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0 pointstristanj17d ago0 comments

How will Europe fund its €350 billion annual trade deficit with China? A decade ago, the trade deficit was half as much. This amount is increasing every year. With the impending collapse of European ICE auto manufacturing, and replacement with Chinese EVs, this amount will increase even faster. What will Europe give China in exchange?

Europe pays for its trade deficit by transferring wealth from Europe to China. It amassed this wealth through centuries of colonialism. The deal you are proposing makes Europe poorer, and China richer. Every year, compounding. Europe loses, China wins.

And pretending that China will face "economic collapse" if it doesn't export its goods to Europe is delusional. Chinese exports to Europe are only 3.0% of Chinese GDP, practically nothing. China does not need Europe.

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vrganj17d ago

This naive view does not account for the Trumpian trade wars killing the other viable export market, for the need for geopolitical support for Taiwanese reunification or any number of other factors.

The thing about international trade is that it doesn't need to balance out on a country to country level. Europe can support a deficit with China by maintaining a surplus with the rest of the world. There's a reason they just built the worlds largest free trade zone centered around themselves. Profits made from India to Mercosur, Canada to South Korea can all be spent somewhere.

There's no "China wins" or "Europe loses". Trade is not zero-sum. Trade is interdependence and the customer is always right.

tristanjOP17d ago

> This naive view does not account for the Trumpian trade wars killing the other viable export market, for the need for geopolitical support for Taiwanese reunification or any number of other factors.

This is unclear and poorly written. What you are referring to here?

The core issue with Europe and China is they are fundamentally unequal trading partners. China does not need to buy European goods. In fact, for whatever China does import from Europe, it is aggressively pursing its own domestic alternatives, so that it doesn't have to buy from Europe. COMAC replaces Airbus. SMIC replaces ASML. AECC replaces Rolls Royce jet engines. Dozens of domestic alternatives are replacing European precision manufacturing. German auto manufacturing is replaced by Chinese EVs.

In a few years, what will Europe have left to export to China, to keep a balance of trade and stop wealth from flowing to China?

>Europe can support a deficit with China by maintaining a surplus with the rest of the world.

Easy to say, but how will Europe achieve this? Who will Europe export to? Europe enjoys a €200 billion trade surplus with the US; but given the deteriorating relationship with the US, it's not likely to gain here. The developing world is rapidly buying more from China, because their goods are cheap, numerous, and adequate quality.

Practically everything Europe can export, China can produce at a lower cost and equivalent quality. Where is the competitive advantage?

There is no easy way out.

vrganj17d ago

Wealth doesn't flow from Europe to China. One form of wealth flows in exchange for wealth in the form of goods of equal value. That's how trade works.

And again, Europe will be vital to China once China finally makes the move to reunify with Taiwan. China will find itself completely isolated from the only other market of comparable wealth and size to Europe.

China already has a huge underconsumption crisis. If you have an Economist subscription, I would recommend listening to this Episode of Drum Tower for more context: https://www.economist.com/podcasts/2023/08/29/chinas-consume...

All this to say: China needs consumers more than Europe needs producers. The balance of power is entirely in Europe's favour.

You keep focusing on production, but the demand side is what drives economies. Any fool can produce. Without a buyer, that is just a waste of resources, however.

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vrganj17d ago

This naive view does not account for the Trumpian trade wars killing the other viable export market, for the need for geopolitical support for Taiwanese reunification or any number of other factors.

There's no "China wins" or "Europe loses". Trade is not zero-sum. Trade is interdependence and the customer is always right.

tristanjOP17d ago

This is unclear and poorly written. What you are referring to here?

In a few years, what will Europe have left to export to China, to keep a balance of trade and stop wealth from flowing to China?

>Europe can support a deficit with China by maintaining a surplus with the rest of the world.

Practically everything Europe can export, China can produce at a lower cost and equivalent quality. Where is the competitive advantage?

There is no easy way out.

vrganj17d ago

Wealth doesn't flow from Europe to China. One form of wealth flows in exchange for wealth in the form of goods of equal value. That's how trade works.

All this to say: China needs consumers more than Europe needs producers. The balance of power is entirely in Europe's favour.

You keep focusing on production, but the demand side is what drives economies. Any fool can produce. Without a buyer, that is just a waste of resources, however.

j / k navigate · click thread line to collapse