Europe, Unlike U.S., Fosters Links to China

 

"The first China shock that devastated manufacturing in the U.S. in the early 2000s bypassed large parts of Europe. A second shock now under way looks much more threatening.

But rather than simply erect ever higher barriers to the flood of Chinese imports, as the U.S. has done, European leaders are seeking an alternative: rolling out a welcome mat.

European officials have largely been in favor of investments from Chinese battery makers such as CATL and from Chinese electric-vehicle manufacturers such as BYD in Hungary and Chery Automobile in Spain.

In the 1980s, faced with a wave of low-cost Japanese auto imports, the Reagan administration negotiated export quotas that encouraged Japanese manufacturers to build factories in the U.S.

U.S. officials have been less willing to repeat that formula with China, which they consider a national-security threat. The White House, for example, is weighing curbs on Chinese "connected cars" that could transmit customer data back to China. Europeans worry less about such risks, though they could change their minds -- as they did on telecom infrastructure supplied by Huawei Technologies.

While China's purchases of existing European businesses have collapsed, greenfield investment -- i.e. newly created companies or plants -- has risen, reaching 78% of all Chinese foreign direct investment in Europe last year, according to data compiled by the Mercator Institute for China Studies and Rhodium Group.

At the core of this strategy is a fear that Europe, especially Germany, which relies much more on manufacturing than the U.S., could be hit by one of two nightmare scenarios: a global trade war, or a new flood of cheap Chinese imports.

European Union regulators this month signaled plans to impose relatively modest tariffs -- the highest will be half the 100% announced by President Biden -- on Chinese auto imports. Some analysts saw this as an implicit encouragement to Chinese producers to shift auto factories to Europe instead, which some have started doing.

China's commerce minister, Wang Wentao, and his EU counterpart, trade commissioner Valdis Dombrovskis, agreed via videoconference Saturday to start consultations on the EU's anti-subsidy investigation into Chinese electric vehicles, China's ministry said. EU spokesman Olof Gill said the two sides had a candid and constructive call and would continue to engage. "The EU side emphasized that any negotiated outcome to its investigation must be effective in addressing the injurious" subsidies, he said.

For both Europe and China, closer cooperation would hedge against a return to the White House by Donald Trump, who is pledging 10% across-the-board tariffs on imports. That threat argues against Europe fully throwing in its lot with the U.S., while encouraging China to smooth over tensions with Europe and maintain access to its lucrative market.

If so, Europe's industrial and technological ties to China could strengthen as the U.S.'s weaken. And Chinese car brands will play an increasingly important role in Europe, but no role in the U.S.

The EU's approach "accepts that the China-EU industrial complex exists and is explicitly trying to encourage more of it," said Jacob Kirkegaard, senior fellow with the Peterson Institute for International Economics.

This poses risks for Europe, said Noah Barkin, Europe-China expert at Rhodium: "If the European car industry remains deeply integrated with China and the U.S. industry is completely decoupled from China, that is likely to lead to bilateral tensions between the EU and U.S." Indeed, Europe exports twice as much to the U.S. as it does to China.

Why risk that? Europe's car industry is deeply intertwined with China's through joint ventures that have a large share of China's market. Moreover, Europe has more to lose than the U.S. from a breakdown in global trade. It has 2 1/2 times as many manufacturing jobs, and more than a third of its manufactured goods are exported, versus one-fifth for the U.S., former Italian Prime Minister Mario Draghi said this month.

Manufacturing comprises 15% of Europe's overall output, and 18% of Germany's, versus 11% of the U.S.'s. 

But China increasingly competes in products it used to buy from Europe. Its companies produce more industrial machines and equipment than their rivals in the U.S., Germany and Japan combined.

"The first China shock was a net positive for Germany," said Moritz Schularick, president of the Kiel Institute for the World Economy. "The second shock is a real wake-up call."

China once welcomed foreign investment as a way to import new technology. Now, said Barkin, "We are in a position where Europe is keen for transfers of technology to flow in the other direction."

China is likely to produce seven million battery-powered EVs this year, up from five million last year, said Ferdinand Dudenhoeffer, a German auto industry expert. Europe is likely to produce 1.2 million this year, down from 1.5 million last year, he said. 

This advantage of scale enabled Chinese manufacturers to move ahead of international competitors in technology for electric vehicles, including batteries.

Allowing Chinese manufacturers to grow in Europe could help European manufacturers by encouraging more people to switch to EVs, and governments to build charging infrastructure, some analysts say. 

Another advantage: The U.S. EV market could lag behind Europe and China's, with inferior technology and higher prices." [1]

Oh, and America, refusing to electrify its cars, makes global warming much worse for everybody. To get votes from labor unions, Biden sacrifices the future of all Earth. Isn't that crazy?

 

American concern about the security of connected Chinese cars is misguided. Connected cars of American company Tesla are used in China. This shows the possibility to work in this area, since Chinese are concerned about their security as much as Americans are.

German producers with their high quality work will find their niche in the competition with China. 

1. U.S. News --- THE OUTLOOK: Europe, Unlike U.S., Fosters Links to China. Fairless, Tom; Bertrand, Benoit.  Wall Street Journal, Eastern edition; New York, N.Y.. 24 June 2024: A.2.