U.S. and Chinese officials convened in London on 9 June for the first meeting of the economic and trade consultation mechanism—a channel of communication agreed upon during their first negotiation in Geneva this past May.
The framework agreed in London on the one hand offers temporary relief to businesses and markets, and time for both actors to strengthen their positions vis à vis one another. It will not solve the underlying issues between the two states, however. The road ahead is far from smooth.
Whatever transpires in the weeks and months ahead, Europe faces an increasingly difficult challenge: how to transition from being a recipient of decisions made by China and the United States to actively shaping its own future. Caught between negotiations with Washington over tariffs and Beijing's upgrading of export controls, Europe finds itself once again in a defensive and reactive position.
Caught between negotiations with Washington over tariffs and Beijing's upgrading of export controls, Europe finds itself once again in a defensive and reactive position.
Neither the European Union nor the United Kingdom has yet fully managed to chart a strategic course that enables them to shape the external environment to advance their own interests, rather than focusing on survival in response to crises. This survival mode has not been without results, however, and the planning undertaken in recent years has not been in vain.
The United Kingdom has successfully negotiated a preliminary agreement with the United States in the form of the “Prosperity Deal,” and the likely reason the latest U.S.-China meeting took place in London is that the Chinese delegation was scheduled to be in the city for, among other things, a meeting with Chancellor Rachel Reeves. The United Kingdom appears to maintain relatively positive relations with both nations. Beneath this veneer of positivity, however, lie significant sticking points. The controversy over the location of the new Embassy of the People Republic of China in London, which critics have flagged as a security risk for its proximity to the city's financial centre, is one of many. Meanwhile the supply chain clauses in the U.S.-UK Prosperity Deal have the potential of granting the United States significant leverage over UK trade policy which in time could lead to tension with both the United States and China.
The European Union, meanwhile, remains in protracted negotiations with Washington and has prepared a potentially retaliatory package should talks fail, but even that has its limits. It may, at least for now, have managed to secure a solution with China on the issue of licences for rare earth exports, which are being fast-tracked for EU companies. This success is particularly noteworthy given that the two are still negotiating over the countervailing duties imposed by the European Union on Chinese electric vehicles and that only a week prior to opening the fast-tracked licences the European Union imposed new restrictions on Chinese companies accessing public procurement for medical devices under the International Procurement Instrument. This latest example represents a significant victory for the European Union, as it managed to assert its strategic interests over short-term obstacles and successfully hold its own in negotiations with Beijing. It is no small achievement that no core red lines were crossed in the process, that a broader negotiated solution appears to remain on the table, and that China retains an interest in ensuring European companies are positively engaged. A question still lingers, however, over how many other areas of contention this approach can work for.
Additionally, both the European Union and the United Kingdom have accelerated efforts to strengthen their economic relationship with other partners, with recent successes including the UK-India Free Trade Agreement, EU openings towards the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and the memorandum of understanding between the European Union and the United Kingdom themselves.
The agreement between the United States and China may offer temporary help managing some immediate concerns, but it does not prevent further instability and unpredictability for Europe. If Chinese goods regain easier access to the U.S. market, the risk of dumping into Europe will diminish. Additionally, the agreement with China signals that a solution with Washington—albeit temporary—is possible. Yet, the agreement will only half-heartedly be welcomed in Europe.
In an environment where agreements are frequently broken and renegotiated at speed, deals no longer provide the assurances they once did. This means that China will likely use any respite to bolster its resilience and reduce its dependency on the United States. Moreover, Europeans have not forgotten that the Phase One deal reached during the first U.S.-China trade war created advantages for American companies, often at the expense of European counterparts. This prompted the European Union to conclude the Comprehensive Agreement on Investment (CAI) with China at the end of 2020. Although the CAI may now be defunct, the concern that future U.S.-China deals could come at Europe's expense remains.
Both the European Union and United Kingdom have a relatively rich toolbox to deal with the challenges of an increasingly unpredictable global economy.
Both the European Union and United Kingdom have a relatively rich toolbox to deal with the challenges of an increasingly unpredictable global economy. Despite known limits, the European Union has been able to delineate what its objectives are and advance them, especially in its relationship with China. Since 2023, the Commission has advanced more than 20 investigations against unfair practices and lack of a level playing field in the relationship with China, including the use of new instruments such as the Foreign Subsidies Regulation and the International Procurement Instrument.
Making clear what Europe's position is on key matters, and how it seeks to advance and safeguard its interests, is step one to avoid being pushed around by others when the time comes. It will not always be possible to stay the course, but having a position can form a more advantageous basis for negotiations than not having anything. Secondly, as the new normal of international economic relations comes into shape and policymakers gain a better understanding of its implications, both the European Union and the United Kingdom must more deeply engage in scenario planning to improve their chances of advancing their interests in the future. Finally, the European Union and the United Kingdom must strengthen their bilateral relationship. The quick conclusion of its deal with the United States may have convinced some in the United Kingdom that it is an advantage to be able to negotiate without the burden of EU involvement. But in the longer term, negotiating in alignment with a trading bloc the size of the European Union will offer decisionmakers in London a measure of insulation from the harshest effects of zero-sum tariff wars.
The task at hand for European and British decisionmakers is once again to define their own interests and chart a path to achieve them. The European Union seems to have begun to do so, and the United Kingdom is in the process of publishing strategies that will clarify the path ahead. The next months and years will challenge whether Europe can stay the course, or it will lose itself trying to respond to ongoing challenges.
