EU-China Trade Relations Will Improve Under Trump, Says Natixis

A US disengagement from trade with Asia would help strengthen, rather than harm, China’s trade relations with the European Union, says Natixis Research.

“Trump’s statements so far, from his dislike of the Trans-Pacific Partnership (TPP) to his threat to impose massive import tariffs on Chinese goods, seem to indicate that he wants to undo Obama’s pivot towards Asia and the current “cordial” US relationship with China,” says Natixis in a report.

Although China seems to be more vulnerable than the US because China imports less from the US than the US from China, both countries are now heavily integrated into the supply chain and any shock from either side would be reciprocally painful.

“Given Asia’s size in terms of both GDP and population, it is hard to believe that the US would just step back and watch China take its place in Asia,” says Natixis.

The Natixis report explains that the production and trade structures of China and the ASEAN bloc are increasingly complementary: China mainly imports oil, gas and other raw materials from the ASEAN countries, whereas they import electronics and textiles from China.

There is also a growing production chain linking China and ASEAN countries in which US companies are not necessarily involved. The ASEAN bloc is now China’s third largest trading partner, surpassing the European Union.

“To our mind, Europe could be the next stop for China. This would be all the more logical given the hefty investment that China has planned –and started to carry out – for a much better connectivity with Europe under the Belt and Road Initiative,” says Natixis in the report.

“However, trust is currently at a low level, after the recent antidumping calls by the European Commission and China’s lack of reform to sectors over capacity. However, an inward looking, erratic and/or aggressive Trump administration might be the catalyst for a rapid increase in trust between the EU and China.”

 

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