EU labor market faces potential trade war threats from China, cautions ECB
The US-China trade tensions have had a significant impact on the Eurozone labor market, with the suspension of mutual tariffs offering a temporary reprieve but leaving long-term challenges unresolved.
In April 2020, Donald Trump signed an executive order imposing tariffs on several countries, including China. This move was followed by a series of tariffs, with an initial rate of 34% on Chinese goods, and a basic "mutual" tariff of 10% and an additional 20% under the pretext of combating fentanyl shipments. In response, Beijing raised tariffs on US goods to 125%, with the effective rate reaching 145% when considering previously imposed tariffs.
However, on May 12, 2020, China and the US announced a 90-day suspension of "mutual" tariffs. This decision was made following two days of talks between Washington and Beijing in Geneva. The agreement was solidified in a trade deal that was signed by Trump on June 27.
During the tariff suspension, the Eurozone, especially Germany, experienced weakened exports to China, particularly in key industrial sectors like automotive manufacturing. European exports are forecasted to decline sharply by 2027, contributing to economic stagnation and reduced demand for labor in affected industries.
Chinese imports have surged in the Eurozone, with a 60% increase post-pandemic. This import penetration means European firms face heightened competition domestically and in third markets, expanding beyond low-cost goods to high-value-added sectors such as vehicles and specialized machinery.
The rising Chinese presence challenges jobs as firms lose market shares or are forced to adjust operations. As firms import more from China, labor demand shifts within the Eurozone, affecting employment patterns by industry and skill level.
Looking ahead, continued Chinese competitiveness driven by low labor and capital costs and policy consistency enables overproduction, allowing Chinese firms to dominate sectors such as photovoltaic panels (China controls 80% of global production) and automotive industries. European companies face a dual challenge: maintaining their competitiveness while transitioning to decarbonized economies by 2050.
Growing dependence on China for critical clean technologies and raw materials essential to energy transition raises concerns about economic security and strategic vulnerabilities. Although dependencies on long-life-cycle products like solar panels may stabilize over time, the labor market impact includes potential job displacement in traditional manufacturing with uncertain gains in emerging clean tech sectors without strong EU innovation policies.
Chinese foreign direct investments in EU countries, such as automotive and battery manufacturing plants, could bring mixed effects—potential benefits for local employment if well-managed versus risks of increasing technological and economic dependence on China, which might undermine Europe's strategic autonomy and limit its ability to negotiate better employment outcomes.
Geopolitical tensions combined with industrial policy issues—such as China's subsidies and overcapacity—pose further risks to Europe's industrial base, potentially exacerbating job losses and structural unemployment, particularly in Central and Eastern European economies heavily reliant on industrial exports.
A study suggests that European companies need to adapt to an increasingly competitive global environment due to the shift in trade away from the US and China's increased competitiveness in high-value-added industries. Economists at the ECB found that an increase in Chinese imports into the European Union of 1,000 euros per worker in a particular sector between 2015 and 2022 led to a 0.1% drop in employment in that sector over the same period.
Despite the suspension of tariffs, around 240,000 jobs in Europe were lost or shifted to less vulnerable sectors due to the increase in Chinese imports. The impact of this factor is currently most noticeable in sectors such as transportation and chemicals.
In conclusion, the US-China trade tensions and tariffs have reshaped the Eurozone labor market, pressuring employment in traditional manufacturing while opening complex opportunities and risks in strategic technology sectors. Effective EU policies balancing innovation, trade protection, and energy transition goals will be critical to mitigate negative labor market impacts and capitalize on new opportunities.
The suspension of mutual tariffs between China and the US, while offering a temporary reprieve for the US-China trade tensions, has resulted in a significant decline in European exports to China, particularly in the industrial sector, contributing to the loss of approximately 240,000 jobs in Europe, with the impact being most noticeable in sectors such as transportation and chemicals. The increasing competitiveness of China in high-value-added industries, such as automotive manufacturing and photovoltaic panels, complicates the Eurozone's finance, politics, and general-news landscapes, as European companies grapple with maintaining competition while transitioning to decarbonized economies.
