Europe to Lose Big Thanks to US-China Trade Pact - Top German Think Tank

The recently penned US-China trade deal will have major consequences for Europe, according to the Kiel-based Institute for the World Economy (IWE).

According to the influential German think tank, the European Union’s export-oriented economies, particularly Germany, will lose billions on the deal, with the bloc as a whole expected to lose some $11 billion in exports to the Asian nation.

“The reason for the shift in trade is the asymmetry of the agreement: the Chinese are committing themselves to accept significantly more goods from the US than they have done so far, which is in line with the Trump government’s desire for a smaller trade deficit,” IWE explains.

Indeed, under the terms of the US-China deal, Beijing is committed to purchasing $200 billion in US farm products, manufactured goods, energy and services over the next two years. China, meanwhile, is not expected to receive any tariff relief until a phase two deal is agreed upon. Phase two is expected to be the final phase.

According to IWE’s calculations, China’s commitments mean it will import some $95 billion more from the US than it did in 2017, before the trade spat started. This includes an increase of nearly $33 billion in imports of US manufactured goods in 2020, and close to $45 billion by 2021 compared to the 2017 baseline.

The institute stresses that “The EU, which accounts for about one fifth of Chinese manufacturing goods imports, is particularly vulnerable to trade diversions in this area,” since “of the top ten product groups that China imports from the EU, all fall in the area of manufacturing.”

This includes European-made pharmaceuticals, vehicles, industrial machinery, aircraft, and it is feared that China’s folding to Washington’s pressure will mean the European goods will be left without a market.

IWE experts estimate total EU losses of some $10.8 billion in 2021, with European industrial powerhouse Germany and France expected to be hit the hardest.

It’s still unclear whether these goods can be diverted to other markets, particularly amid Brussels’ continued strained relationship with Moscow, the low purchasing power of some developing countries, and the saturation of others by others, among them China and the US.

Overall, IFE calculates that the global ramifications of the trade deal will mean US exports to the Asian giant will increase by a whopping 48 percent over the next two years, while the EU and the rest of the world stand to lose an average of 5 percent of their overall exports.

Dr. Gabriel Felbermayr, IFE’s president and an economist specialising in international trade, says that the US-China agreement is “also a further blow to the World Trade Organisation because it undermines its basic principles of non-discriminatory trade and relies instead on bilaterally agreed trade volumes. China, which has repeatedly insisted on the values of the multilateral system, is thus making itself an accomplice in the violation of the core principles of the WTO.”

On Wednesday, President Trump accused the EU of ‘taking advantage’ of the US for many years, and renewed his threats to impose painful tariffs on EU-made cars if trade talks fail to yield any progress. Trump met with European Commission chief Ursula von der Leyen in Davos, Switzerland on Tuesday to discuss the trade issue, with both sides expressing ‘cautious optimism’. The US’s trade deficit with the EU hit $109 billion in 2018, prompting Washington to seek to renegotiate what it has dubbed the bloc’s ‘unfair’ trade practices.