May 19, 2024

Off the Charts: Europe Frets Over Trade Deficits With China

The commission said China was “significantly subsidizing its coated fine-paper industry by giving cheap loans, allocating land below market value and granting various tax incentives,” and announced duties of up to 12 percent on imports of high-quality paper used for magazines and brochures.

While the move affected only one industry, it was indicative of rising worry in Europe. “There is a general feeling that economic openness and business climate in China are not improving, so we will use all instruments at our disposal to improve the situation there,” Europe’s trade commissioner, Karel De Gucht, told a European Parliament committee last month.

Over all, the bilateral trade deficits between countries in the European Union and China have been growing since economies began to recover in 2009, but there are wide differences between countries. Trade levels had plunged during the financial crisis, and are now recovering.

Germany, by far the largest exporter in Europe, now runs a trade surplus with China, something it did not do before the financial crisis. But Italy’s terms of trade have weakened significantly.

The accompanying charts show that exports from most European countries to China are rising faster than imports from China. But if Europe is to start reducing its bilateral deficits with China, it will have to make even more adjustments. At the extreme, Greek exports are now running at well over twice their 2007 level, while Greek imports from China are declining and are only slightly ahead of the 2007 level. But because Greek exports are so small, Greece still exports only 10 cents worth of goods to China for each dollar’s worth it imports.

Bilateral trade deficits are not the full story, of course. A country can run a large deficit with one country and a similar surplus with another. But with China now by far the world’s largest exporter, a big deficit with it can be hard to overcome. Britain’s trade deficit with China was nearly 5 percent of its gross domestic product in 2010.

The charts show the four largest economies in the European Union — Germany, France, Britain and Italy — and the three that have been forced to seek bailouts — Greece, Ireland and Portugal. The final chart shows the combined trade with China of the other 20 countries in the union.

The austerity that was forced upon Ireland and Greece has stifled imports, particularly in Ireland, and something similar seems likely to happen in Portugal. But Italy, which is also deeply in debt but has a growing economy, has been able to rapidly increase its Chinese imports. As a result, its trade deficit with China has nearly doubled over the last year.

The trade figures are released by China and are in dollars, which is the currency used to denominate most international trade. China has released data through April for its major trading partners but has given figures only through February for some smaller ones.

The United States has also been vocal in worrying about its trade deficit with China, which is now larger than it was before the crisis. But while Europe has focused on specific industries, looking for subsidies and other unfair trade practices, the Americans have emphasized the need for China to allow its undervalued currency to appreciate.

Floyd Norris comments on finance and the economy on his blog at

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