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Market turmoil as China warns of possible ‘trade war’ with EU amid proposed EV tariff

Market turmoil as China warns of possible 'trade war' with EU amid proposed EV tariff
Vinicius Barbosa

German Economy Minister Robert Habeck arrived in Beijing on June 21 for a three-day visit as trade frictions between the European Union and China escalated over proposed tariffs on electric vehicle (EV) imports. The visit comes at a critical juncture, with China warning of a possible “trade war” in response to the EU’s move.

Habeck aims to address the proposed tariffs and allay the risk of retaliation from China, which could harm German businesses. Germany’s voice carries significant weight, as its leading car manufacturers have vociferously opposed the EU tariffs, reported Reuters on Friday.

In an unexpected twist, Habeck criticized Germany’s 11-month-old China strategy document, calling it too “short-termist.” He expressed dissatisfaction with the current strategy, emphasizing the need for a more future-oriented approach and a unified European stance.

China’s ‘trade war’ against the European Union

China has already taken countermeasures, with Chinese automakers urging Beijing to hike tariffs on imported European gasoline-powered cars. Additionally, they urge the government to launch a dumping probe into EU pork imports.

The Chinese commerce ministry’s spokesperson attributed the escalation of trade frictions to the “European side.”

“The European side continues to escalate trade frictions and could trigger a ‘trade war’. The responsibility lies entirely with the European side.”

Trade experts say economic and political factors increasingly favor the U.S.-German relationship. In the first quarter of 2024, Germany’s trade with China was less than its trade with the United States, snapping an eight-year trend that ranked China as Germany’s top trading partner.

Germany’s ‘de-risk’ strategy

Habeck’s visit is seen as an opportunity for Germany to explain the recent tariff announcement while seeking to broaden access for its companies to the vast Chinese market. However, he tempered expectations, saying he did not expect to reach a solution on trade tensions during the visit.

As Germany seeks to “de-risk” its economy from being too reliant on any one country, official figures released on Friday underlined the shifting trade dynamics. German exports to China fell 14% in May from a year ago, while exports to the United States rose 4.1%.

The outcome of Habeck’s visit and the ongoing trade tensions between the EU and China will have significant implications for the global economy. As the world’s second-largest economy, China’s actions and responses to the proposed tariffs will be closely watched by international finance markets and policymakers alike.

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