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Global supply chains

Decouple the EU from China?

By Michael Gobbel

31 March 2020

The initial response to the Covid-19 virus has been characterized by the erection of national barriers to goods and people and a new propaganda war with China at the centre.

As if that was not enough, some European leaders have already started talking about changing the economic model. French Finance Minister, Bruno Le Maire, wants to reconfigure trehe supply chains to “gain in independence and sovereignty.” The British tabloids talk about ‘the day of reckoning with China.’

Yes, blaming China is to a certain degree warranted. China covered up the initial outbreak and silenced medical professionals, thereby siphoning the whole world into disarray. According to a study funded by the EU Horizon 2020, if the authorities in Wuhan had taken the necessary precautions 3 weeks earlier, the spread of COVID-19 would have been reduced by up to 95%.

However, moving supply chains away from China would only treat the symptom rather than the root problem; and it would be an unsustainable endeavor that would cost European citizens dearly.

The World Health Organization has declared a health emergency multiple times in the last decade. The outbreaks of SARS in China (2003), Swine Flu in Mexico (2009), MERS in Saudi Arabia (2012), and Ebola in Africa (2014-16) are four examples that have one thing in common—the lack of coordinated mechanisms to combat global viral outbreaks.

The emergence of the coronavirus has much less to do with China per se and much more with a concoction of population growth, urbanization, and climate change. The expansion of international trade and advancement of global supply chains, plus the rise in international flights, also allow diseases to spread faster than ever before.

That does not mean that China should not be held accountable for its animal trading practices, but we need to attack the root of the issue, which is our globalized industries. Viruses don’t have borders. They have emerged from Africa, South America, and the Arabian Peninsula and the next one can originate anywhere in the world.

Moving away from China would not do anything to address the issue other than damaging the European economies.

China is the EU second-largest trading partner after the United States and the EU is China's largest trading partner. According to Eurostat, the EU imported 362 billion worth of goods from China and exported 198 billion to China in 2019. Exports to China accounted for 9% of total exports, out of which Germany alone made up 15,2% of extra-EU exports. Besides trade, there is also a human interdependence—the hundred and thousands of Chinese students who come to study in Europe.

European leaders just need to glance at the US-China trade conflict to get a feel of how a “decoupling” strategy would look like. US companies either had to absorb or pass the cost of tariffs to consumers, farmers are left with a colossal supply of soybeans and more than 10,000 Americans have lost their jobs in August 2019 due to trade pressures. Is this the path Europe wants to take?

Decoupling from China just does not add up, much less so for preventing pandemics. The forces that drive virus flare-ups are systematic in nature and need to be addressed multilaterally. Member states have to give the EU the authority and ability to intervene swiftly and intrusively to fight disease outbreaks. 

A good place to start would be abolishing the balanced budget provisions in times of crisis and enlarging the scope of the European Stability Mechanism. But in the long run, there is no getting around consolidating the monetary union—so “coronabonds” can directly be issued by the ECB.

The real battle begins after the virus has faded. Kick-starting the economy and dealing with the massive amounts of debt requires both energetic European intervention and collaboration with our partners abroad. China is already helping Europe with medical equipment—partly out of self-interest—and will be a crucial ally in the corona aftermath.

Cooperation between the EU and China has a long tradition in science and technology and spans across many other areas, such as agriculture, environment, and urbanization. Continuing to build on those synergies will help us spur economic growth and can potentially fast-track the creation of a vaccine.

Governments after this crisis will ask us to make a choice: We can disrupt global supply chains and blame China for our misery. Or we can continue sharing the fruits of a globalized world and deal with its repercussions together. Choose wisely.

 

Michael Gobbel is doing his Masters in Public Administration at Peking University and has previously worked for the U.S. Senate and European Parliament.