As the threat of a trade war between the US and China looms, EU may face increased exports from China, prompting calls for new tariffs. Molly Guggenheimer of Danske Bank suggests that without such measures, European companies could suffer from price pressures.
EU May Need New Tariffs Against China, Warns Stock Strategist
EU May Need New Tariffs Against China, Warns Stock Strategist
The looming trade war between the US and China risks creating significant export flows from China to the EU. The answer may be new EU tariffs against China, according to Molly Guggenheimer, a stock strategist at Danske Bank.
"Otherwise, the price pressure could hit companies in Europe," she says.
"Global markets are flooded with cheap Chinese electric cars," declared European Commission President Ursula von der Leyen in a speech last fall. At that time, the EU responded to the extensive export of electric cars from China by imposing significantly increased tariffs on Chinese electric car manufacturers.
Now, as tariff negotiations between the US and China have been preceded by triple-digit tariff threats, the risk of a Chinese export flood is once again highlighted, which, when slowed by US tariffs, could flow more forcefully towards the EU.
Price Pressure Begins
In their quarterly reports, several listed engineering companies also showed a unanimous view: Price pressure in Europe has begun. Risk analyses raise concerns that China, as a result of US tariffs, will increasingly export goods to Europe. Molly Guggenheimer, a stock strategist at Danske Bank, fears this could dump the market for companies in the EU. To curb this, she believes the EU may need to impose trade tariffs against China.
"The trade relationship between the EU and China has changed since the pandemic. We have started competing for the same product groups, such as cars," says Molly Guggenheimer.
EU sales to China have been weak for many years, while exports from China to the EU have increased.
But wouldn't imposing trade barriers like tariffs be taking Trump's (protectionist) path?
"Yes, but free trade is something countries engage in together. If a country breaks this, like the US, the conditions change. If China starts dumping prices here, companies will have problems. Then the EU may need to protect our industry," says Molly Guggenheimer.
To grow the EU's economy, competitiveness must be safeguarded, she argues.
"If China starts competing with goods that the EU sells, but which China sells at a much lower price, it may be justified for the EU to impose tariffs," says Molly Guggenheimer.
Against the Free Trade Idea
Despite an overcapacity in industrial production, China is accelerating its manufacturing industry and, with state-subsidized growth, is expanding its capacity and focusing on exports. This is seen by many analysts as a deliberate model by China to dump prices and thereby eliminate competitors. In such a narrative about China, many believe tariffs are the only remedy, according to Björn Cappelin, group leader at the National Knowledge Center on China.
"At the same time, many countries resist the idea that we should need to protect certain industries with tariffs. They are historically bound to the idea of free trade," he says.