As Trump Flip-Flops On Tariffs, This Is How Europe Can Navigate A Simmering US-China Trade War

Forbes Breaking News

On "Forbes Newsroom", Fellow at the European Foreign Relations Council, Liana Fix, discusses how Europe can navigate through the ongoing discussions between the United States and China over trade and tariffs.

Transcript

00:00Hi, everyone. I'm Maggie McGrath, senior editor at Forbes. On Monday, China warned other countries

00:10to not curb their trade with China in an attempt to curry favor with U.S. President Trump.

00:18Joining us to discuss this political landscape on a global level is Liana Fix. She is a fellow

00:24for Europe at the Council on Foreign Relations. She has an expertise on Germany and European

00:30foreign policy, but also European China policy. Liana, thank you so much for being here.

00:36Absolutely. Thank you for the invite.

00:38So U.S.-China trade relations has been a major point of news over the last several weeks,

00:45really ever since Liberation Day. But let's set the stage from your perspective as a European

00:50expert. Can you kind of describe what the last few weeks have been like for European countries as

00:57America has announced these massive tariffs? Yeah. So first of all, Europeans themselves

01:03are, of course, affected by the tariffs. Donald Trump has also announced tariffs of the European

01:07Union. Now the administration has been saying they're hopeful that a deal can be struck soon

01:12because the U.S. market is obviously a big market for the U.S. side. But then the problems between

01:18the U.S. and China, the wildly escalating trade and tariff war between the U.S. and China and the

01:23fact that they are still looking for an exit strategy out of this escalation spiral also has

01:28implications for Europe. Because if China doesn't have access to the U.S. market anymore, then China

01:34has become an export superpower. Something that Germany has been in the past has now been taken over by

01:40China. China is exporting massively and has huge overcapacities in many industrial goods and many

01:46consumer goods. China will look for other markets if it can't export to the United States. And Europe

01:52is concerned that it's going to be the one market that's still open and going to be flooded by Chinese

01:57products that can't be sold anymore to the United States. That's really interesting. So what do you

02:04make of China's announcement on Monday that it basically is warning people, you know, don't team up

02:13against us in order to curry favor with President Trump? Putting that in super layman's terms, by the

02:19way. Yeah, so Beijing has been pursuing a policy of carrots and sticks towards its own partners. The

02:26carrots policy is that since the election of Donald Trump, there has been a charm offensive from Beijing.

02:31Beijing was talking about the need to uphold the multilateral order together with Beijing against the

02:38United States, which obviously rings a little bit hollow, given that China has itself contributed to

02:43undermine that order. But there's also a stick side. And the stick side is what we see now, threats by China

02:49not to try to curry favors with the United States. It's actually a confusing situation because many have

02:55expected that the Trump administration, Trump himself, will take on a pretty aggressive stance towards

03:01Beijing. That's not what they have been doing. There are hawks in this administration that would like to do

03:07that. But President Trump himself has not reached out to allies across the globe saying, hey, we all need

03:13to contain China together. He has maintained a business idea of relations with China. He has, to some extent,

03:23undermined the U.S. commitment to Taiwan, trying to get the chips production from Taiwan to the United States

03:29to make Taiwan less important to the United States. So this has been confusing for allies around the world.

03:35And now they're faced with this escalating trade war between the U.S. and China, which they

03:40fear can at some point be resolved. And then everything is good again between the U.S. and China. And

03:46allies will be left behind. So it's a lot of confusion about what exactly the strategy is

03:53behind U.S.-China policy at the moment.

03:56It's interesting that you talk about that confusion on the part of allies, because I had a conversation

04:02the other week with someone in the context of U.S.-Russia relations. And is the global order

04:10shifting was part of our conversation. We have seen President Trump in his first and second terms

04:17speak rather derisively of NATO. And I wonder about your perspective on this question. Is the global

04:25West not really a cohesive West anymore? And is that perhaps contributing to this confusion on the trade front?

04:33Yeah, absolutely. I mean, there's this idea that Donald Trump, Vladimir Putin, and Xi Jinping can kind of

04:38divide the world among themselves and create their own spheres of influence and do a kind of triumvirate

04:45to where they have their own little kingdoms where they rule. I'm not sure if that's really a correct reading

04:53of what Donald Trump is doing and what he sees. He's not thinking in 20th century Yalta, Stalin, Churchill

05:01categories of dividing the world. He's thinking more about, well, I want to be on the same level as the most

05:07powerful people in the world and I want to do business with them. So that's the very basic instinct

05:13that where he is coming from. But since he is conflating trade and tariffs with security,

05:21that makes allies particularly nervous. With Japan, he's talking about trade and tariffs, but also about

05:26Japanese security. Europeans have a very important NATO summit coming up at the end of June in The Hague.

05:32A trade and tariffs war with Trump will not be looked at separately from that. The administration

05:38is looking through all that for one lens. And for Europe, that lens is obviously a free wider lens

05:43you're not paying up. So this linkage between trade and tariffs, between security, between questions

05:51about US reliability as an ally are all coming together into one mix, which again makes it incredibly

05:58difficult to negotiate, especially for an entity like the European Union, which is only focused on

06:05negotiating trade and everything else in Europe, what security is done by NATO.

06:10That's really interesting. So just to emphasize what you just said, the conflation of trade and

06:15tariffs with security is an almost uniquely American perspective, or is that a uniquely Trumpian perspective?

06:21That's really unique. Others are doing that too. China, for example, has used a lot of economic pressure

06:29to pursue its security interests. It has pressured European countries to not support Taiwan and so on.

06:36So it's not entirely unique, but it is pretty new for the United States that these things are put together

06:42in a coercive way and in a mixture of threats. In the past, usually trade and security have been seen

06:49separately from each other and have been dealt separately with each other.

06:53Now, you talk about how President Trump has not engaged with allies to negotiate with China.

06:58It is very much a US-China conversation exclusively. What do you think will happen next? And what is the

07:07move on behalf of European leaders here? The Europeans have taken a cautious approach because they do

07:14understand that security and trade is interlinked for them. So they have said,

07:17well, we can be tough. We have the means to be tough. They have just fine beta. And then Google,

07:24so the whole digital realm is also an instrument of power that the European Union can wield.

07:29They have also signaled that they are willing to be constructive in discussions with the United

07:34States. One problem that the Europeans and especially the European Commission, which does the trade part for

07:39all EU European sees, is that those negotiations about trade and tariffs usually are incredibly

07:47complex. They take a long, long time whenever you try to negotiate something between countries.

07:52So that the approach to do a break almost about three months seems for every serious trade negotiator

08:01almost ridiculous because three months are not enough to negotiate between partners and especially not if

08:07you have like dozens of partners behind the line who also want to negotiate. So it remains to be seen

08:14how deep the negotiations will go or in the end we will just have some, you know, some very

08:20broad results that are presented as a success but actually in substance may mean less than we think.

08:26LESLIE KENDRICK That's an interesting point on the timeline. I've heard investors say something

08:30similar. That 90-day pause that some were calling for was the bare minimum in this scenario. Based on your

08:39studies and your area of focus, what can you say about President Xi's mindset right now? And what do you

08:47project as the likelihood for him to negotiate or change terms?

08:51LESLIE KENDRICK So what we've seen is a very

08:55principled Chinese stance. So they did not want to go in line with all the others who called the

09:03President, President Trump, to go into negotiations. There is a strong feeling of pride and respect that

09:10has to be respected on both sides there, on the side of President Trump and on the side of President Xi Jinping.

09:15LESLIE KENDRICK And this strong conviction that China will not go to US pressure to the same

09:19extent as other countries do. This has also to do with China's own self-perception of its role in the

09:25world. But on the other side, there's also a lot of nervousness in Beijing because the United States

09:32has behaved so differently than they knew from past US administrations, even from the first Trump

09:37administration. Let's for example take the war against Ukraine, which China is supporting Russia and

09:43allowing Russia to continue this war. Suddenly, Russia and the United States are doing a kind

09:48of rapprochement, which leaves China, the traditional partner of Russia, weirdly on the sidelines. Although

09:54it played this important role in supporting Russia's war, which makes Beijing nervous. The rapprochement

09:59being excluded from any ceasefire negotiations. That's an additional example that shows that

10:06also from Beijing's perspective, there's a strong, strong idea that China will not just be bullied

10:12around, but also a strong nervousness about what's actually the whole plan and strategy behind this.

10:18LESLIE KENDRICK As we think about plans,

10:21strategies and next steps, you mentioned a NATO meeting at the end of June. What are the other events

10:26on the calendar that might prove important diplomatic moments, either for the US, China, Europe or

10:32all entities together? LESLIE KENDRICK Yes, so basically, all have to make it somehow to the

10:39summer. And if we reach that point, that will all be good, because there's a 27 meeting. And again,

10:44there is the NATO summit at the end of June in The Hague. And the conflation, as I said before,

10:50of the trade and tariff issue with security discussions will be, plus you have also ongoing Ukraine

10:56ceasefire discussions, which can also have implications on how the Trump administration views Europe and

11:02its allies. So that's something until the end of June to look out for the 27 meeting, the NATO

11:07meeting. But certainly unexpected events are with this administration and in this world to be expected.

11:16LESLIE KENDRICK And are there any meetings between

11:18the EU and China on the books? I'm wondering if Beijing's Monday announcement about don't

11:24collaborate with the Americans provoked an opposite reaction wherein countries are now calling Beijing to

11:30make deals with Beijing. LESLIE KENDRICK Yeah, absolutely. You're right. There is an EU-China

11:34summit which is planned. Originally, Xi Jinping was expected to come to Brussels. Probably now the

11:39Europeans will come to Beijing. That is planned for July. And that, again, will have big questions for

11:46Europeans if they take the summit and the preparations for that as basically an opportunity

11:53to show to the United States, well, look, we have alternatives. We don't have to work with you.

11:58LESLIE KENDRICK That's something that has been advocated

12:01by some in Europe. They say, we can't afford a two-front trade war with the United States and

12:06China. Let's get closer to China. They are more reasonable at the moment. There's little to lose

12:11for us. In reality, there is a lot to lose. So there's a risk that Europeans might see China in

12:17naive terms again just because they are so frustrated with Donald Trump. Because again,

12:22China's overcapacity challenge is a huge challenge for European industries, at least as big as Trump's

12:29tariff challenge. And then again, China is also a threat to Europe's security through its support for

12:34Russia's war. So it is an easy temptation to go in and see China as Europe's answer to Donald Trump.

12:41LESLIE KENDRICK Much, much caution. Is there an upside

12:47scenario and a downside that you're looking at or a bull case and a bear case to use Wall Street terms?

12:52Again, it's a crystal ball question, but I'm curious where your head is on this.

12:56LESLIE KENDRICK Well, the upside scenario is definitely that we will

13:00see a negotiated outcome on the tariffs and trade questions between the EU and the US, which is

13:06essentially which could be beneficial to both sides, which is some great successes for the United States,

13:12some major investments and so on. Something that Juncker, the former

13:16commission president, has done during first Trump's term where he basically convinced Trump that he has done a great deal with

13:22Europe. So that's certainly what Europe is hoping for, that they will be able to achieve.

13:27There's hope that if they go into the NATO summit with increased defense spending and so on,

13:31that will prevent the United States and Donald Trump from basically turning his back on NATO.

13:37And they hope that in Ukraine's negotiations, Russia will fall into its own trap and risk the

13:46patience of Donald Trump. So that's the best case outline. The worst case outline is everything

13:52explodes. The United States threatens its allies, threatens the Europeans with, well, you are not

13:59being helpful on trade and tariffs, you're not being helpful on Ukraine, you're exploiting us on NATO.

14:03We will walk away from all of that. That would be the maximum worst case scenario that I would see.

14:09LESLIE KENDRICK Well, I guess we have no

14:11choice but to perhaps hold our breath or maybe try to breathe through the next few months. But in the

14:15meantime, Liana Fix, fellow with the Council on Foreign Relations, thank you so much for joining us

14:20and breaking down the global trade and negotiation landscape. We really appreciate your time.

14:25Liana Fix Thank you so much. My pleasure.

14:27Liana Fix

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