It’s showdown time. This week, EU leaders meet in Brussels to decide how to take on China over trade. Then again, these days it’s always showdown time. For years the EU has become increasingly alarmed at China’s dominance of green tech and its interventionist trade and industrial policy but done little to combat it. Internal divisions have restrained EU assertiveness. Germany and Spain, wanting to protect, respectively, exports to and inward electric vehicle investment from China, stand ready with buckets of cold water to cool down what they see as hot-headed trade warriors. Tools like the anti-coercion instrument (ACI), which could give legal cover for a wide range of retaliatory actions, remain unused.
But even if consensus is achieved, Europeans should learn from Donald Trump’s experience and refrain from aggressive actions likely to lead to escalation. Last October the US president impetuously threatened huge tariff increases but then rapidly backed down after China started to bring US factories to a halt by cutting off exports of rare earth elements such as dysprosium. Beijing clearly demonstrated “escalation dominance” — superior firepower in all-out trade war.
The same is likely to apply to Europe, which experienced collateral damage in last year’s conflict. I recently attended a table-top simulation of an EU-China trade war based on an assessment of Europe’s economic and political realities. Assorted think-tankers, academics and similar types variously took the parts of the Commission, the Council — which collectively represents the member states — some individual EU governments, China and side characters like the US and Japan.