Woops! US squeezes out China as EU's biggest goods trading partner

A flash in the pan or a lasting trend?

Editor's Note: Greetings from freezing Brussels! Fresh data showed that the U.S. surpassed China to become the EU's top trading partner in goods in the first ten months of this year, which is quite sobering to many but may be short-lived. This week, at least five EU leaders mentioned China in public, and four high-level bilateral talks took place. The CCCEU Weekly Update tracks the development of China-EU economic ties. Have a great weekend and enjoy your reading.

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Eurostat on Friday published data on international trade in goods for the first 10 months of this year, with the US, which has stayed "second" for the past two years, suddenly becoming the EU's number one goods trading partner with a "margin" of €1.1 billion, pushing China into second place. 

Is this reversal a "flash in the pan" or a foreshadowing of longer-term change? Analysts have specifically stated that October trade between Europe and the United States may necessitate special consideration in terms of exchange rates. 

According to mid-price estimates, the dollar rose by 15% anually against the euro in October this year; while the specific impact of the exchange rate will depend on the proportion of euro and dollar settlements, September and October are the two months of the year when EU-US trade is likely to be the most abnormally affected by the exchange rate.

Since November, the euro has been trading above par against the dollar, which may have an impact on the calculation of total goods volume between the US and Europe in the last two months of the year. On the other hand, the EU's imports from the US have grown "spectacularly," increasing by nearly 60% year on year in the first ten months.

Data from the Chinese General Administration of Customs might be a bit more "up to date" than Eurostat's, which has now released China-EU trade figures for the first 11 months of the year: up 7% to 5.17 trillion yuan, or nearly 130 billion euros, or 96 trillion yuan more than the first 10 months of trade. This is significantly higher than the 75.3 billion euros in October trade between China and the EU reported by Eurostat. 

Since only the first ten months of trade with the EU appear to be available from US authorities, the next shift in the "ranking" of China and the US in international trade with the EU appears to be open-ended.

China in the Room

At least five senior EU officials, including European Council President Michel and European Commission President von der Leyen, have mentioned China in the last week, with only minor details; Vestager, the EC's "queen" of competition, took part in an important debate in the European Parliament on Chinese companies investing in European infrastructure.

President Michel and President von der Leyen briefly mentioned China. Speaking at the EU-ASEAN Business Summit, Michel said that China is becoming increasingly "assertive" and increasingly sure of its own strength and power on the international scene.

President von der Leyen, on the other hand, told the European Parliament plenary session that the EU was overly reliant on China for critical rare materials. She went on to say that "we share the US's concern about this strategic vulnerability – that we do have," and that one way to "end" the Chinese "monopoly" would be to form a "rare materials club" with the US and other partners. Seperately, President von der Leyen mentioned changes in China's covid measures, but the concern was that China's relaxation of preventive measures could lead to an increase in global energy demand.

The debate between Vestager and MEPs was lengthy and informative, with the entire topic centering on Chinese companies investing in European infrastructure.

Interestingly, she tended to be neutral about Chinese investment in the Greek port of Piraeus, noting the port's privatisation following the financial crisis and saying that the Greeks are looking at a harbour that is doing quite well.

Timmermans, the European Commission's Executive Vice-President, and EU Internal Market Commissioner Bretton made the other references to China. Timmermans spoke at the China-EU High Level Dialogue on Sustainable Development, mentioning his "friend," Xie Zhenhua, China's Special Envoy for Climate Change Affairs, primarily on the subject of COP27 and China-EU green cooperation.

Keeping up with market development, Commissioner Breton said: "...A new trend is emerging. The imports of affordable electric vehicles from China. In 2016, we imported 74,000 cars from China. In 2020, 200,000. In 2021? 500,000. Half of those are electric vehicles. As such, the most recent announcement by some European OEMs (original equipment manufacturers) that they will build electric vehicles in China for export back to Europe is particularly worrying."

High-level China-EU dialogues

At least four major high-level bilateral dialogues took place this week, including the fifth round of the 5th China-EU CEO and Former Senior Officials' Dialogue, which appeared to be the first public bilateral event attended by new Ambassador Fu Cong, head of China's mission to the EU, since his arrival on December 10. His first appearance focused on business and industry exchanges, sending a strong message.

China and the EU also held separate dialogues in the fields of green and competition, such as the Green Sustainability Conference (2022) and the China-EU High Level Forum on Sustainable Development, both of which Timmermans and Special Envoy Xie Zhenhua attended; the EC also reported that a seminar on competition law and enforcement cooperation between Chinese and European experts was held from December 12 to 16.

On the digital front, the CCCEU and ChinaEU co-organized the first "China-Europe Fintech Summit" on December 9, which was attended by former European Commission Vice President Viviane Reding and Minister Peng Gang of the Chinese Mission to the EU.

Chinese companies leapfrog

The 2022 edition of the EU Industrial R&D Investment Scoreboard, published by the Commission on Tuesday, said: "An important change is that all Chinese Scoreboard firms together now have a slightly bigger share of the global total than the EU companies (17.9% Chinese and 17.6% EU, respectively)."

However, the report noted that the leading share of US firms increased to 40.2% of the global total.

EU leaders greenlight 9th sanctions package against Russia

According to Xinhua, European leaders on Thursday gave their seal of approval to the ninth package of sanctions against Russia following a summit here.

The European Council said in its final declaration of the summit that the leaders had discussed how to further increase collective pressure on Russia to end its military operation and to withdraw its troops from Ukraine.

EU grants candidate status to Bosnia and Herzegovina

According to Xinhua, the member states of the European Union (EU) have unanimously adopted a recommendation by the European Commission to grant candidate country status to Bosnia and Herzegovina(BiH).

President of the European Council Charles Michel said on Thursday on Twitter that the move sends "a strong signal to the people, but also a clear expectation for the new authorities to deliver on reforms."

EU faces potential natural gas shortage in 2023: IEA

According to Xinhua, the European Union (EU) could face a shortfall of nearly 30 billion cubic meters (bcm) of natural gas in 2023, Fatih Birol, executive director of the International Energy Agency (IEA), said here on Monday.

He presented a report titled "How to avoid gas shortages in the European Union in 2023" alongside European Commission President Ursula von der Leyen.

"The EU's potential gas supply-demand gap could reach 27 billion cubic meters in 2023," according to the report.

EU and Eurozone GDP grew 0.4% and 0.3%, respectively, in the third quarter of 2022

According to Eurostat, in the third quarter of 2022, seasonally adjusted GDP increased by 0.3% in the euro area and by 0.4% in the EU, compared with the previous quarter, according to an estimate published by Eurostat, the statistical office of the European Union. In the second quarter of 2022, GDP had grown by 0.8% in the euro area and by 0.7% in the EU.

China brings WTO case against U.S. and its sweeping chip export curbs as tech tensions escalate

According to CNBC, China initiated a dispute against the U.S. at the World Trade Organization over Washington's sweeping semiconductor export curbs.

The Chinese Ministry of Commerce confirmed the trade dispute in a statement Monday and accused the U.S. of abusing export control measures and obstructing normal international trade in chips.

EU Commission launches industry alliance for 'made in Europe' solar PV

According to Eurativ, the European Commission on Friday (9 December) officially launched the EU's solar photovoltaic industry alliance, with the aim of regaining production lost to China and establishing a "Made in Europe" industry.

The new alliance will promote investments in large-scale factories, aiming for an annual output of 30 gigawatts (GW) for each key solar component by 2025 – more than six times the current capacity of around 4.5 GW per year.

What are experts talking about?

"Scholz's visit to China: The theory of "decoupling" from China is broken", published by the Institute of European Studies of the Chinese Academy of Social Sciences, The author is Huang Ying. According to the article, Scholz's visit to China has not only given new impetus to the further development of the all-round strategic partnership between China and Germany, but also provided an opportunity to improve China-European relations. But at the same time, the development of China-European relations also faces many challenges. The German government's "triple positioning" towards China (collaborator, competitor and institutional adversary) has not changed.

"How the EU and the US should overcome their trade and supply chain disputes" is a policy brief published by European Policy Centre. The authors are Georg Riekeles and Charles Lichfield. The Brief mentions that at the third Trade and Technology Council (TTC) ministerial on December 5, trade and supply chain challenges will be at the top of the agenda. The main reason is The US Inflation Reduction Act's local content requirements for electric cars and batteries are regarded in Europe as a bid for its manufacturing base and go against prior TTC commitments and WTO rules.

Please note: the English version of this issue is slightly different from our Chinese one. The views and opinions expressed in this article do not necessarily reflect the official position of the CCCEU.