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BEST BET FOR 2025: STRONGER TRADE TIES BETWEEN EUROPE AND CHINA  
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Dean Baker
January 2, 2025
CEPR
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_ Donald Trump is doing everything he can to convince the world that,
under his leadership, the United States is an unreliable trading
partner. _

, CEPR

 

One development for 2025 that can be seen clearly in the crystal ball
is improving trade ties between China and Europe. The reason this is a
virtual certainty is Donald Trump is doing everything he can to
convince the world that, under his leadership, the United States is an
unreliable trading partner.

He already worked hard to establish this point in his first term when
he arbitrarily slapped tariffs on various imports from Canada and the
European Union. His ostensible rationale was national defense, but no
one outside of Mar-a-Lago could take that one seriously. We worried
that we may not be able to get steel from Canada if the US is engaged
in a war with another country? Or maybe we’re worried we will be at
war with Canada, and they will cut us off. 

But Trump is showing that the craziness will get even worse in his
second term. Before even taking office Trump made strong demands that
Canada and Mexico essentially do things they are already doing (block
drug shipments and restrict the flow of immigrants) or he will slap 25
percent taxes on all the goods we import from them.

This is bizarre from many angles, but most notably because Trump’s
proposed import taxes would be a flagrant violation of the trade
agreement _he negotiated with Mexico and Canada_ just four and a
half years ago. If Trump can just toss into the garbage a trade deal
with two of our closest allies — one that he widely trumpeted at
the time — then what would be the value of any deal he would
strike with European countries? Clearly Trump does not feel bound by
his commitments and there is no one in the US political structure who
can force Trump to adhere to agreements made by the government, even
when it was Trump himself who made the deal.

This is the way Trump has always done business. He routinely reneged
on his commitments and often refused to pay contractors after they had
done work on his projects. Many contractors would insist on payment in
advance from Trump because they knew they would have a tough time
collecting after the fact.

If the US is not going to be a reliable trading partner for at least
the next four years, and possibly many more years into the future,
Europe would be wise to look elsewhere. And there is one obvious
elsewhere: China.

China’s economy is in fact already considerably larger
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the US economy and growing far more rapidly. This fact is obscured by
the tendency in the US media to use exchange rate measures of GDP,
rather than purchasing power parity (PPP) measures. 

An exchange rate measure simply takes a country’s GDP, measured in
its own currency, and then converts it into dollars at the current
exchange rate. By contrast, a PPP measure uses a common set of prices
to assess the value of all the goods and services produced in each
country. This would mean that we apply the same price for a car, a
computer, and a haircut, in both the US and China. Economists would
usually argue that for most purposes the PPP measure is more useful.

By this measure, China’s economy grew larger than the US economy
roughly a decade ago. It is now almost 30 percent larger, and
according to I.M.F. projections will be more than 40 percent larger by
the end of the decade. It’s not clear why the U.S. media insists on
using the exchange rate measure of GDP in reporting that routinely
refers to China as the world’s second-largest economy, perhaps
it’s just nationalistic chauvinism. In any case, that call reflects
political biases not realities in the world.

The larger size of China’s economy makes it a more attractive
trading partner in any case, but it is also more likely to stick to
its commitments than the United States as long as Donald Trump is in
charge. For this reason, we can be fairly certain that Europe will be
looking to shore up its trade relations with China as Donald Trump
puts on his clown show in Washington and Mar-a-Lago.

_DEAN BAKER co-founded CEPR in 1999. His areas of research include
housing and macroeconomics, intellectual property, Social Security,
Medicare and European labor markets. He is the author of several
books, including Rigged: How Globalization and the Rules of the
Modern Economy Were Structured to Make the Rich Richer
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commentary on economic reporting. He received his B.A. from Swarthmore
College and his Ph.D. in Economics from the University of Michigan._

_His analyses have appeared in many major publications, including
the Atlantic Monthly, the Washington Post, the London Financial
Times, and the New York Daily News._

_THE CENTER FOR ECONOMIC AND POLICY RESEARCH (CEPR) was established in
1999 to promote democratic debate on the most important economic and
social issues that affect people’s lives. In order for citizens to
effectively exercise their voices in a democracy, they should be
informed about the problems and choices that they face. CEPR is
committed to presenting issues in an accurate and understandable
manner, so that the public is better prepared to choose among the
various policy options._

_Toward this end, CEPR conducts both professional research and public
education. The professional research is oriented towards filling
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problems, or the impact of specific policies. The public education
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segments of the public to know exactly what is at stake in major
policy debates. An informed public should be able to choose policies
that lead to improving quality of life, both for people within the
United States and around the world._

_CEPR was co-founded by economists Dean Baker
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economists JOSEPH STIGLITZ; JANET GORNICK, Professor at the CUNY
Graduate School and Director of the Luxembourg Income Study;
and RICHARD FREEMAN, Professor of Economics at Harvard University._

_IFPTE, Local 70_

_Employees at CEPR are members of the nonprofit professional employees
union IFPTE Local 70. For more information on the union and other
organizations belonging to Local 70, visit NPEU.org
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* Trade
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* China
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* Europe
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* United States
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* Donald Trump
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