Canada and the European Union: Two New Wins for Chinese Exports in the West

Ilaria Mazzocco

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Last week was full of surprises for trade disputes between China and U.S. allies in what has become a highly controversial sector in recent years: electric vehicles (EVs). Both Canada and the European Union appear to have reached agreements with China that would allow for more Chinese-made EVs to enter their markets. The United States should take note. Both the European Union and Canada were converging with the United States on their approach toward Chinese industrial policy, overcapacity, and trade disputes, but these deals suggest more willingness to engage with China on commercial matters, despite the country’s record exports (see Figure 1). Indeed, at a time when Washington is increasingly focused on technological competition with China, it appears as though some close allies may be considering a more diversified approach to technological stacks—one which may include some reliance and cooperation with China. Although derisking may still be a priority for Brussels and Ottawa in some specific sectors, neither government is espousing a broad strategy to isolate China at the moment.

There are big differences between Canada and the European Union and their respective relationships with China. Moreover, the breakthroughs of this week don’t address the structural issues that have raised tensions between China and many of its trading partners in recent years. However, taken together, the developments are significant because of the signal they send. One reasonable conclusion is that Western countries are still interested in Chinese technology and are mainly focused on reducing the volume or price competition rather than blocking trade altogether. A key background element in both cases is Chinese investments, which governments in Europe and Canada hope may boost domestic employment and innovation through potential technology transfers. Indeed, in the case of Europe, the investments already exist, and the debate has already shifted to how to manage and ensure that Chinese manufacturing can benefit long-term competitiveness and innovation goals. In other words, European and Canadian leaders believe that there are economic benefits to maintaining some trade and allowing some investment from China.