China seeks ally in Europe to face down US tariffs

China is turning to the EU to form a united front against US president Donald Trump’s trade policies, offering preferential treatment and speeding up investment negotiations against a deteriorating international trade environment.

China is looking to overcome EU wariness and build a coalition against Washington at a summit in Beijing with European leaders on July 16-17, with Donald Tusk, president of the European Council, and European Commission president Jean-Claude Juncker leading the visiting delegation.

Before that summit, Chinese premier Li Keqiang is due to meet German chancellor Angela Merkel in Berlin before returning to Beijing to host the EU delegation. In a summit with central and eastern European leaders in Bulgaria this weekend, Mr Li said China would continue to widen access for foreign investors. “It is a two-way street,” he said.

The US on Friday imposed tariffs on $34bn in Chinese goods — a move that China promptly matched with tariffs of its own. Mr Trump has upped the ante by threatening tariffs on $500bn in trade, equivalent to all the goods the US imports from China, as he attempts to force manufacturing back within America’s borders.

“The question is not whether there will be a trade war,” Bruno Le Maire, French finance minister, told economists and business leaders gathered for the annual Aix en Provence economic forum. “The trade war has already started”.

In contast to tensions with the US, China and the EU are expected to exchange market access offers on foreign investment at the summit meeting, after several years in which Europe’s attempts to negotiate a bilateral treaty took a back seat to Beijing’s talks with Washington.

Brussels and Beijing began discussions on an investment treaty in 2013, with frequent complaints from the European side that China was dragging out negotiations and showing no serious willingness to open up its market. The lack of progress even as Chinese investment flooded into Europe was one of the factors behind EU proposals last year for the bloc to equip itself with a more rigorous system for screening foreign investments.

European companies are now being groomed by Beijing as the first beneficiaries of reforms rolled out earlier this year, including steps to reduce or remove ownership caps on security groups and other financial services businesses.

“In the background of this liberalisation there’s this tension of the US versus Europe,” said Jack Wang, a lawyer at Allen & Overy in Shanghai. “The Chinese government is taking this liberalising reform to send a message to the US.”

Trade tensions between Washington and its big trading partners are rising, as Mr Trump moves to shield core national manufacturing sectors from what he sees as unfair foreign competition. The EU has already hit €2.8bn of US products with retaliatory tariffs in response to Mr Trump’s restrictions on steel and aluminium imports, and is drawing up an €18bn hit list in response to the US president’s threat to target the auto sector.

But EU officials said Brussels was determined not to be drawn into any situation that could look like it was teaming up with China against the US on trade policy. They pointed out that European capitals share core Trump administration concerns about the pressure and restrictions Beijing applies to foreign companies, notably when it comes to forced technology transfer, as well as Washington’s anxieties about the activities of Chinese state-owned enterprises.

There is also suspicion about China’s overall approach to the EU. In Aix-en-Provence, Mr Le Maire said “what the US want is to divide Europe on trade” while noting that Beijing was doing the same by wooing the EU’s central and eastern members.

Negotiators in Brussels underline that they are still far from a deal on the investment treaty, despite recent progress.

EU priorities for the summit talks include getting Chinese backing for efforts to reform the World Trade Organization, not least by equipping it with rules on industrial subsidies aimed at reining in some of China’s own trade practices. Brussels and Japan had shared Washington’s concerns over China’s ballooning steel production, now equal to half the world’s output.

Leaders at the summit may also touch on EU plans for “plurilateral talks” between the world’s big car-exporting nations that Brussels hopes might convince Mr Trump to drop his tariff threat.

Ms Merkel has given public backing to the idea, amid concerns that the US could apply punitive duties against its car exports as early as September. China, for its part, has already lowered tariffs on imported cars, as part of a series of liberalising reforms rolled out as talk of a trade war heated up this spring, before raising them on American cars as part of the recent round of tariffs.

The EU is also pushing for Chinese recognition of the EU’s “geographical indications” that protect local specialities such as Roquefort cheese and champagne from imitation.

Tu Xinquan, a trade expert at the University of International Business and Economics in Beijing, said that despite their differences, the EU and China’s shared irritations with Mr Trump should be apparent at the summit and in the coming weeks.

“I don’t think they would state it clearly in a joint statement, but if the EU imposes a tariff on the US, that’s also a form of co-operation. Don’t look for only their words, look at their actions.”