President Trump’s strong tariffs on Chinese goods effectively suspends most Sino-American trade. China now faces an enormous glut of telecommunications and network-connected equipment, such as 5G equipment, fiber optic cables, telecom parts and various smart devices. It’s largest trading partner, the U.S., is not buying.
This isn’t just a bilateral dustup. China will almost certainly seek to dump its telecom and network-connected equipment on the European Union at fire sale prices. Having lost access to the U.S.’ $23 trillion consumer market, China will see the EU’s $14 trillion consumer market as the only one that can absorb a meaningful share of the glut.
Europe has come to a fork in the road on trade. It’s time to choose a side. The EU should reject China’s bait and build deeper trade alliances with democracies over autocracies.
European corporations have enjoyed a large measure of success in China, with EU exports to China – including motor vehicles and medicine – totaling €223.6 billion in 2023. But the balance of trade has always favored China. The “dual circulation” policy of the Chinese Communist Party (CCP) under President Xi Jinping has been to move toward self-sufficiency and away from purchasing foreign goods, and in recent years, the value of EU exports to China has been on a downward trend.
Instead of winning in China’s market, European companies will eventually lose in their own. One would be naïve to believe that Europe can keep its foothold in China’s marketplace indefinitely, or that the predatory Red Dragon won’t turn on and feed upon its European competitors. Those eventualities are already coming to pass. Last fall, Volkswagen’s ebbing fortunes forced it to sell a plant in China. And under pressure from state-subsidized (lower-priced) Chinese EV imports, the carmaker nearly shuttered German facilities but instead opted for 35,000 job cuts by 2030. Mercedes plans a 10% cut in production capacity at its German plants by 2027.
Of course, China is more than just a hardball competitor, Chinese companies serve the party-state’s military and intelligence services. Chinese businesses, in coordination with the CCP, are engaged in systematic intellectual theft and large-scale cyberespionage. For example, Huawei was caught in a cyberespionage operation against Danish telecommunications company TDC, according to a 2023 report. The effort enabled Huawei to undercut Ericsson’s bid for TDC’s 5G network contract, valued at nearly $200 million. More recently, five have been charged in a European Parliament bribery scandal linked to Huawei.
European countries have been far too slow to recognize and counter the numerous threats from China. Even today, half the 27 EU nations fail to impose legal sanctions on Huawei, ZTE and other known high security risk telecom suppliers for 5G network infrastructure. Moreover, several European countries, including Austria, Bulgaria, Cyprus and Hungary, are fully dependent on Chinese components for their national 5G systems. Although Germany acknowledges the security risks associated with Huawei and ZTE, part of its domestic 5G network still utilizes components made by the companies and doesn’t expect to fully shed them from “core” 5G mobile networks until the end of 2029.
These trade problems are security problems when it comes to NATO countries. To date, EU leadership has made few meaningful attempts to hold China accountable for any of its abusive trade practices. Perhaps there is fear that the CCP would retaliate by banishing EU companies from the large Chinese market or denying access to irreplaceable supply-chain items.
To make it right with America, European countries have work to do as well, particularly when it comes to trade practices aimed at the U.S. “The EU thinks it can rob America blind,” writes former National Security Advisor Robert O’Brien. The EU’s Digital Markets Act is flatly extortionary. Furthermore, the EU developed an open-source systems scheme to evade paying American companies for the intellectual property that goes into software products. France and Italy have implemented digital services taxes (DSTs) against American companies operating in those countries to tax revenues generated from digital services such as online advertising, the operation of online marketplaces, streaming, and the sale of user data.
With China’s economy suffering, however, Europe has an opportunity to show itself as an ally. China’s total debt is approaching 300% of GDP, leaving it one of the most indebted nations on the planet. Economic growth is stagnant. Youth unemployment is so high that China suspended reporting figures in 2023. Its real estate sector remains in deep turmoil. Export revenue is its main lifeline, and it just lost the U.S. market resulting in Fitch cutting its credit rating.
It’s time for transatlantic allies to close ranks and coordinate efforts multilaterally to effectively discipline China’s trade practices, rolling back the CCP’s long march against fair competition. Europe has a chance to finally step up and share the burden for isolating a common adversary and begin treating U.S. companies more fairly. This must begin with Europe rejecting additional telecommunications and network-connected equipment that undermine their economies and security alliances and leading by example on trade with its real partners.
