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China is now the most important trading partner for many countries in the global south. The European Union and the USA are lagging behind, a study shows. This has political consequences.
When the corona pandemic broke out in 2020, it wasn’t just tourists who suddenly failed at the borders. Urgently needed medical goods and intermediate products are suddenly no longer coming to Europe. Hospitals, for example, lack medical masks or disinfectants from China. Almost all of the global supply chains depend in some way on the country that has completely closed its borders. There are also general transport difficulties and factory accidents.
Experiences like these led politicians in Germany and Europe to pursue a new strategy in China policy: “de-risking”, in German, risk minimization. China now occupies a central position in many areas of economic life. Critics consider the EU and countries like Germany to be open to blackmail. They demand that new trading partners be won in order to minimize dependencies on China and spread risks.
China has overtaken the EU and USA
But many of the alternative trading partners recently seem to be more oriented towards China than the European Union. This is shown by a new evaluation by the German Economic Institute (IW). Accordingly, China has overtaken the EU and the USA in terms of trade volume with the 25 strategically most important emerging and developing countries.
Until the turn of 2017/2018, the EU and the USA were the most important trading partners for these countries. According to the IW analysis, China first overtook the European Union in 2019, and then overtook the United States in 2020. Overall, the People’s Republic of China’s share of economic exchange with the 25 strategically important emerging and developing countries has increased from around twelve to 20 percent since 2010. In contrast, the EU share of global trade with important emerging and developing countries fell from 17 to 14 percent.
Political influence over Trade relations
It’s no longer just about the export of soy, chips and cars – but about political power. “Through a close trade connection, both China and Russia are strengthening their geostrategic influence on the countries,” says IW trade policy expert Simon Gerards Iglesias.
This recently became very clear when it came to the sanctions against Russia in the Ukraine war. When Germany turned to Brazil to buy back ammunition for Ukraine, they were rebuffed. “Suddenly the West had to realize that it could no longer rely on supposed partners in the global south. It was a big surprise,” says the economist.
The trend will even increase. “China will further expand its power as a trading partner for strategically important raw material suppliers.” Conversely, this also means that the EU’s influence is likely to continue to decline, regardless of “de-risking”.
“The opportunity with the Mercosur agreement has been missed”
According to Gerards Iglesias, German and European politicians failed to conclude comprehensive trade agreements with countries such as the Mercosur states (Argentina, Brazil, Paraguay, Uruguay) when their own influence on these countries was even greater – and the countries like that to bind them politically through economic agreements. “We have now missed the opportunity with the Mercosur agreement. The EU is also speaking with too many different voices,” said the expert.
This may be why the EU has become less popular as a trading partner – because the countries concerned find negotiations with China easier. “In the global south, you often have the impression that China is building a bridge for you, while the Europeans are giving you a lecture on human rights. I think we need to get a little more on the same level, at least rhetorically,” says Gerards Iglesias.
An example for many critics: the extensive environmental regulations in the Mercosur agreement, which were also added later. Brazilian President Lula da Silva even described the regulations as “regulatory imperialism”.
Are risks for companies adequately covered?
From the researcher’s point of view, the German supply chain law could also have an impact. “Some companies will withdraw from countries that are central to raw material extraction because of the excessive reporting requirements,” warns the IW trading expert. Here he is hoping for Economics Minister Robert Habeck, who recently promised changes to the law.
The EU is responsible for trade policy. Nevertheless, Gerards Iglesias emphasizes that Germany can also lead the way in some areas. For example, with your own raw materials fund or financing protection for investments in strategically important countries. “We see this very well in Ukraine. There is a high political interest here in keeping the country close to the West. Accordingly, investments in the country that pose risks for companies are accompanied by political protection for companies – and it works .” This could also work in a similar way for Argentina and other countries.