Global Trade Blocks Warning and EU's Anti-subsidy Inquiry

Published on September 17, 2023

World Trade Organization officials in Geneva issued a stern warning earlier this week: dividing the global economy into competing trade blocks will cut real wages by five percent globally and also by twice as much in the poorest nations.

Nevertheless, European Union's tariffs on Chinese goods went into effect the next day. This has worried some of the block's most recognizable businesses, including Airbus, cosmetics manufacturers, and wineries. European businesses are rushing to gauge their vulnerability to a potential tariff barrage between the world's two largest economies.

The European Commission announced on Wednesday that it would launch a new anti-subsidy inquiry into Chinese electric vehicles. This decision comes as a response to the Chinese President Xi Jinping's administration, which has shown that it will retaliate against trade restrictions with limitations of its own.

Beijing's most potent weapon is the ability to limit access to its massive domestic market. While French Finance Minister gave a hint of a new era on Friday when he told Bloomberg Television that the EU starts thinking about its own interests.

In an interview with Bloomberg News, a former EU trade commissioner said that Brussels wanted to send a powerful signal with the Chinese subsidy inquiry. She claimed that there is a fear of competition. Unlike the United States, which has tariffs of 27.5 percent on imports from China, the EU's concerns may be warranted.

Nearly 14 million jobs, which is 6.1 percent of the EU workforce, are in some way connected to the automotive industry. The ramifications for exporters might be enormous as well. Data by Trade Data Monitor, a Geneva-based platform that collects official information, shows that the EU sold $240 billion worth of products to China last year, making it Europe's third-largest market overseas, after the US and the UK.

However, the EU has played down the likelihood of a civil retaliation from China to the inquiry into EV subsidies conducted by the group. China has criticized the EU, saying that this step would damage ties, and Beijing has several retaliation options at its disposal.

Now, after Europe's bilateral investment treaty with China collapsed due to EU charges of forced labor in Xinjiang, tensions between the two regions have been building up for years. It's too soon to tell whether the probe will lead to further levies or possible repercussions from Beijing. It might take a year or even more.

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