Europe Has to Take on China to Save Free Trade

This expanding manufacturing dominance comes not just from their economies of scale and scope. Western countries have long complained about intellectual property theft and forced technology transfers. But China’s export dominance depends on more than that. Widespread subsidies provide access to cheap land and money, tax breaks, and protected markets. The IMF estimates the government spends 4.4% of GDP on such support, nearly three times what Europe lays out for its business sector and many times more than what the US government supports.

Unlike Europe, the new US trade agreements do push back on China. US trade partners generally agree to tighten rules of origin to stop Chinese trans-shipment so goods don’t bypass high US tariffs. They screen investments from third countries (namely China) in critical or sensitive sectors, match US export controls on sales to individuals or companies on US blacklists (mostly Chinese), enforce US forced labor designations in their own economies (against Xinjiang among other places), restrict imports from third countries (i.e., China) for US economic or national security reasons, and allow the US to veto new trade agreements with any “third country that undermines US interests,” (again, China).

Europe tries to defend its manufacturers by other means. It has recently launched a record number of anti-dumping and anti-subsidy investigations, leveling duties on many companies and in many sectors. It has created tools to keep companies that receive foreign subsidies from bidding on public contracts, to tariff other nations for bullying behavior, and to tax products made cheaper by lax carbon emissions standards. Yet these measures have proven too slow, too narrow, too spotty, or too divisive to do much.