Will the EU follow the U.S. on economic policy and China?

The European Union relies heavily on China for technologies and products needed for the clean energy transition.

At a time when the U.S.-China relationship is becoming more arm’s-length, how is that huge trading bloc known as Europe going to position itself vis-à-vis China? This week, the Biden administration reportedly told some allies it’s preparing to crack down further on microchip makers that keep giving access to China for some advanced technology. For Europe, how to handle the issue is especially complicated because so much green technology comes from China.

Ludovic Subran, chief economist at the global financial services company Allianz, spoke with “Marketplace Morning Report” host David Brancaccio about this. The following is an edited transcript of their conversation.

David Brancaccio: What’s your view on this? Is the EU gonna follow the U.S. line on China or approach China differently?

Ludovic Subran: I guess that’s the big question of today, right? We dodged the bullet the first time, in 2017, when the U.S.-China rivalry was really at its peak. And now we have, again, a moment of choice. I think Europe is full of dogmas when it comes to focusing narrowly on the issues of Chinese overcapacity and subsidies. We have a hard time following the U.S. with some of the tariffs. But we’re gonna have to make a choice and a strong one. So either we define a third way, and we have a form of collaborative approach to the Chinese situation, because we are so dependent, critically, on some of these decarbonization inputs or some of these automotive inputs. Or we follow suit with the U.S. and take responsibility for the additional costs that may be for our corporates and our households.

Brancaccio: To put a finer point on it, if Europe wants to meet its sustainability goals — including all these electric cars — it will be hard for Europe to shun China.

Subran: It’s really a catch-22, because we have very strong sustainability goals, as you mentioned, especially in the automotive industry. And we don’t have cheap and efficient and decarbonized solutions when it comes to that specific sector.

Brancaccio: Also, it comes at a time of, some would see, disarray within the European Union. Lots of new political pressure, far-right groups that are Euro-skeptical. Is this the time that Europe can get its head around a new initiative regarding China?

Subran: We could postpone the decision to be a bit more accommodating with the Chinese batteries, solar panels and automotive inputs. But at one point, we will be faced with the other problem, which is — we still have very strong [sustainability] goals, yeah. So there may be a bit more time with the current political disarray we have, but in the end, what we miss is good financing and getting the money out of the door for our own industrial policies.

Brancaccio: And it’s not just sustainability. I mean, China is in export overdrive, many will say, trying to sell things cheaply overseas to reinvigorate its economy, with the consumers in China being careful amid the property crisis there. I mean, you can imagine even rightward-leaning populist governments in Europe being leery of taking in too many cheap Chinese imports.

Subran: Well, you know, we have an inflation problem, right? So there is still this welcoming part on the deflationary exports from China. But there is, indeed, these questions of jobs. And how many jobs can we retain, facing China’s overcapacity and subsidies?