The real shift had already happened before the European Council met to discuss China on Thursday 18 June. The careful public phrase ‘global macroeconomic imbalances’ concealed a relative unity among the EU leaders that Europe’s economy faced a Chinese challenge. The member states approved what had already been expected: they handed the Commission a mandate to develop new instruments while keeping dialogue with Beijing going. Yet, although we should not discount what a shift this meeting represents, this European Council was also a missed opportunity to send a clear signal to both Beijing and the European public.
The multiple readings of the summit circulating in its aftermath illustrate its double meaning. The contrasts are obvious when comparing reporting. Dutch newspaper NRC and Germany’s Der Spiegel led with Europe choosing a ‘harder line on China’. The Financial Times was more in line with Anglo-American claims of a weak European spine when it said that the EU was delaying trade confrontation with China. Both readings are defensible. The feeling in Brussels has truly been one of a sea change, reflected in language on China that would have been too controversial only a few months ago. But the sense of emergency among experts was not reflected in the summit conclusions.
The absence of short-term measures announced need not be a cause for concern. The European Council’s job is to give direction and mandate people to come up with concrete actions. The Commission will now work on several ‘new instruments’ – on forcing companies to diversify and on solidarity with victims of trade coercion. That will take a while, though SCMP heard from a source that Brussels will move ‘very quickly’. During that period, we will learn whether the Commission feels it has enough cover to also take several short-term actions to meet the moment. NRC’s article has an interesting quote from one diplomat: ‘It was a lot of blabla, so the Commission has concluded it has the mandate to now put forward further options.’
If the Commission truly gets the freedom to act now, there is a lot of sense in the approach the European Council has taken. You can tell the tactical story generously: by calling on the EU to pursue further dialogue with Beijing and by not acting aggressively in public, the leaders present a reasonable face and avoid forcing Beijing to respond to a political challenge. The piecemeal approach makes it harder for Beijing to retaliate forcefully, could even mirror China’s own talk-and-fight method — where negotiation is not the alternative to coercion but its continuation, talk above the table while facts are created beneath it. This charitable reading is, however, not the whole story.
Because, if the conclusion drawn by the international press and the Chinese leadership is that the EU flinches when it counts, then the summit has weakened Brussels’ negotiating hand rather than strengthening it. The openness with which member states like Spain, and to a lesser degree Germany, showed themselves sensitive to Chinese retaliation does real damage. Prime Minister Pedro Sánchez even called China a ‘potential ally’ ahead of the summit – a statement that betrays a complete disregard for the geopolitical reality. Negotiations with Beijing have delivered Europe next to nothing for years. If nothing happens now, the historical memory of this summit will be that it squandered an opportunity to restore European economic deterrence with a single, broadly-backed signal — the kind of unity that would have made the recurring American barb that ‘Europe Always Chickens Out’ a little easier to parry.
The situation of European industry really is urgent. Not solely because of China — but Beijing’s policy is a major factor, and the China Shock 2.0 is truly here already, no matter whom you blame. It would have been good to see the leaders show more awareness of that urgency. They could have done so with immediate measures against Chinese pressure on European factories, or — for the sceptics — with a broader economic plan that took the diagnosis seriously. None of that was announced.
It is precisely Germany’s Chancellor Friedrich Merz who best illustrated the contradictory way in which those who counsel caution often act themselves. Merz may have urged restraint inside the room, but afterwards he took a sizeable rhetorical step. Having already complained at the G7 about an artificially cheap renminbi, he repeated the charge in Brussels and called for a new ‘Plaza Accord’ to address this unfair competition. Chinese currency undervaluation is a serious issue that hurts Germany, yet the way the German leader raised it shows a lack of awareness for Chinese sensitivities, from someone who had asked to soften the summit’s tone precisely to avoid giving Beijing offence.
While Chinese officials are keen to deny accusations of ‘so-called “overcapacity”’ in defence of Beijing’s export-led growth model, the Plaza Accord touches a bigger nerve. The 1985 agreement was a deal between Japan, the United States, France, the United Kingdom, and West Germany, one purpose of which was to correct what Western capitals saw as an unfairly cheap Japanese yen. Not only to some Japanese nationalists but also to many Chinese, that agreement is the original sin behind the Japanese decline that followed. The fast response by nationalist tabloid The Global Times makes clear this is a live issue for Chinese observers, who have previously invoked the Plaza Accord as precisely the kind of outcome to avoid in the trade war with the US.
EU leaders face an unenviable task. They have to deal with the lesser questions of domestic politics in their small countries and the bigger questions of geopolitical shifts that upend Europe’s place in the world. There is no need to rush into conflict with Beijing à la trumpaise. Yet there are urgent issues that Brussels needs to work on now, with national leader backing. The diplomatic tightrope walk is vital to avoid punishment from both MAGA’s Washington DC and Xi Jinping’s Beijing. It is therefore vital that all members of the European Council think carefully about the signals that they send.
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