Both the EU and China have grievances over their trade ties, but the way forward is through direct and frank dialogue, not sanctions or trade restrictions

As the global order passes through a turbulent era of transition from a unipolar world to a more diverse and complex security architecture, relations between the world's leading powers become crucial in maintaining global stability and prosperity. In this context, relations between China and the European Union play a significant role in promoting peace and security in greater Eurasia. The EU has faced unprecedented challenges unseen in the last three decades — the large-scale war in Eastern Europe, growing domestic polarization over migration and other issues, the negative impact of cutting economic ties with Russia, and the stagnation of living standards. All these developments put enormous pressure on the EU, bringing political and economic instability. The results of the June 2024 EU Parliamentary elections proved that a growing number of Europeans were unsatisfied with the status quo and demanded change.

Meanwhile, as competition between great powers is growing, the issue of competitiveness takes center stage as a critical pillar of ensuring security and stability. Recently, the European Commission tasked Mario Draghi — former European Central Bank president, former Italian prime minister and one of Europe's great economic minds — to prepare a report of his vision on the future of European competitiveness.

In the report published in September 2024, Draghi came up with a bunch of suggestions, arguing that without serious and urgent steps, the EU may lose its competitiveness, which will endanger millions of Europeans' way of life. Starting from the transatlantic divide in productivity — due to the weakness of the EU's high-tech industry — Draghi's report recognized that European enterprises were caught in a "middle-tech trap". It means that most large EU companies were in middle-tech sectors and remained languishing there because they did not want to leave the field they knew. For example, the current travails of the German automotive sector clearly illustrated how this was a losing strategy.

Besides domestic reforms and investments in critical sectors, the EU needs a clear vision for its foreign economic relations. As relations with Russia are caught in geopolitical turbulence and mainly depend on the course of the crisis in Ukraine, where the EU has no decisive role to play, the relations with other major economic powers, in particular with the United States and China, will be crucial for reviving the EU's economy. The US is a traditional EU ally, as many EU member countries are NATO members protected by the US' military might. However, in the economic sphere, the US often acts not as an ally but as a competitor. In recent years, the US adopted several legislations, including the CHIPS and Science Act of 2022 — which authorized roughly $280 billion in new funding to boost domestic research and the manufacture of semiconductors in the US — and the Inflation Reduction Act of 2022 — which enhanced or created more than 20 tax incentives for clean energy and manufacturing. This legislation triggered a capital flow from Europe to the US, making the US a more attractive place for investments.

Simultaneously, the US offered the EU to join its trade war with China and put restrictive measures on EU-China economic ties. From the US perspective, a trade war with China, especially the restrictions on the export of high technology products to China, such as advanced microchips, is part of the US strategy to contain China's economic growth. From the US perspective, the negative impact on China will be higher if the EU joins efforts with the US.

However, as the EU already struggles with the ripple effects of economic sanctions on Russia, and the US takes steps to increase its economic competitiveness compared to the EU, will the trade war with China benefit Europe? The most likely answer is negative. The EU should not simultaneously cut itself economically off from Russia and China. The biggest European export-oriented economies need export markets, and China is the biggest export market for many well-known European companies. Meanwhile, European companies need access to the vast Chinese production base. Despite many talks about decoupling or de-risking from China, many European companies still have strong connections with China, and cutting ties will only worsen the situation in the European economy.

It is well known that the EU has many concerns over its economic relations with China, including the fair-trade rules, access to Chinese markets, and state subsidies for Chinese products, and these concerns should be discussed and addressed. China also has its list of grievances on the EU. However, the only way to discuss and overcome those difficulties is through direct and frank dialogue, not sanctions or trade restrictions. As the EU looks forward to increasing its global competitiveness, and China wants to keep its growth levels, mutual economic ties are assets, not liabilities, and should be nurtured and not destroyed.

The author is chairman of the Center for Political and Economic Strategic Studies in Yerevan, Armenia. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.