The EU asks China to help in Ukraine and the Middle East

The EU favours a negotiated peace in the Middle East but lacks the clout the USA has as a major weapons supplier to Israel.

| 7 min read

The EU meeting with China saw the Commission President accompanied by President Macron of France urging China to avoid selling weapons to Russia for use in Ukraine. They were particularly concerned about possible dual-use products being sent and ending up in use on the battlefield.

The EU was grateful that China had in the past used influence to tone down Russian threats to use nuclear weapons, and asked China to continue the pressure given Mr Putin’s recent mentions of tactical nuclear weapons. The EU also wanted China’s good offices to persuade Iran against “irresponsible proliferation of ballistic missiles and drones”. Whether China is as persuasive as Mrs Von Der Leyen implied is a matter for discussion. China has in practice helped Russia in various ways and keeps friendly relations with Iran.

Trade is the EU’s real concern with China

The recent meeting gave the EU Commission President a chance to warn China about EU plans to get tougher over trade. Whilst the headlines were grabbed by Ursula Von der Leyen’s comments to persuade China to exercised come leverage over Russia and the Ukraine war, the message on taxes and tariffs had greater force.

The Commission President complained that subsidised products like steel and electric vehicles produced by China “are flooding the European market”. She claimed that “the world cannot absorb China’s surplus production”. She has started enquiries into possible abuses of the International Procurement Instrument where she worries that Europe opens its market without Chinese full reciprocation. The EU has launched enquiries into Chinese subsidies for battery cars and solar panels. Whilst the public report of the meeting did not record any direct threats to impose tariffs, quotas and other restrictions, the EU is working on possible responses to the surge in Chinese exports to the EU.

Making Chinese steel and battery cars dearer

There are plans in place to increase the prices of imported energy intensive goods through the introduction of the carbon border adjustment mechanism. Introduced last year in a transitional phase, this year importers of steel, cement, aluminium, fertilisers, electricity and hydrogen have to report the carbon content of their products prior to the full introduction of carbon pricing in 2026. An importer will need to buy carbon certificates at the prices in the market for carbon for the EU internal Emissions Trading System, so imported product will then pay the same carbon tax as domestic production.

There are also discussions about whether there should be tariffs on some Chinese products, using the argument that they need to resist dumping. Mrs Von der Leyen asserts China subsidises her steel and battery cars, giving a case under world trade rules to take countervailing measures.

Pursuing a Europe first policy for industry

The EU is alarmed at the stranglehold China has over critical raw materials. The EU has been encouraging member states to find other sources of rare earths, lithium, and other essential commodities for the electrical revolution. The EU is worried that China is replacing EU domestic capacity in too many areas, leaving the EU vulnerable through its import dependence. The EU energy transition policy which remains at the core of the EU growth strategy is based around building more domestic capability to make green products and generate green power. China’s early entry and successful domination of the markets for electric cars, wind turbines, solar panels and essential raw materials is leading to big import volumes and a loss of EU jobs and activity in these new areas to a trade rival.

President Xi went on to Serbia and Hungary

After the EU meeting President Xi went on to Belgrade and Budapest. In Serbia he wanted to keep alive memories of the US bombing the Chinese embassy by mistake 25 years ago, and to strengthen his alliance and investment in that country. In Hungary President XI wished to maintain friendly relations. China could use investment in Chinese factories in Hungary within the EU as some counter to any EU moves against Chinese imports. The EU remains concerned about Hungary’s policies.

The EU’s loans and grants to Ukraine

The EU has announced another Euro 50 bn for Ukraine up to 2027. It plans to borrow Euro 33 bn to part finance this, lending the money onto Ukraine. The balance out of its general budget is a mixture of grants and loans. The EU is in negotiation over future EU membership for Ukraine and is influencing policy and plans for the post war reconstruction. The Commission President reaffirmed that “The EU will continue to offer strong political, financial and humanitarian assistance to Ukraine and impose hard hitting sanctions against Russia”. The EU has progressively tightened sanctions, as it needed transitional arrangements on energy given its dependence on Russian oil and gas at the time of the invasion.

The Commission is steadying itself for the European elections

With proportional voting and many different parties and party groupings Mrs Von Der Leyen has work to do to survive as Commission President. The polls point to a stronger showing by the right of centre, with the European People’s party on around one quarter of the seats and the Socialists on a little under one fifth. Her origins from the German Christian Democrat section of the EPP helps her cause. The Conservatives and Reformists and the Identity and Democracy groupings are doing better with around a quarter with their mixture of populist, Eurosceptic and anti migration views. The European Peoples Party would need to group with both the Socialists and the Renew Europe group of pro EU liberals to have a majority. It refuses to mix with the Identity and Democracy group which includes the AFD in Germany and National Rally in France and could have problems getting the Conservatives and Reformists into a tri partite alliance with the Socialists. Mrs Von Der Leyen both needs to be the EPP candidate for the job and then to secure a majority of MEPs to vote for her. There is talk of other candidates but none has yet emerged in a strong position to defeat her so far. She is still the front runner.

What does all this mean?

The EU favours a negotiated peace in the Middle East but lacks the clout the USA has as a major weapons supplier to Israel with plenty of US power available in the region. The EU is mainly offering financial support to Ukraine, increasingly in the form of loans.

The EU has not set out how it thinks that war could end.

EU policy is turning to greater protectionism as it struggles to catch up with China over modern manufactures. The Carbon border mechanism may not be enough and is delayed until 2026 for its main impact. The EU could well explore further tariff, subsidy and price control answers to the problems of reduced domestic manufacturing capacity and increased propensity to rely on Chinese imports. China will ally with anyone in the EU that will help her invest within EU tariff walls and minimise restrictions on trade.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

The EU asks China to help in Ukraine and the Middle East

Read this next

Your financial future needs a spring clean too

See more Insights

More Insights

Defence spending increases amid war and global rising tensions
By Charles Stanley
28 May 2024 | 6 min read
Markets shrug off general election
By Garry White
Chief Investment Commentator
24 May 2024 | 9 min read
Trouble at the EU’s borders
By Charles Stanley
20 May 2024 | 8 min read
President Xi welcomes President Putin
By Charles Stanley
17 May 2024 | 5 min read