Global Roundtable Dialogue: Trade protectionism high wall cannot help European manufacturing industry
Editor's note: According to media reports, a meeting will be held within the European Union in the near future to discuss adjustments to China's economic and trade policies. At the same time, some Europeans mistakenly attribute the continuous decline in European manufacturing competitiveness to the competition brought by China. How did the manufacturing dilemma in the European Union arise? This issue of the "Global Roundtable Dialogue" invites three scholars to discuss relevant topics.
Jian Junbo: Director of the China Europe Relations Research Center at Fudan University and Deputy Secretary General of the Shanghai European Society
Yan Tianqin: Researcher at the Center for European Union Studies and the Center for European Studies at Sichuan University
Hong Yong: Associate Researcher at the Research Institute of the Ministry of Commerce
What is the true 'surplus' of China Europe trade?
Jian Junbo
In recent years, despite various disruptions, China Europe trade relations have remained strong, with bilateral trade in goods exceeding $800 billion by 2025. Due to the EU's trade deficit with China reaching over 300 billion US dollars at that time, this was seen by the EU as a serious trade "imbalance", and the reason was attributed to the so-called "overcapacity" of China. The EU is attempting to achieve a "rebalancing" of China EU trade through discriminatory and targeted rules. However, the EU's understanding of the "imbalance" in China Europe trade and the measures it has taken and attempted to take are incorrect. This not only fails to truly "balance" China Europe trade, but also exacerbates bilateral economic and trade frictions, and even worsens the overall relationship between China and Europe.
The current trade imbalance between China and Europe does not only exist in the field of goods trade. In the field of service trade, China has a significant trade deficit (48.3 billion US dollars, accounting for 41.6% of China's foreign service trade deficit). The European side only mentions the trade deficit with China in goods trade but not the trade surplus in services, which obviously has a certain degree of intention. Therefore, the issue of bilateral trade imbalance actually includes China's trade deficit with Europe in the field of service trade. In other words, if the European side wishes to work together to address the bilateral trade imbalance, it should consider the issue of trade surplus in services with China at the same time, in order to demonstrate its fairness in handling the problem.
In fact, the European side attributes the trade deficit in goods to "China's overcapacity", which lacks factual basis from a macro perspective. In the era of economic globalization, every country will produce for the global market based on its own endowments, not just for the local market. From this perspective, every country that has joined the international division of labor will face the problem of so-called "overcapacity", with the only difference being the degree of severity. Although China produces a larger quantity of goods, it does not violate economic laws or international rules. As long as there is a huge export demand for Chinese goods, it means they are not truly in surplus. Therefore, in terms of producing goods for the world, almost every country has the problem of "overproduction", but due to the huge absorption capacity of the global demand market, as long as the goods can be sold, it is not the so-called "overcapacity".
In the trade relations between China and Europe, the real surplus is European goods. In the global competition of similar products, many of its products increasingly lack the ability to compete with Chinese products, such as wind power equipment, solar panels, electric vehicles, or new energy batteries, and cannot be sold in the global consumer market, thus appearing "surplus". Therefore, it is not China's overcapacity, but the lack of competitiveness of European goods. In a market economy system, only goods lacking competitiveness exist in surplus, and competitive goods should not be considered as surplus goods.
The most fundamental way to solve the so-called bilateral trade imbalance problem, besides obtaining trade solutions through negotiations between China and Europe, is for Europe to enhance the competitiveness of its own goods. This requires Europe to show genuine courage and devote itself to technological innovation, investing more funds in innovative research and development of enterprises and talent cultivation in the education sector. At the same time, it needs to reform the huge welfare system and optimize the budget structure to achieve budget balance between different fields such as defense, healthcare, innovation, education, and welfare, in order to maximize the growth of innovation capabilities and enhance corporate competitiveness.
From a broader perspective, Europe is actively seeking a process of "reindustrialization" from the perspective of geopolitical competition. In Europe's view, only on the basis of "re industrialization" can Europe truly possess the strength to engage in geopolitical competition and solve the relatively severe employment problems and relatively unstable social order internally. However, Europe's efforts to "re industrialize" from a geopolitical perspective contain deep mercantilist ideas, and the trade imbalance with China is seen as an important factor in weakening Europe's "re industrialization". In fact, even if it uses various protectionist and "securitization" measures to prevent more Chinese goods from entering the European market, it still cannot truly solve the main challenges facing its "re industrialization" - the continuous loss of labor required for industrialization due to rapid population aging, the lack of sustainable and safe energy supply, the high cost of welfare systems squeezing innovation investment, the "medium technology trap" causing delays in the application of high technology, and increasingly stringent and complex EU regulatory rules. These are constantly weakening the attractiveness and competitiveness of the European market.
Nowadays, China has become the world's manufacturing center, and a more realistic approach for the European side is to resolve disputes and frictions through dialogue and negotiation, promote stable and healthy development of China EU economic and trade relations, help deepen the integration of industrial chains, and ultimately achieve common prosperity.
The decline in industrial competitiveness is rooted in Europe itself
Yan Tianqin
Since von der Leyen, the president of the European Commission, put forward the idea of "eliminating risks" to China in 2023, the EU has become increasingly anxious about its own economic security, technological sovereignty and industrial competitiveness. It has successively introduced a series of new regulations, such as the Net Zero Industry Act, the Key Raw Materials Act, the Foreign Subsidies Regulations, the Anti coercive Tools Regulations, and the carbon border adjustment mechanism, systematically adjusted its economic and trade policies with China, and established a development path oriented by strategic security and centered on industrial autonomy. At the same time, some EU member states and institutions frequently securitize and politicize normal economic and trade exchanges with China, promoting trade protectionism by sensationalizing China's issues. However, such measures are difficult to curb the continuous decline in European industrial competitiveness.
Firstly, the long-term emphasis on services over manufacturing in the European industrial structure has led to insufficient innovation momentum and sustained industrial decline. In the past 30 years, Europe has continued to deindustrialize, with local manufacturing shrinking and industrial chains constantly shifting outward. Especially since the end of the Cold War, Europe has long lacked a systematic industrial strategy and economic security layout, forming a triple external dependence on energy, manufacturing, and defense, and continuously weakening strategic autonomy and industrial competitiveness. In February 2024, more than 1300 European institutions covering 25 industries jointly issued the "Antwerp European Industrial Agreement Declaration", warning that European industry is facing the most serious downward pressure in a decade. If the EU does not optimize redundant regulatory systems, increase public investment, and reshape a benign industrial business environment, the decline of local industries and the trend of industry outflow will further deteriorate. On the other hand, the Russia-Ukraine conflict has significantly pushed up regional energy costs and continued to squeeze industrial profitability.
Affected by multiple factors, the growth rate of R&D investment by EU enterprises in 2024 has sharply dropped from 9.3% in 2023 to 2.9%, and financing difficulties have become the core obstacle to "re industrialization". The "Future of European Competitiveness" report released in September 2024 shows that the proportion of global venture capital fundraising in the European Union in 2023 is only 5%, far lower than the 52% in the United States and 40% in China.
Secondly, the fragmentation and insufficient implementation of EU industrial policies have become the main crux of the continuous decline in industrial competitiveness. The EU has yet to introduce a clear and comprehensive top-level industrial strategy. In response to international competition pressure, the European Union has successively introduced a series of regulations and policy measures to support local industries, but some policies focus on regulatory constraints, with scattered development goals and difficulty in ensuring funding. For example, the overall implementation progress of the European Chip Act, which was expected to revitalize the European semiconductor industry, has fallen short of expectations. Intel plans to build a wafer fab in Magdeburg, Germany, with an investment of 30 billion euros, which is a key project of the bill. However, due to differences in subsidy negotiations and the tight financial situation in Germany, it announced a delay of at least two years in September 2024. The project has been postponed, which has to some extent slowed down the pace of local layout of high-end industries in Europe.
Once again, the compliance costs of some industry regulations and policies are too high, which suppresses the innovation vitality of enterprises. For example, in order to promote the development of the artificial intelligence industry, fill the gaps in computing power, and strengthen data governance, the European Union has recently issued a series of policies and regulations such as the General Data Protection Regulation, the Artificial Intelligence Act, the Digital Europe Plan, and Horizon Europe. However, strict regulation has significantly increased compliance costs, making it difficult for small and medium-sized enterprises and startups, seriously dragging down industrial innovation, and leading to some European companies jointly protesting against the Artificial Intelligence Act, which has damaged the EU's global competitiveness. The General Data Protection Regulation not only protects citizens' privacy, but also significantly raises the threshold for research and development. The high compliance costs squeeze R&D investment, weaken the competitiveness of EU artificial intelligence, and deviate from the original intention of promoting innovation.
The EU now unilaterally attributes the trade imbalance with China to so-called "overcapacity" and policy distortions, while ignoring the global industrial division of labor pattern, iterative changes in market demand, and its own structural weaknesses. Therefore, if the EU adopts trade protectionism measures against China, it will not only fail to cure the deep-seated problem of insufficient competitiveness in European industries, but also exacerbate international trade frictions, push up local production and operation costs, drag down the process of industrial recovery, and put Europe in a deeper development predicament. In the long run, the disadvantages far outweigh the advantages.
What is the future of European manufacturing?
Hong Yong
In recent years, as some traditional manufacturing industries in Europe face slowing growth, rising costs, and intensified international competition, some European politicians and industry organizations have begun to voice the belief that the development of China's manufacturing industry is "destroying European manufacturing". This viewpoint is particularly prominent in fields such as new energy vehicles, photovoltaics, and batteries, and has gradually evolved into an important basis for some countries' industrial and trade policies.
From the objective laws of industrial development, simply attributing the challenges faced by European manufacturing to China not only fails to solve the problem, but may also conceal the deep-seated structural contradictions that European manufacturing itself needs to face. For Europe, what really needs to be considered is not how to find external responsible parties, but how to reshape the competitive advantage of the manufacturing industry through innovation.
The competition in the manufacturing industry is essentially a competition of innovation capability. Throughout the history of global industrial development, the pattern of manufacturing has never been static and unchanging. Britain once dominated the global textile industry for a long time, while the United States once held absolute advantages in fields such as automobiles and aviation. The change in industrial status is never due to one country "destroying" another, but rather the result of continuous evolution of technological innovation, industrial organization, and market efficiency.
Over the past two decades, China has continuously promoted industrial upgrading and technological innovation, gradually establishing a complete industrial system covering raw materials, components, production and manufacturing, logistics and distribution, and market applications. The competitive advantage of Chinese enterprises does not come from simple low-cost competition, but from continuous innovation and industrial synergy. Taking the new energy vehicle industry as an example, China has formed a complete industrial ecosystem including power batteries, intelligent driving, motor and electronic control, and charging and swapping infrastructure. A large number of enterprises are constantly iterating technology in the fierce market competition, promoting product performance improvement and production efficiency improvement. Consumers ultimately receive products with more reasonable prices and better performance. From this perspective, Chinese companies gain market share not because they weaken European manufacturing, but because they better meet market demand.
The current challenges facing the European manufacturing industry are mainly due to internal structural factors. On the one hand, manufacturing costs in Europe continue to rise. Factors such as fluctuations in energy prices, increased labor costs, and rising environmental compliance costs have put significant pressure on some European companies in global competition. On the other hand, the pace of innovation and transformation in some industries in Europe is slowing down. Europe still maintains a global leading position in basic scientific research, high-end equipment, industrial design, and other fields, but the efficiency of transforming scientific research achievements into industrialization is relatively insufficient. Some cutting-edge technologies have a long cycle from the laboratory to the market, and there is a certain mismatch between the speed of cultivating emerging industries and global market changes.
At the same time, the global industrial competition pattern is undergoing changes. In the past, competition in the manufacturing industry was more concentrated between individual products and enterprises, but today it is increasingly manifested as competition between industrial ecosystems. Enterprises not only need technological innovation capabilities, but also supply chain collaboration capabilities, data capabilities, scenario application capabilities, and rapid iteration capabilities. In this context, economies with complete industrial chains and super large markets are often able to promote the commercial application of new technologies faster. This is also an important reason for the current changes in the global manufacturing competition landscape.
Therefore, the future of European manufacturing lies not in limiting competition, but in enhancing innovation capabilities. Firstly, further strengthen investment in scientific and technological innovation. Europe has world leading research institutions and innovative resources, and should continue to leverage its advantages in basic research to maintain its technological leadership in cutting-edge fields such as artificial intelligence, new energy, new materials, and biomanufacturing. At the same time, accelerate the industrialization process of scientific and technological achievements, and shorten the distance between the innovation chain and the industrial chain.
Secondly, promote the digital and intelligent transformation of the manufacturing industry. New technologies such as artificial intelligence, big data and industrial Internet are reshaping the global manufacturing system. The competition in the future manufacturing industry is not only about product competition, but also about data-driven and intelligent capabilities. Europe needs to accelerate the digital upgrading of traditional industries, improve production efficiency and industrial response speed.
Thirdly, build a more open innovation ecosystem. Innovation is increasingly dependent on global resource allocation. Whether it is technological cooperation, talent mobility, or industrial synergy, openness is more conducive to innovative development than closure. By strengthening international cooperation and absorbing global innovation resources, it can help European companies achieve technological breakthroughs and industrial upgrading faster. From the perspective of global green transformation, the value created by China EU cooperation far outweighs the benefits brought by confrontation.