Trump, the EU and China + Breach of export controls+ Latest stimulus package

In this MERICS China Essentials, we look at the impact of the US elections on transatlantic and European China policy, the possible tightening of US export controls following the discovery of Taiwanese high-performance chips in Huawei products, the Chinese government's latest stimulus package and the measures to raise the birth rate that are putting pressure on women.?

In her comment, Director Policy & European Affairs at MERICS, Abiga?l VASSELIER , analyses how, after Trump’s election to the White House, Europe could get caught in the middle of an escalating economic and strategic confrontation between the US and China. She assesses that the EU needs to brace for Trump engaging in a very different conversation about China compared to the Biden administration – and for China making overtures to Europe that will test its unity. “The European Union needs to shift from ‘panic mode’ to developing an offer to the Trump administration, in which China will have a key role.” ?

A tightening of export controls is looming after a breach of export controls on advanced AI chips. According to a media report, the advanced chips of Taiwanese producer TSMC were found in a Huawei AI processor. MERICS expert Wendy Chang said: “The difficulty of ascertaining how Huawei was able to bypass US export controls illustrates the shortcomings of current measures.” She expects further escalation of the tech conflict: “Instead of the current targeted approach, we may see efforts to ban sale of chips and equipment to all Chinese entities.”?

In China, the National People’s Congress has announced a CNY 10 trillion (EUR 1.3 trillion) stimulus package focused on addressing risks in local government finances. “The leadership’s main objective is to strengthen economic resilience by focusing on structural weak spots, such as risks within local government debt,” says MERICS Chief Economist Max J. Zenglein . ?“Hopes that stronger fiscal support might boost consumption continue to be dashed – another sign that China is carefully recalibrating the economy by prioritizing long-term goals to strengthen the industrial base in anticipation of more external friction, starting with the US under Donald Trump.”?

China’s government is also increasingly concerned about demographic change. The State Council recently unveiled new birth and family support measures to encourage more babies, as China’s shrinking workforce looks set to affect economic growth and the social security system for decades to come. “The government is scrambling to devise new support measures to stimulating birth rates,” says MERICS Senior Analyst Christina Sadeler. “Local cadres may be tempted to use more intrusive approaches to achieve progress – a tactic that will likely backfire.”?

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