Tariff wars again?

In addition to the ongoing tariff war between the United States and China, the European Union also has begun to move towards a tariff war with China. Since October last year, the European Commission announced the launch of a countervailing investigation into electric vehicles imported from China, which has kept the trade relationship between China and the EU under tension for months. The European side will soon release its final decision on imposing tariffs on Chinese electric vehicles, and despite several rounds of difficult negotiations, the tariff rate on Chinese electric vehicles is still as high as 36.3%.

Free trade has been replaced by a rise in protectionism around the world, which could eventually lead to the fragmentation of the world into competing economic blocs. The situation continues to escalate, so much so that Spain Prime Minister Pedro Sanchez suggested that the European Commission reconsider its position on the issue to avoid “another trade war”. If the eventual tariff war continues, fragmentation intensifies, and the WTO may cease to exist, and the losses will be enormous.

However, on September 26, local time, United States Treasury Secretary Yellen said in an interview with the United States Consumer News and Business Channel (CNBC) that despite the Biden administration’s tariff hike on China and ongoing trade tensions, the relationship between China and the United States is now “closer”. Yellen emphasized the importance of U.S.-China cooperation in key areas such as financial stability, which is critical to maintaining global stability. She argues that despite the fierce competition, both countries have found ways to “constructively discuss and resolve their differences.”

“I’m not saying that China will miraculously respond quickly to all of our concerns, but we have had productive discussions about our differences to better understand each other, and we are working together in areas where the world needs our cooperation, including financial stability,” she further said.

Her expression may not be true, but it also conveys the expectation of cooperation.

Meanwhile, on September 19, local time, European Commission Trade Commissioner Dombrovskis and Chinese Minister of Commerce Wang Wentao met in Brussels. After the eight-hour talks, both sides said they had taken a step towards resolving trade tensions. Euronews TV reported on the 19th that the “most striking development” in the EU-China negotiations on Thursday was the option for both sides to promise to reassess price commitments. According to the report, the price undertaking is a trade tool that allows companies to raise prices and control the volume of exports to avoid countervailing duties.

The vote on whether to impose tariffs on Chinese electric vehicles was originally scheduled to be held on the 25^th. Nevertheless, it was postponed to early October after the two sides agreed to strengthen negotiations. Through the efforts of both sides and the EU’s growing awareness that protectionism is not viable, the will to resolve the issue through negotiation is emerging. Protectionism is on the rise, but will tariff wars resume? We don’t know, but a more rational and tranquil trading environment would benefit everyone.

By Le Tianyu