China’s carrot and stick with EU trading partners is starting to bear fruit

By Mei Mei Chu, Joe Cash and Ellen Zhang

BEIJING (Reuters) – Beijing, as it votes on EU tariffs on Chinese-made electric vehicles, has used a carrot-and-stick approach to deal with the 27-nation bloc, threatening trade retaliation while persuading states EU keys in one place. – it talks about transactions and investments.

The potential hit from counter-tariffs on EU goods will fall largely on states such as Spain, France and Italy, which have expressed support for electric vehicle taxes, with exports of pork, dairy and brandy to the second largest. great world economy at stake.

European Union members such as Germany, Finland and Sweden, which have not pushed for tariffs, would have less of an impact, with reduced exposure to exports highlighted by China.

China’s tactics seem to be working.

Spanish Prime Minister Pedro Sanchez ended a visit to China this week by sitting in a Chinese electric vehicle and saying it was an “honour”. He then unexpectedly asked the EU to reconsider its position.

According to a Spanish government source, Sanchez’s delegation left feeling that “Spain is more important now” and that an agreement on tariffs on its pork products was close.

As a sweetener, a Chinese company has agreed to build a $1 billion factory in Spain to make machines used to produce hydrogen, in apparent support of Spain’s green ambitions.

With pork and dairy, China is maximizing the “domestic political cost” for countries voting to impose tariffs on electric vehicles, said Beijing-based economist Mei Xinyu, with the agricultural sector often playing a role in EU politics.

“These products rely on China as one of their top export markets,” he said.

EU exports of pork, dairy and cognac to China totaled around $10 billion in 2023, although not all products in those categories would be subject to tariffs. The bloc’s exports to China totaled more than $280 billion last year.

CRUNCH TIME

Still feeling the sting of US tariffs imposed during the Trump era, China does not want a trade war with the EU. But Beijing has made clear it will fight back if Brussels imposes additional tariffs on electric vehicles of up to 35.3%.

Chinese-made electric cars exported to Europe increased by 38% in 2023 to 656,000 units, including deliveries from non-EU countries. Europe accounted for more than 40 percent of electric vehicles shipped from China last year, according to Reuters calculations based on data from the China Automobile Association.

Chinese Commerce Minister Wang Wentao will visit Europe next week and hold talks with EU trade chief Valdis Dombrovskis.

Wang will also visit Italy, which supports electric vehicle tariffs while seeking Chinese investment to build electric vehicle production capacity.

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China needs at least 15 EU members, representing 65% of the EU’s population, to oppose the tariffs in a vote in October.

But positions within the EU remain diverse. Some smaller states are keeping their heads down. Others prioritize ties closer to home.

“Ireland’s exports to China are only a small part (of its exports), so Ireland will prioritize the EU market and relationship over China,” said an Irish trade representative in China, speaking on condition of anonymity.

“China is still important, but business with China is tough and not growing as expected.”

Ireland is the fifth most exposed EU producer in China’s dairy survey and the sixth worst in the pork survey.

“SHOCK AND PUSH”

Instead, China appears to leave no room for negotiation or concessions with Canada, hitting it on Monday with an investigation into its canola exports after Ottawa imposed a 100% tariff on Chinese electric vehicles in August, accusing Beijing of competition disloyal.

Unlike Brussels, Beijing has not given Ottawa any public advance warning about how it might respond, signals often carried in Chinese state media such as the Global Times.

He Yongqian, a spokesman for China’s commerce ministry, said “evidence” showed Canada’s canola exports to China were being dumped and damaged the domestic industry when asked to explain the difference in approach.

Canadian canola producers are playing by a rules-based global trade order, a Global Affairs Canada spokesman told Reuters.

“We are following this closely,” the spokesman said.

On the contrary, Beijing was clearly open to negotiations with the EU, said Even Pay, a Beijing-based agriculture analyst at Trivium China.

“With Canada, they went straight for shock and awe,” Pay said.

(Reporting by Mei Mei Chu, Joe Cash and Ellen Zhang; Additional reporting by Belen Carreno in Madrid and Beijing Newsroom; Editing by Ryan Woo and Tom Hogue)