The Shifting Dynamics of EU Trade with China and the USA
Issue 161, Monday 2nd September 2024
In 2013, when Xi Jinping first took office, EU trade with the United States exceeded trade with China by €37 billion. Many anticipated that EU trade with China would soon surpass trade with the U.S. However, this expectation never materialized. By 2024, we estimate that the gap will exceed €200 billion. Despite Xi Jinping's initial statements about prioritizing the market, which generated optimism about trade flows with China, the anticipated shift has not occurred.
Since 2013, EU exports to the United States have grown at an average annual rate of 7.3%, compared to a 4.4% growth rate for exports to China.
During Xi Jinping's twelve years in office, EU imports from China grew at an average annual rate of 6.3%, while imports from the U.S. increased at a faster pace of 7.6%.
Notably, trade with the U.S. appears balanced and healthy, with both imports and exports growing at a vigorous annual rate of around 7% over more than a decade. In contrast, trade with China did not develop as anticipated, with import growth exceeding the average annual growth of EU exports to China by 2 percentage points.
As a result, the European Union recorded an average annual surplus of €133 billion over the terms of three different U.S. presidents—Obama, Trump, and Biden—despite varying circumstances.
In contrast, Xi Jinping’s twelve years in office resulted in a starkly negative trade balance for the EU. From 2013 to 2024, the EU faced a deficit exceeding €2 trillion, equivalent to over half a billion euros per day. Just imagine.
While the U.S. will elect a new president in about nine weeks and the EU has a new government, China's leadership will remain unchanged. EU-China relations are currently at their lowest point, with no signs of improvement on the horizon. Trade-wise, more pains are surely to come, and, in our humble opinion, many of them will have been self-inflicted by China.
The essence of Xi Jinping's economic strategy likely lies elsewhere, in the holistic view he holds on China’s security. Therefore, despite repeated promises of further opening up, significant changes should not be expected.
EU's 2023 Base Metal Imports: Heavy Dependence on China
Base metals are crucial for advanced technologies. They include metals such as germanium, indium or gallium. These metals are categorized as base metals, in contrast to precious metals, but in terms of technology, they can be just as essential as gold or platinum.
Here are the base metals for which more than 20% of the EU's total imports come from China. In 2023, the share of imports from China exceeded 50% for germanium, gallium, indium, and chromium.
China's Probe into EU Brandy: Barking, but Not Biting Yet
China's Ministry of Commerce (MOFCOM) determined on August 29 that there was dumping and decided on provisional anti-dumping measures. However, such measures will not be applied for the time being.
MOFCOM has determined dumping margins of 30.6% for Martell, 39% for Hennessy, and 38.1% for Rémy Martin, among other brands
China's Thirst for Semiconductor Machinery: Austria Set to More Than Double Exports to Meet Demand
New Restrictions May Limit ASML Chipmaking Tool Exports to China
ASML’s trade licenses for exporting certain chipmaking tools to China, including DUV lithography machines, are set to expire in late 2024. These licenses grant official approval for these exports, but their renewal is uncertain, as the Dutch government may choose to deny them. ASML’s equipment is shipped to China with maintenance agreements, and without the ability to provide these services, the machines could potentially become inoperable
China's Employment Subindex Stagnates Post-COVID
Examining the subindex trends, it’s evident that economic strains, alongside protests, drove the Chinese government to abruptly lift COVID restrictions in December 2022.
In 2024, China Will Have a Trade Deficit With Only Four EU Member States — Germany Not Among Them
Out of the 27 EU Member States, China will face a trade deficit with only four in 2024: Ireland, Finland, Slovakia, and Austria.
The situation with Ireland is somewhat misleading; only 20% of China’s imports from Ireland fall under general trade, while the rest involve processing or entrepot trade.
Austria's Luxury 4WD Car Exports to China Face Uncertain Future
China is considering raising import tariffs on fuel-powered cars with large displacement engines. This measure could significantly impact Austria, which specializes in manufacturing powerful luxury off-road vehicles from a famous German brand with engines over 3,000 cc. This is the only niche where the EU has seen growth in its car exports to China.
In the first seven months of 2024, China’s imports from Austria of these top-of-the-line 4WD vehicles increased to 3,680 units, up from 2,662 units during the same period the previous year. Each of these vehicles has an average CIF price at China Customs exceeding $140k. This category, along with machinery for manufacturing semiconductors, is behind the more than 11% growth in China’s total imports from Austria in 2024.
Xmas Sales for Chinese Exporters: Up in the Air
It's still unclear whether we're seeing a genuine drop in demand or just a shift back to the traditional August/September export schedule that was common before 2022. Freight indexes and shipping fees have been decreasing since early August.
If there is a decline, it could be misleading, as Chinese online platforms like TEMU now have extensive inventories of Christmas decorations (or Halloween) and other festive items for sale abroad
Did they Listen?
The latest newsletter from WSJ’s Lingling Wei offers a series of insightful nuggets from Joerg Wuttke, former chairman of the EU Chamber of Commerce in China. We’ve ultra-summarized it here to avoid spoiling Wei’s engaging piece, which we highly recommend reading.
Wei: Did you bring up the issue of overcapacity with China’s officials?
Wuttke: Very often
Wei: Did they listen?
Wuttke: Nope
Canada to impose 100% tariffs on China-made Electric Cars
It’s worth noting that over 90% of China’s electric car exports to Canada fall under the entrepot trade regime.
China’s Whisky Imports Plummet: One-Fourth Drop in Value, One-Fifth in Volume
Whisky imports into China are dominated by four countries, with the UK leading by a wide margin at 87%, followed by Japan at 6%, the USA at 3%, and Ireland at 1%. Taiwan's superb Kavalan whisky brand, aged in sherry barrels, accounts for 0.9% of imports.
More Chinese and Russian Companies and Agencies Added to U.S. Entity List
The U.S. Bureau of Industry and Security has expanded its national security concern list, adding over 100 new entries, including 42 from China. The list now spans 100 pages, with a noticeable increase in the use of aliases by companies and institutions.
Chinese Outbound Tourism Returns to Pre-Pandemic Levels
China and India: Impact on iPhone Export Trends
New iPhone launches typically occur in September, leading to a peak in Foxconn's fourth-quarter exports from the Henan factory. With a new iPhone set to be released in a week, these exports will reveal whether the recent decline is due to economic factors or the increasing shift of assembly operations to India.
China's Teapots Increase Crude Oil Imports from Angola by 54%, and from Iran Funnelled as Malaysian Crude
China's independent refineries, commonly nicknamed 'teapots,' increased imports of Angolan crude oil by 54% in the first seven months of 2024. Additionally, Iranian sources claim that
In July, Malaysia exported 1.53 million barrels of oil per day (mb/d) to China. To bypass sanctions, Iran funnels much of its oil exports to China via Malaysia, delivering to China's independent refineries, or 'teapots.' This record-breaking export of 1.53 mb/d of Malaysian oil to China is particularly noteworthy, as it represents three times Malaysia's total oil production.
EU-Africa Trade Truth: More Voices Needed to Counter China's Misrepresentation of Its Role
EU trade with Africa surpasses that of the next three largest partners combined, including China in second place.
Furthermore, Africa enjoys a trade surplus with the EU while facing a $45 billion deficit with China.
China's narrative about its role in Africa misrepresents the actual dynamics of EU-Africa trade relations. To address this misrepresentation, more voices are needed.
You've reached the end of the newsletter, congratulations!
We are committed to sharing with you the best trade analysis we have to offer.
If you would like to share something with us, feel free to comment in the section below or drop us a line at soapbox.trade@gmail.com