Without a Strong Trading Relationship With China, Europe Cannot Leverage The USA

Donald Tusk, the current President of the Council of the European Union has just articulated the feelings of many disgruntled EU leaders in saying that Donald Trump is a blessing in disguise because his unwillingness to treat the EU as an equal to the US has opened up many eyes in Europe regarding delusions about geopolitical parity with the United States.

It remains true that the EU still has many more points of agreement with the US than points of disagreement, but under Trump, these points of disagreement have been profound. First there was Trump’s withdrawal from the Paris Climate Agreement which set the tone for a trans-Atlantic ideological schism. Recent months have seen a much profounder set of disagreements regarding Trump’s threats to put of large scale tariff barriers to EU goods coming into America while calling the EU’s trading relationship with the US unfair.

Now, Trump’s withdrawal from the JCPOA (Iran nuclear deal) has created a profound schism which has seen multiple EU leaders vowing to preserve the JCPOA minus the United States even in the face of US threats of sanctions against EU companies, financial institutions and even sovereign bodies who defy Washington’s anti-Tehran stance.

While today’s announcement that the EU will now purchase Iranian energy in Euros rather than US Dollars is a sign that Brussels, Berlin, Paris and to a lesser extent London may be serious about pursuing a JCPOA -1 format, the fact of the matter is that due to the restrictive trade policies of Brussels, the EU has little leverage against more powerful US based financial institutions.

During the run-up to Trump’s withdrawal from the JCPOA, it is almost certain that visits from the French President and German Chancellor involved discussions about both the JCPOA and even more importantly from Washington’s perspective, about the EU/US trade deficit. Had the Europeans been able to work with Trump on allowing more US goods into the EU or otherwise volentarily cutting back exports into the US, there may have been a slim chance that Trump would have shifted his position on the JCPOA.

Because Europe maintained a firm line on trade, clearly Trump went with his instincts and the preferred route of his close partners in the “Israeli” regime and withdrew from the JCPOA. Now Europe is faced with the dilemma of maintaining its healthy and growing economic ties with Iran as well as staking a claim for geopolitical independence from the US and risking sanctions from Washington, or otherwise quietly capitulating and allowing the JCPOA to die.

But what European leaders have not yet grasped is that if a bloc that has for decades been so inexorably tied with the US seeks to now broader its geopolitical portfolio, it must rapidly engage in expanded economic ties with China and also Russia.

While more EU officials have been speaking with their Chinese counterparts about loosening trade restrictions, but thus far there has been little to show for these discussions. In reality, China and the EU are ideal trading partners. As Chinese purchasing power increases and with China already being the world’s biggest single domestic market, Chinese consumers are hungry for European luxury goods that in many cases are becoming too expensive for Europeans to afford. Just as European wages stagnate while prices continue to increase, Chinese goods which are on the whole far more affordable than their EU, Japanese or US equivalents, would be desirable to European consumers who are looking for better values on necessarily items.

In this sense, a deal to open up Chinese markets to European goods while opening European markets to Chinese goods, could potentially be a very substantial win-win for both sides. Crucially, if the EU wants to gain its coveted political independence from the US – something which typically happens whenever a brash Republican is in the White House, the only way for Brussels to put its money where its mouth is, is to use China as a means of leveraging Donald Trump’s threats in what could be a protracted trade war with the protectionist White House.

If the EU remains at odds with the world’s most dynamic economy, it will have little to show for its policy independence which is necessarily contingent upon a more diverse set of trading partners. An EU-China economic partnership could give Europe the leverage it needs to then give Iran the necessary guarantees of economic sustenance in a post-US JCPOA. China and Russia are clearly ready to up the stakes in terms of economic cooperation with Iran, but Europe remains compromised in this respect.

Because the JCPOA was supposed to act as an economic bridge for Iran into western economies that had typically followed the US path of sanctions and suspicion, without European participation, a post-US JCPOA would likely fail and be replaced by intensified Russo-Chinese cooperation with Iran, a stronger Iran-Turkey partnership next door and a pan-western sanctions war against Iran. This is the case because if the EU remains overly reliant on US markets which under Trump are becoming increasingly hostile to European imports even before taking the  trans-Atlantic JCPOA row into account, Brussels may have no choice but to capitulate to US threats of sanctions if European businesses continue to work with Iran, for the very reason that the EU would have no means of leveraging these US threats without a Chinese trading partnership as a means of balancing the EU’s relationship with Washington.

While many European leaders remain suspicious of China for the most simplistic reasons imaginable, the reality is that Europe cannot have its cake and eat it too. The EU must decide if it wants to be a truly independent economic bloc or whether it wants to perpetually be a vast market living in the shadows of the United Sates. Without China, Europe will be little more than a more over-regulated version of America that prices itself out of its own ideal markets.

Of course such a move would also require a rapid mending of fences with Russia. Thus far, the EU’s policy of hostile sanctions and political provocations against Russia has been virtually identical to the US. With Washington out of the JCPOA and with the EU seemingly intent on preserving the agreement, Brussels will have to not only work to open its trading doors with China, but will have to work to de-escalate tensions with Russia. A first step in such a process would necessarily involve dropping sanctions.


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