Trade tensions between the EU and China are deepening. On June 16, the EU’s trade chief, Maros Sefcovic, said The bloc’s unbalanced trade relationship with China had “reached a point that requires a reset”. German Chancellor Friedrich Merz then criticized Beijing days later for what he claimed were its unfair trade practices.
In the comments made in Brussels after the meeting of the European Council, Merz accused China of “flooding the markets” through the use of “high subsidies”. He also said China’s currency had been undervalued by 30%, making its goods artificially cheaper on global markets. Merzi pointed The Plaza Agreement as an example of how this issue can be addressed.
Signed in 1985 between the US, Japan, Britain, Germany and France, the Plaza Accord was an agreement which saw Japan agree to appreciate the value of its currency, the yen, against the US dollar.
The five signatory countries also collectively agreed to intervene in currency markets to weaken the US dollar, which had been massively overvalued in the early 1980s, reducing the global competitiveness of US goods.
The value of the yen rose quickly after the Plaza deal, assessing from around 46% against the US dollar by 1986. In doing so, the imposition of protectionist measures against Japan dodged. However, the appreciation of the yen had some serious consequences for Japan, of which Chinese policymakers are apparently well aware.
For example, the appreciation of the yen was widely seen as a major contributor to the Japanese asset price bubble in the late 1980s. The bursting of this bubble led to Japan’s so-called “lost decades” of economic stagnation, which has characterized the Japanese economy ever since.
For Chinese policymakers, the current trade tensions between Beijing and the West are they remember of the contentious relationship between the US and Japan decades ago. Many of the complaints made about China’s growth model and economic practices are similar to the complaints about Japan at the time.
These complaints mainly concerned Japan they fail to convey the meaning with the US, as well as its alleged unfair trade practices that put American manufacturers at a disadvantage. Among other things, The USA claimed this Japanese semiconductor and electronics manufacturers were flooding the US market with products priced below the cost of production.
Consequently, China sees the Plaza Agreement as not a mutually beneficial agreement. Instead, she sees the deal as a US-led effort to cripple Japan’s economy that marked the beginning of the end for Japanese manufacturing competitiveness. This is a position that has been regularly carried by Chinese state media.
In 2018, China’s state news agency Xinhua DESCRIBED The Plaza Agreement as the cause of Japan’s economic difficulties. This line was also present in a recent editorial in the Global Times, a tabloid run by the Chinese Communist Party’s main newspaper, the People’s Daily.
of the editorial argued The agreement was a historic example of economic coercion and Western political pressure, rather than a model for international cooperation.
Coming to blows
Merz’s message may not have been intended as a suggestion that the EU should seek to curb the Chinese economy. But given Chinese policymakers’ caution about the negative effect of the Plaza Agreement on Japan, it is likely to be interpreted as such by Beijing.
In recent years, China has reacted strongly to what it perceives as outside efforts to limit its economic competitiveness.
It has taken proactive measures against the US in response tariff setting and other restrictions on Chinese goods and proposed by Donald Trump The Mar-a-Lago dealthrough which he hopes to lower the value of the US dollar to boost US exports.
On June 22, for example, China added ten more US firms on its rare earth export control list in response to US restrictions on Chinese firms such as electric vehicle maker BYD.
Chinese Ministry of Commerce said the masses were a response to the “malicious practice of the US government”, adding that they were taken to protect national security and interests.
Merz’s comments leave Europe open to similar measures. These measures are perhaps the most obvious include stronger restrictions over European access to Chinese rare earths, which are key components in many modern military technologies. Such a one movement would get in the way the EU’s push to rearm itself in the face of Russian aggression.
However, unlike Washington, Brussels has been puzzled to start an open trade conflict with Beijing. As a result, China’s most likely response to trade tensions with Europe will be to follow suit established model of dealing with individual states bilaterally and not with the EU as a whole. Beijing has used this approach to circumvent previous EU efforts to forge a unified line on China.
What is clear is that relations between the EU and China are entering into a conflict scene. Their differences will intensify as China seeks to maintain its global manufacturing dominance and make strides in key technologies that were once the preserve of advanced European economies.
Tom Harper is a professor of international relations, University of East London
This article was reprinted from Conversation under a Creative Commons license. Read on original article.
