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EU official warns on weaponization of trade amid U.S.-China tensions

Valdis Dombrovskis, Vice-President of the European Commission for the Euro & Social Dialogue, photographed at the Renaissance Harbour View Hotel in Wan Chai. 02DEC17 SCMP/ Xiaomei Chen (Photo by Chen Xiaomei/South China Morning Post via Getty Images)

South China Morning Post | South China Morning Post | Getty Images

The European Union’s trade chief on Wednesday warned against the “weaponization” of trade amid the latest ratcheting up of tensions between the U.S. and China.

EU trade commissioner Valdis Dombrovskis told CNBC that he did not believe trade “protectionism” was the answer to heightened geopolitical tensions, but insisted that the bloc was willing to defend itself in the new trade environment.

“The geopolitical landscape is changing, it’s getting more fragmented, it’s getting more conflictual, we see the weaponization of trade. So we need to equip ourselves also as the European Union to function in this more conflictual world,” Dombrovskis told CNBC’s Karen Tso.

His comments came in response to remarks made Tuesday by former European Central Bank president and former Italian prime minister Mario Draghi, who said the bloc must undergo a “radical change” if it is to remain competitive in the face of China and the U.S.’ refusal to “play by the rules.” 

It comes as U.S. President Joe Biden is set to call on the U.S. Trade Representative Katherine Tai to triple the China tariff rate on steel and aluminum imports as he seeks to boost union support in the swing state of Pennsylvania.

Such a measure would essentially preclude Chinese steel sales in the U.S., and likely reroute Chinese goods to other global markets.

Trade is being weaponized, EU's Dombrovskis says

Dombrovskis said the proposals would have a clear impact on the EU, and noted that representatives were currently engaged in talks with the U.S. on its China tariffs.

“Obviously it’s going to have broader repercussions because it’s clear that the steel market is globally connected,” he said.

Biden’s call marks the latest escalation of tensions between the world’s two largest economies over concerns of Chinese overcapacity. Washington and its allies have accused China of flooding international markets with cheap goods and undercutting domestic companies — claims Beijing vehemently denies.

Last week, U.S. Treasury Secretary Janet Yellen said she would not rule out potential tariffs on China’s green energy exports as the country increases output of solar power, electric vehicles and lithium-ion batteries.

Her comments were followed in quick succession by European Commission chief Ursula von der Leyen, who said Brussels must take a hard line on trade with China.

However, Europe has a delicate balance to tread in not alienating one of its largest trading partners while staying true to its geopolitical and economic alliances across the Atlantic.

“If it will be necessary, the EU will be ready to stand up to defend our economy and our companies,” Dombrovskis said.

His comments came on the sidelines of the IMF’s Spring Meeting, where on Tuesday it unveiled its World Economic Outlook and highlighted geopolitical tensions as a key threat to global growth.

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