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Europe’s Global Partner: China Dethrones The U.S.

China dethrones the U.S.
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EDITOR NOTE:  The threatening narrative of China dethroning the US almost implies a dramatic and definitive battle for economic dominance. It’s actually more subtle and much more incremental. For instance, the internationalization of the yuan, a big yet undramatic move, constitutes one threat. Another threat--unseating the US as Europe’s biggest trading partner, well, that just happened. China’s economy is operating closer to pre-pandemic levels as compared with the US. And according to the IMF, China is expected to come in second-highest in terms of economic growth in 2021. China represents a kind of political and economic stability that America somehow lost. What’s next is the unseating of the dollar, China’s military and technological dominance, and the dethroning of America as the top global superpower. If China dethrones the U.S., the devaluation of America’s status and the value of the dollar will be severe.

China dethroned the U.S. last year to become Europe’s top trading partner for the first time, data from the European statistics office has shown.

European Union exports to China grew by 2.2% last year and imports rose by 5.6%. In comparison, exports to the U.S. dropped by 8.2% and imports fell by 13.2%. The latest figures, released Monday by Eurostat, showed that China now has an even bigger role in how European economies perform.

“The reason behind it is clearly the fact that China/Asia is the only region going through a nice V-shaped recovery,” ING Germany economist Carsten Brzeski told CNBC on Tuesday.

China, where the first Covid-19 cases were reported, has not gone through severe social restrictions for a second time as has been the case in many European nations.

The current crisis gives us no other option but to work hand in hand with our global partners, including China.
Valdis Dombrovskis

As a result, the Chinese economy is performing slightly closer to pre-Covid levels in comparison with other parts of the world, where restrictions are still taking a toll on activity. China is expected to register the second-highest growth rate globally in 2021, according to forecasts from the International Monetary Fund.

“Looking ahead, the importance China has for European trade is also a clear dilemma,” Brzeski said, adding that “Europe will have a hard time making choices” between trading with China and helping the U.S. on the technology front.

The U.S. and EU have clashed with Beijing over 5G and technology transfers — when a government asks foreign firms to share their tech in exchange for market access. At the same time, Washington and Brussels also have concerns over human rights in China.

The “risk is that compromising and balancing between the two will hamper future growth,” Brzeski said.

However, the European Union seems willing to strengthen economic ties with China. The two reached a new investment agreement in December aimed at making it easier for European firms to operate in China.

The deal, which seemed to have been rushed through before Joe Biden’s inauguration in late January, prohibits China from stopping access or introducing new discriminatory practices on manufacturing and some service sectors.

At the time of the announcement, European trade chief Valdis Dombrovskis said: “The current crisis gives us no other option but to work hand in hand with our global partners, including China.”

“By pulling together we can recover more quickly economically, and make progress on areas of mutual interest such as trade and investment relations,” he said in a statement.

The agreement has yet to be approved by European lawmakers, some of whom are critical of the Chinese government and are reluctant to sign it off.

Originally posted on CNBC

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