The European Union must avoid an economic war with China

The European Union (EU) has decided to press ahead with imposing punitive tariffs on electric vehicles (EVs) made in China, optimistically hoping that this will offer temporary protection to its struggling EV manufacturers. Ironically, this latest episode could set the stage for serious disruptions in industries around the world.

If this practice of manipulating the rest of the world continues due to what Brussels assumes is “Beijing’s unfair support” for companies, which is negatively affecting European car manufacturers, the painful consequences will not only be felt within Europe, but throughout the global economy. While protecting local actors might seem like a short-term solution, the long-term consequences could be devastating. And if that’s not the definition of an economic nightmare, we don’t know what is.

Supply chain chaos: a storm brewing

China plays a critical role in the intricate ecosystem of the global automotive supply chain. Using tariffs as a weapon could trigger a catastrophic chain reaction that would destabilize the fragile balance of this vital network.

Europe needs to import several components from China for which there are no limits or substitutes, including batteries and essential parts for electric vehicles. Moving forward with significant tariffs would erode the profitability of European companies, further aggravating an already difficult situation.

Without China, European automakers cannot organize themselves, let alone keep up with the challenges. If they try to absorb the new costs, profit margins will decrease; and if they pass them on to consumers, prices will skyrocket. As Europe is desperate to accelerate its transition to renewable energy, this protectionist strategy could backfire spectacularly, costing them a fortune.

Already overburdened suppliers of key materials such as nickel, cobalt and lithium could see demand plummet. If this downward spiral continues, Europe’s ability to incentivize domestic production would be seriously compromised. Not surprisingly, big EU players such as Germany warn that tariffs will not address China’s growing influence in hybrid vehicles and critical batteries, nor prevent trade tensions from spilling over to other fronts.

Economic diplomacy: a risk too big to ignore

China will not accept this move without reacting. The second largest economy in the world will not allow itself to be manipulated into giving in to the interests of other powers. It will protect its interests through economic diplomacy, and the EU must prepare for retaliation. Retaliatory tariffs on European exports such as chemicals, luxury goods and machinery could be next to come into play.

The EU should make full use of its political will to resolve the problem through negotiations instead of acting unilaterally without considering the consequences. The repercussions could be brutal for European companies that have made significant inroads into the lucrative Chinese market. The cost of escalation is economic chaos, diminished profits and untold damage to the 27-nation bloc’s standing in the global marketplace.

The consequences don’t stop there. With China and the European Union in conflict, the green energy sector would become collateral damage. Collaboration on electric vehicle (EV) technology, renewable energy and innovation could come to a standstill as the two economic giants turn inward. Slowing innovation and breaking vital partnerships would send the industry into reverse, halting advances in crucial areas such as next-generation batteries and autonomous driving.

Global instability: a dangerous game

The risk of global economic destabilization is all too real. A tariff war is not just a bilateral problem, it could shake the foundations of the global economy. Many countries with strong trade links with both economic blocs would be caught in the crossfire, with their growth hampered by restricted access to key markets and rising trade barriers.

No sector will be immune to the repercussions if this latent conflict is allowed to deepen. With global cooperation critical on issues like climate change, the green energy transition could lose momentum, derailing global climate goals.

The margins to avoid an all-out tariff war are narrower than ever. The European Union must reconsider its approach, as the cost of a cold economic war with China is something it cannot afford. Instead of raising barriers through blatant protectionism that lacks a factual and legal basis, the EU should build bridges to foster partnership. Until the bloc understands the need for a change of course, it risks leading the global economy into a storm from which recovery could be painfully slow, if not impossible.

Note: this is an article republished from the media “CGTN” through a cooperation agreement between both parties for the dissemination of journalistic content. original link.

Bobby Naderi is a journalist, current affairs commentator, documentary filmmaker and member of the Writers Guild of Great Britain.