying to diversify its economic engagements and is looking at China as a strong partner to weather the Trumpian tariff threat. Will the EU-China economic partnership cement their bond and weaken the US economic primacy? Can China and the EU be partners to confront American unilateralism, especially in economic affairs?

Poland, the current President of the European Union, has a Herculean task ahead to provide leadership to Europe amidst a complex Cold War in the geo-economic landscape playing out in the world today.

Polish economy is deeply entangled with the Chinese economy. It is at the frontline of China’s Belt and Road Initiative in Europe. Warsaw-Washington strategic partnership, at the same time, is very deep and expansive. But Trump 2.0 has brought unprecedented challenges. How Poland, from its experience, will deal with China on economic issues during its EU presidency is being watched from all around.

The world is currently engulfed in a complicated economic Cold War, unleashed by US President Donald Trump. While seeking to Make America Great Again as per his campaign promises, Trump has started the economic Cold War from the very moment his inauguration as the 47th president of the United States was complete.

Ironically, the current economic Cold War is not between any two blocs of nations, as was the case during the Cold War that started soon after the end of the Second World War. It is between the United States of America and the rest of the world. By announcing his tariff policy, President Trump made it clear that all countries, including friends, foes and neutrals, will have to pay higher tariffs for exporting their goods to the US. The list of the countries mentioned by the US President included countries that were not even inhabited by the humans!

The initial targets of President Trump were surprisingly age-old strategic allies of the United States, such as Canada, Mexico and the European Union. And the economic Cold War he unleashed became complex, because some of the goods facing higher tariffs were against American interests. Trump imposed high tariffs, withdrew some, added more, suspended some and finally gave a ninety-day relief with the expectations that countries would approach him, negotiate, make compromises and he would make deals that would suit the US most.

Not surprisingly, numerous countries appear to have come forward to negotiate deals with the Trump Administration. The country that did not budge was the People’s Republic of China. President Xi Jinping of China, considered a friend by Donald Trump himself, called for negotiations to resolve the differences with mutual respect, but refused to accept the unilateral terms and conditions proposed by President Trump. The result was tit-for-tat tariffs imposed by the US and China against each other and the economic Cold War saw high drama, stubborn State behaviour and assumed added intricacy.

While various countries have attempted truce with the Trump Administration, the US-China economic Cold War threatens to impact the global political economy, particularly international trade in view of the existence of an intricate web of supply chains and value chains passing through China.

The European Union in the process is in the eye of the storm. Many Western European countries have been part of the US-led alliance system since the formation of NATO in 1949. The initial political moves that finally culminated in European economic integration were inspired by the US to counter the former Soviet Union.  And the Eastern European countries joined the NATO alliance and the European Union in a phased manner after the Soviet collapse and the end of the Cold War. Today, almost the whole of Europe is in a trans-Atlantic partnership with the US.

Currently, the EU countries are in a whopping dilemma. As the US and China fight the economic Cold War, the EU finds it hard to be with either the US or China. Interestingly, the EU cannot remain in isolation either. The EU shares with the US cultural traditions, political values, and strategic visions, but now finds itself in a deep bind due to Trump’s tariff threats, that is sure to disrupt the EU economies beyond belief. China and the EU too intensely differ in political values and cultural ethos, yet the two have been among the largest trade and investment partners in recent times and benefit enormously from their economic cooperation.

Thus, a political and strategic ally of the EU has become an economic threat and its “systemic rival” like China is an economic ally. The EU’s strategic ally and the economic ally are in a dire confrontation mode. What should it do? The Asian allies of the United States in Asia have often displayed similar concern. But the EU member countries are also part of NATO and their mutual economic interdependence with the US is enormous. The EU cannot just walk away from this reality.

On the other hand, China is seen by the EU as an “economic competitor” and a “systemic rival.” Currently, the EU faces dissimilar economic challenges from both the US and China. There have been trade disputes between the US and the EU earlier as well, but Trump’s threat of high tariffs is an arrow directly aimed at EU’s economic heart. The EU at the same time has disputes with China on issues, such as subsidies, market access, intellectual property rights, dumping and the headline-hitting cheap Chinese electrical vehicles flooding European automobile markets.

In the face of Trump’s tariff threats, the EU certainly has tried to reach out to China for deeper economic engagements. High-level interactions have taken place both in Beijing and Brussels. China appears ready to reciprocate. But the US strongly comes in-between and urges the EU to de-link from China to get tariff relief and China threatens retaliation against any country that would play the US card and distance itself from China.

The EU’s plight is exacerbated by Trump’s Russia policy, its compulsion to back Ukraine to the extent there is a fair deal to end the Ukraine War in a manner that would ensure durable European security; and the biting energy shortages to the detriment of the continent’s economy. Yet the EU would find it difficult to abandon the US and embrace China to create new rules for international trade and commerce.

The EU-China differences over human rights, political values, rule of law, and fair trade principles would obstruct them from coming together against the US, despite the latter posing a common tariff challenge to them.

Significantly, the EU cannot even adopt economic non-alignment, because both the US and China are critical for the EU’s economic stability and growth. For the EU, it is perhaps better to enhance economic engagements with several other countries and reduce the number of eggs in the Chinese basket. In other words, de-risk both the US and China!

The author is founding chairperson, Kalinga Institute of Indo-Pacific Studies, formerly Professor at JNU. The views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.