China’s pledge to boost imports from the US under a recently signed trade deal could end up costing the European Union about $11 billion next year.
“If trade costs and hence relative prices do not change, Chinese imports from the US must come at the expense of third countries,” according to Germany’s Kiel Institute for the World Economy, contradicting recent remarks by China’s government.
In a study published this week, the think tank calculated how much spending will likely be allocated to individual trading partners once the agreement kicks in, concluding it’s “very likely” the EU will have to cede some market share.
Germany and France will be particularly hard hit by trade diversions, the study’s authors, Sonali Chowdhry and Gabriel Felbermayr, said. The largest negative effects for the EU are expected in aircrafts, vehicles, industrial and medical machinery, pharmaceuticals, and other agricultural goods.
The estimates come after China and the US signed a trade deal on January 15 which foresees an increase in imports of American goods and services by $200 billion over the next two years. Concerns that China would buy more from the US and less from other nations have not only been on the rise in the EU. Exports from Argentina, Brazil, or Australia could suffer, too.
Under the current deal, they see the US share in Chinese imports rising from 10% in 2017 to 15% in 2021, while the EU’s will shrink from 16% to 15%. The portion of imports from the rest of the world would collapse from 74% to 70%.
Optimists have argued that an overall improvement in the global trade environment may also benefit third countries, but the Kiel Institute researchers say that without a reduction in existing tariffs by China, the country’s propensity to buy more is limited.
“The US has pressured China into accepting a very one‐sided agreement that is likely to be inconsistent with the fundamental values of non‐discrimination that underpin the multilateral trading system,” according to the report. “By stipulating large and swift increases in purchases from the US, the agreement almost certainly discriminates against other trade partners.”
The EU is currently looking into whether the deal violates World Trade Organisation rules and held out the prospect of a legal challenge.
Trump sees ‘big trade deal’ with EU
US President Donald Trump is gearing up for trade talks with the European Union and is hopeful the two can reach a “big trade deal,” with the head of the European Commission calling on the sides to draw on their similarities as the process unfolds.
“A deal between ourselves and essentially Europe is something we all want to be able to make,” Trump told reporters in Davos, Switzerland on Tuesday. Speaking during a meeting with European Commission President Ursula von der Leyen, he said she is known as a “very tough negotiator, which is bad news for us, because we’re going to talk about a big trade deal.”
The meeting comes as President Emmanuel Macron and Trump agreed on Monday to a truce in their dispute over digital taxes that will mean neither France nor the US will impose punitive tariffs this year.
Von der Leyen said the US and EU “never should forget” their “long history of common foundation.”
The nations share “a lot of business contacts, friendship, youth exchange, science, culture since way more than 70 years so the American people and the European people are good friends,” she said. “We have issues to discuss and we will negotiate.””
China pledge to boost imports from the US could end up costing the EU about $11 billion next year, according to a study by the Kiel Institute for the World Economy, a German think tank.
Germany and France will be particularly hard hit by trade diversions, according to the study’s authors, Sonali Chowdhry and Gabriel Felbermayr. The largest negative effects for the EU are expected in aircrafts, vehicles, industrial and medical machinery, pharmaceuticals, and other agricultural goods.