China, Europe Warn Trade War Could Trigger Global Recession

China and the European Union vowed to oppose trade protectionism in
an apparent rebuke to the U.S., saying unilateral actions risked pushing
the world into a recession.

Vice Premier Liu He — President Xi Jinping’s top economic adviser —
said China and the EU had agreed to defend the multilateral trading
system, following talks Monday in Beijing. The comments, made at a press
briefing with European Commission Vice President Jyrki Katainen, come
as both sides prepare to face off against President Donald Trump’s
tariff threats.

“Unilateralism is on the rise and trade tensions have appeared in
major economies,” Liu said. “China and the EU firmly oppose trade
unilateralism and protectionism and think these actions may bring
recession and turbulence to the global economy.”

Both China and the EU are coming under pressure from Trump, as the
U.S. president seeks to remake a global trading system that he sees as
rigged against the world’s largest economy.

After months of rhetoric and threats, the trade fight seems to be
coming to a head, with Europe imposing tariffs on $3.3 billion of
American products Friday in response to U.S. barriers on imports of
aluminum and steel. That triggered threats of further tariffs on
European cars from Trump.

Investment Curbs

Later this week, the U.S. Treasury Department is expected to release
fresh rules on Chinese investment in technology companies, Bloomberg
reported on Monday, putting additional pressure on China — which hit
back against the plans. Chinese investment has provided jobs and tax
income for the U.S., and it should view commercial activities
“objectively,” Foreign Ministry spokesman Geng Shuang told reporters in
Beijing on Monday.

The U.S. is due to impose tariffs on $34 billion of Chinese imports
from July 6, and Trump has threatened to impose levies on another $200
billion of Chinese goods. If that threat is realized, it could cut as
much as half a percentage point off China’s economic growth, and also
hit the American economy, economists have said.

Anxiety over the economic fallout is cutting deep in financial
markets, with China’s yuan sliding to a six-month low Monday. The
S&P 500 Index fell to the lowest since May and the Dow Jones
Industrial Average sank for the ninth time in 10 sessions.

As if to reinforce concerns about the economic outlook, the Dutch
Bureau for Economic Policy Analysis on Monday published its latest trade
monitor, showing world trade momentum dropped in April to the lowest
since 2015. The measure has fallen sharply since hitting a seven-year
high at the start of 2018.

As the conflict over trade has intensified, China has sought to align
itself with Europe as a way of pushing back against the U.S. Both sides
agreed in Monday’s talks to promote globalization and forged a
consensus on climate change, Liu said.

But despite their alignment against the U.S. trade threat, the EU and
China remain at odds over issues including the lack of reciprocal
access for European firms and the EU’s reluctance to endorse China’s
Belt and Road trade and infrastructure program. As China steps up its
engagement in Europe, the EU, too, is working on measures to tighten
screening of outside investments to protect critical technologies and
infrastructure.

A survey released last week by the European Union Chamber of Commerce
in China showed that a slim majority of members thought
foreign-invested companies are treated unfairly, and almost two-thirds
see a lack of reciprocity between the access to China’s markets that
they get, and the access Chinese companies get to Europe.

China and the EU will exchange offers related to market access at an
upcoming summit in July, Liu said Monday. He also said both sides agreed
to connect the Belt and Road initiative to the EU’s development
strategies.

The EU and China agreed to set up a working group to update the WTO
to better equip it for the contemporary world, Katainen said at a press
conference late Monday in Beijing. While the details have yet to be
decided, the EU hopes the working group is at vice-minister level, he
said.

In what Katainen described as “a big step forward,” the two sides
will also exchange a list regarding a bilateral investment agreement at
the upcoming summit. Still, that doesn’t mean the accord will be reached
immediately, with different views outstanding on overcapacity, forced
technology transfer and cyber security, he said.