European firms risk being caught in crossfire if US and China escalate their trade war

European firms risk being caught in crossfire if US and China escalate their trade war

Donald Trump’s latest threat to raise tariffs has increased the uncertainty and risk faced by foreign companies in China

European businesses in China are facing increased uncertainty as a result of US President Donald Trump’s threat to raise tariffs on Chinese imports.

Business leaders and politicians called for a return to multilateralism to end trade tensions but some are worried that they will be excluded from any “horse-trading” that could end the dispute between the world’s two largest economies.

“A further escalation of the trade dispute between the USA and China would increase uncertainty for German companies in China and are a risk for world trade as a whole,” said Simone Pohl, executive director of the German Chamber of Commerce in Shanghai.

European companies share many of Trump’s concerns about China, such as intellectual property protection and state industrial policy, but have often taken issue with the confrontational US approach and its impact on world markets.

“We need fewer tariffs and trade barriers worldwide and more common rules for fair global trade. Companies need a functioning world trade system and have to regain certainty and trust,” Pohl said.

German Economy Minister Peter Altmaier told Reuters on Monday that he hoped both sides would refrain from unilateral action.

“We all hope that the trade conflict between the US and China can be resolved because it doesn’t have any positive consequences for anyone,” Altmaier said.

“We need a rules-based trade order, we need open markets, we need fairness and a level playing field i.e. equal rights for companies from all countries involved.”

While the two sides had hinted that they were close to a deal, Trump’s tweet, in which he complained about the slow progress of negotiations, threw the future of the negotiations into doubt.

China confirmed, however, that Vice-Premier Liu He would visit the US on Thursday and Friday.

No deal between the US and China would spell bad news for Europe, said Max Zenglein, an economist at the Mercator Institute for China Studies in Berlin.

“If there is no deal the level of uncertainty will rise and the EU risks being caught in the middle,” he said.

“This makes a further escalation highly likely and could seriously disrupt global supply chains. Foreign companies’ exposure to increased political risk stemming from the increasing rivalry between the US and China is becoming apparent.”

German, and other European firms, have a stake not only in the volatility of global markets, but also in the potential outcome of a US-China trade deal.

“There is a risk of potential horse-trading at the expense of European companies. Likewise there are risks should there be no deal and China offers preferential treatment to European companies which could trigger the US taking aim at the EU,” Zenglein said.

“This makes it ever more important for Europe to find a more far-reaching solution within the WTO framework.”

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