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The European Union’s trade deficit with China rose 9.9 per cent to €181 billion last year. Photo: Xinhua

China is now EU’s biggest trading partner, an exchange complicated by labour rights and transatlantic tactics

  • Trade volume in goods hit US$710 billion in 2020, which coincided with Beijing and Brussels agreeing to an investment deal
  • Scepticism includes concerns about overdependence on China and fallout from Biden’s intent to counter a rising Beijing
China overtook the United States as the European Union’s biggest trading partner last year, the EU statistics agency Eurostat said.
China’s trade volume in goods with the 27-member EU, excluding Britain, reached 586 billion (US$710 billion) in 2020, according to the latest released data. Both the EU’s exports to and imports from China grew last year, with exports valued at 202.5 billion and imports worth 383.5 billion.

The trade deficit the EU has with China also rose 9.9 per cent, expanding from 164.7 billion in 2019 to 181 billion last year.

“In the year 2020, China was the main partner for the EU. This result was due to an increase of imports (5.6 per cent) and exports (2.2 per cent). At the same time, trade with the United States recorded a significant drop in both imports (-13.2 per cent) and exports (-8.2 per cent),” Eurostat said in a statement on Monday.

The US, which is now the EU’s second biggest trading partner, has a trade volume of 555 billion with the EU. This is a 10 per cent drop from the 617 billion trade volume in 2019.

China remains the EU’s biggest source of imports, second to the US which is the EU’s biggest export market.

The latest trade data comes as world trade is being upended by the coronavirus pandemic. Data shows China, where factories have begun reopening after shutdowns following the first coronavirus outbreak in December 2019, as the only major economy to grow last year.
The EU and China moved to further deepen their trade relationship on December 30 by concluding negotiations on the Comprehensive Agreement on Investment (CAI), which promises to give companies greater market access. The landmark deal still needs final approval.
Critics say the EU gave Beijing a geopolitical win by wrapping up the deal when concerns remained over alleged forced labour in Xinjiang. Beijing has denied the claims, saying it runs vocational training centres in the region to combat religious extremism and terrorism. The deal was also pushed forward despite warnings from Washington.

What is the China-EU CAI and how is it different from a trade deal?

The administration of US President Joe Biden has signalled his intent to counter a rising China and spoken of the need for stronger coalitions with the EU against Beijing on the trade front. The EU had a difficult trade relationship with the US under the former Donald Trump administration, which launched tariffs on Airbus aircraft and levies on a range of European exports, including French wine and Spanish olives.

While the latest EU data did not specify which goods were part of the increased trade with China, the EU’s main imports from the country are industrial and consumer products, machinery and equipment, and footwear and clothing, according to the European Commission’s official website. The main EU exports to China include machinery and equipment, motor vehicles, aircraft and chemicals.

Nick Marro, global trade lead at the Economist Intelligence Unit, said the fact that China was able to come back in the second quarter of last year as other markets went into lockdown has allowed exports to capitalise on surging global demand for electronics, entertainment and health care goods.

“For European manufacturers, the revival in China’s automobile market and the broader consumer shift towards online consumption – specifically for luxury goods – preserved demand for some European products when overseas markets collapsed elsewhere,” he said. “In value terms, US-EU trade flows are still well below historic levels, reflecting production and consumption disruptions in both markets.”

Marro said the overall structure of the EU’s trade relations with the US and China had not fundamentally changed.

“[The] expansion in total EU-China trade volumes more reflects strong growth in EU imports from China in 2020, rather than European exports benefiting strongly from China’s economic recovery. As a result, the overall structure of the EU’s trade relations are still more or less unchanged, and the importance of the US as a trade partner hasn’t meaningfully diminished. We’ll likely see a stronger revival in transatlantic trade flows as the pandemic comes under control in both markets, including as both sides jump-start their post-crisis recoveries,” Marro said.

“European companies are increasingly, and more convincingly, pointing to the importance of the Chinese market as an engine of European economic growth. That reflects much of the appetite in pushing through the CAI. All of these factors will complicate Joe Biden’s strategy to work with Europe in coordinating a transatlantic strategy regarding China, especially in areas including economic and trade relations,” he said.

EU foreign policy boss reminds China of the bloc’s ‘strong bond’ with US

“We’d still expect general US-EU alignment in areas like security and human rights.”

Deborah Elms, founder and executive director of the Singapore-based Asian Trade Centre, said the expanded trade ties between the EU and China showed why the EU was keen to agree the CAI.

“The volume of two-way transactions increasingly requires some sort of framework and structure to help govern the investment relationship,” Elms said.

“What will now become equally important to all [China, the EU and the US], and to everyone else, is trying to craft global trade rules that work for all three parties,” Elms said.

Christian Bluth, a senior expert in international economics at German think tank Bertelsmann Stiftung, said there were growing worries in the EU about expanded trade relations, although not out of concern for the greater trade deficit that came with China being the EU’s biggest trade partner.

“European policymakers don’t look at the bilateral trade deficit much, what matters is that the EU’s aggregate balance is sustainable – this is not a matter of concern. That does, however, not mean that there is no political risk to the deepening of EU-China trade relations. There is increased worry on the European side that the EU is becoming too dependent on China and Chinese producers,” Bluth said.

“Especially, if China uses its economic power to pursue geostrategic goals, this can cause a political backlash in the EU.”

This article appeared in the South China Morning Post print edition as: China now top E.U. trade partner