others) keen to upgrade their network gear bought from Nokia of Finland and Ericsson
of Sweden instead.
The thinking was based on the premise that Europe could avoid getting caught in the
crossfire. Increasingly, that is not the case. When it comes to trade restrictions, Europe
has been on the receiving end of both American and Chinese hostility, and more seems
likely in future. Meanwhile, Europe’s approach to China as a trade partner has hardened.
Compared with the all-out trade war he waged against China, Mr Trump started mere
tiffs with Europe. But the areas of tension are long-standing and seem likely to endure.
In October 2019 America imposed tariffs on $7.5bn of EU imports, and in November
2020 the EU hit back with tariffs on $4bn of American goods, in a row over state
subsidies for aircraft manufacturers. Further conflict looms in 2021 if Europe imposes a
tax on large tech companies—which America interprets, with some justification, as
singling out its own firms.
Trade with China has hardly been smoother. In this case it is largely a matter of Europe
cooling to Chinese firms. Human-rights abuses in Xinjiang and the crackdown in Hong
Kong have angered Europeans. But those came on top of concerns that Chinese firms
were morphing from customers of European industrial groups into competitors.
Though still committed to free trade, European policymakers now decry past “naivety”
when it comes to dealing with China. In 2021 the EU will flesh out ways to retaliate
against Chinese firms if state funding is deemed to be helping them undercut European
rivals. Partly in response to covid-19, the EU wants to repatriate supply chains of
“strategic” industries—a term that is used loosely, and can apply to just about any
sector.
Europe has also fallen foul of China by siding with America. Several countries, including
Britain and France, have acceded to American demands that they limit Huawei’s
involvement in their telecoms networks. And China is not afraid to remind European
countries that it can open and close its markets as it pleases: in September, for example,
German pigs were banned from the Chinese market on trumped-up sanitary grounds.
Even if Europe stays on good terms with both its biggest trade partners, their
continuing squabble will affect its firms. What is categorised as a Chinese export may
also be a European company’s product. Ericsson and Nokia manufacture gear in China,
for example, and German carmakers building vehicles in America for the Chinese
market have also been caught in the trade tumult.
More generally, Europe stands to lose from the unravelling of the free-trade system it
has helped build, alongside America, since the second world war. More than half of
European firms’ sales are overseas, compared with less than a third for American
companies, according to Morgan Stanley, a bank. The great rejigging of supply chains
resulting from the partial uncoupling of the Chinese and American economies will also
affect European companies. The few bits of extra business they might pick up on the
side will feel like scant consolation.