EU opens door to more China trade

A new bilateral deal signed this week will mostly benefit the bloc’s western members

After ten years of negotiation, the European Council earlier this week authorised the EU to sign a trade agreement with China. The deal will protect geographical indications, a type of intellectual property for products like Camembert cheese from Lower Normandy and Prosecco from Veneto that possess certain qualities unique to their place of origin. The agreement will prevent these kinds of products from being produced elsewhere and sold using expressions such as “kind,” “type,” “style” and “imitation.”

The deal may not sound like much; it covers just 100 products from each side, and some EU members are more represented than others on the list of products. (French goods, for example, represent a quarter of the protected products.) But it is notable that the EU, at this critical time, is laying the groundwork for a broader trade agreement with China.

Indeed, the timing of the deal is interesting. It had been under negotiation for a decade, a long time even by EU standards, and it still needs approval from the European Parliament (which is mostly a formality at this point) before it can take effect.

Moreover, the European Commission called China a “strategic competitor” as recently as 2019, and opinion polls indicate an increase in unfavourable views of the country among the European public.

The COVID-19 pandemic only added to these negative perceptions. Beijing made several efforts to control the narrative about the pandemic in the early days of the European outbreak, including by offering medical assistance to Italy, one of the countries most affected. But it seems these efforts didn’t help.

According to the European Council on Foreign Relations, perceptions of China have worsened since the beginning of the outbreak. So, why did EU member states decide that now – during a European Council meeting in which the longawaited coronavirus recovery plan was also being negotiated – was the right time to reach consensus on an agreement with China considering the economic challenges ahead?

The answer lies in what China has to offer the EU, economically but also strategically, during a critical moment for the bloc.

In 2019, China was among the EU’s largest export destinations, second only to the U.S., and top source of imports. In the past decade, European exports to China have more than doubled – from 77 bln euros ($88 bln) in 2009 to 198 bln euros in 2019 – and imports from China have also increased. China’s top trade partner in the EU is Germany, followed by the Netherlands and France. These three countries’ trade with China accounted for more than half (58%) of the EU’s total.

Germany alone accounts for a third of EU-China trade and is the only country out of the top three that has a positive trade balance in goods with China. This is not by chance; it’s part of Germany’s long-standing strategy toward China.

After the Cold War ended, and especially after the 1997 Asian crisis, Germany realised the value not just of the Chinese market but also of low-cost Chinese manufacturing products that would make the German supply chain more efficient.

Although France too saw Beijing as a potential strategic partner at the time, it was Germany that managed to establish itself as China’s top European ally, holding the spot as its largest trade partner since 1998. The two countries also shared common views on certain global affairs, notably both opposing the U.S. invasion of Iraq in 2003 and NATO’s military intervention in the Libyan civil war.

As Germany grew into an export powerhouse, finding and growing new markets for trade was key. Between 1998 and 2005, the volume of trade between Germany and China tripled, and since 2005, German exports to China have increased fivefold to just under 100 bln euros last year. The benefits of this relationship were most apparent following the 2008 financial crisis, when U.S. demand for German goods collapsed.

To offset the losses, Germany relied on China, which was largely unharmed by the economic turmoil at the time. While most of its exports still went to the rest of the EU, Germany increased its trade share with China, while also continuing to export to the United States. In 2019, exports to the U.S. accounted for 18.9% of total German exports, while exports to China accounted for 15.3%.

Over time, there has also been increasing convergence between the two countries’ economies. In the early 2000s, most of the manufactured goods that China exported to Europe were information and communication technology products, which include anything from personal computers to audio-video equipment, and industrial components.

As China grew, it needed expertise in producing industrial technology, and Germany seemed to fit the bill. Now, China also exports machinery, in addition to ICT products, to the