Nexperia row shows how China is weaponising EU relationship - and winning
As interventions go it was pretty audacious.The Dutch government decision at the end of September to take over Nexperia, a Chinese-owned chip factory, almost brought the entire European car industry to a halt.Tensions between Europe and China de-escalated over the weekend as Beijing confirmed it would ease restrictions on automotive chip supplies to the EU, prompting sighs of relief in car factories around the world.But it has only intensified the questions about the EU’s asymmetric relationship with China, with many in industry, diplomacy and governments asking if Europe is no longer collateral damage in the wider Sino-American political war but a target in itself.“We can buy a bit of time, but there is a sense that we are entering into a situation where we are going to be dealing with rolling crises from now on and that things have really crossed a threshold with China,” said Andrew Small, a senior fellow at the German Marshall Fund thinktank and former China adviser within the European Commission.
Crucially China agreed to resume the supply of Nexperia chips, but only for a 12-month period, and only for civilian use, leaving the way open for future action should Beijing wish to interfere in the EU’s revived defence industry or turn the tap off again for the car industry.“China is repeatedly now taking steps that does not actually stop industries from functioning but just chokes supplies.If this kind of stranglehold persists, it just puts Europe under a constant sword of Damocles,” Small added.Europe is “no longer collateral damage” of the trade war with Donald Trump, said Small: “I think people are beginning to understand that now.”The deeply bruising experience of Nexperia aside, there is a wider imbalance in the relationship between the EU and China with a trade deficit standing at €300bn (£263bn) in China’s favour, with the bloc’s tariff measures, including last year’s electric vehicle levies, doing little to stem the tide of imports.
In April there were a series of slowdowns in car manufacturing after China imposed export controls on materials, and one politician in Germany reported at a conference earlier this year that one household name had 100,000 cars parked up waiting for window magnets.By June manufacturers were in “full panic” trying to source magnets, and more recently it emerged that manufacturers in Germany, which imports 95% of its rare earths from China, were being forced to hand over details about their businesses, which not even the German government has, to China in order to get hold of the goods.Jens Eskelund, the chair of the European Chamber of Commerce in China and a managing director at Maersk in China, believes that products on Shein such as plastic garden chairs or Christmas decorations are not the issue but the dependency China is creating in strategic industries such as clean tech, in other words the car industry, solar and wind industries.“Of course there are nuances here, there are certain sectors that are under threat.Europe is still a leader, or maybe last year was a leader within the production of wind turbines but if something does not happen, Europe will not be producing wind turbines five years from now,” he said.
“We are living in a period of change unseen in 100 years,” Eskelund told a recent briefing in Brussels,“When China says China is rising and the west is declining, it’s not necessarily in terms of the economy, but what it sees as parliamentary democracies containing the seeds of their own destruction,”Or, as Small says, “China weaponises its trading relationships”, using them as an opportunity to “project power” on a weaker rival and to extract economic advantage,Bloomberg reported last month that German car companies were being asked to submit detailed confidential information on their own businesses to get licences to import magnets needed for window openings in cars, giving Beijing a greater inside view of German companies than Berlin has,Officially the EU has been pursuing a policy of “de-risking” from China but not “decoupling”, as set out by the European Commission president, Ursula von der Leyen, in March 2023.
“The Nexperia and rare-earths crises could and should jolt Europe out of its de-risking stupor,” Noah Barkin, an adviser to the China-watching thinktank Rhodium Group, said in a post on LinkedIn last week berating the “inertia” in Berlin when it came to acting to change the balance in the relationship with China,Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionA more likely scenario in relation to the current EU negotiation on rare earths, said Barkin, “is that China gives US firms preferential access to rare earths to pacify Trump while keeping the Europeans on a tightly controlled drip-feed”,Officials in the EU express a degree of frustration that they are using the tools they have – “constantly looking at trade defences” to blunt China’s march including last week’s anti-subsidy investigation into Chinese tyres – but don’t get a sense that member states are playing their part in helping their own industries diversify their supply chains,There are clear signs that Brussels and France want to square up,Last month von der Leyen warned the EU was “ready to use all of the instruments in our toolbox to respond if needed”, a thinly veiled reference to the anti-coercion instrument (ACI) it did not use in its tariff row with Trump earlier this year.
Labelled the “nuclear deterrent” by Brussels diplomats, it is a never-before-used trade defence law passed in 2023 that could allow the EU to impose more restrictions on Chinese imports, ban it from procurement tenders and at its most extreme block access to the open market,The French president, Emmanuel Macron, who pushed for the ACI to be used against the US, is openly pushing for it to be used against China if necessary,“This is economic coercion,We need to act,” he said after the EU summit of leaders in October,But he is unlikely to get the backing of Germany.
“It is not so easy to decouple from China, because there would be retaliation,” said Joachim Taiber, an advanced research fellow and automatic industry expert at Imperial College who points to the near 800,000 vehicles a year that BMW sells in China.“You could completely decouple, emulate the US and say we are not going to use any Chinese components but that is the alternative extreme and unworkable.It would have a disastrous impact on the economy,” he added.The EU has no operational rare-earth mines.The US Treasury secretary, Scott Bessent, said after the Korea meeting between Trump and Xi Jinping that it was “two years” away from its own supplies with companies such as General Motors already teaming up with mines.
Nigel Stewart, the director of the Centre for Sectoral Economic Performance at Imperial College London, said China controlled 96% of the world’s magnet supply and it could take 10 years for Europe to do what Xi has done – buy up or control the entire supply chain from mine to assembly line.
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