Growing up in Spain, where the farming sector is a powerhouse, the wars I lived through were named after food: the “strawberry war” with the French in 1989, the “tuna war” with the British in 1990 and the “turbot war” with the Canadians in 1995. Still, nothing prepared me for what is shaping up to be the “ham war” with China.
On Monday, Beijing announced an anti-dumping probe on pork imports from the EU, a first step toward tariffs. The probe came less than a week after Brussels announced it would impose duties of as high as 50 percent on Chinese-made electric vehicles (EVs), saying they benefited from “unfair subsidization.”
Spain is, by far, the largest pork exporter into China, whose taste for the nation’s succulent — and expensive — Iberico ham has become increasingly fashionable.
Belgium, Denmark, France, Germany and the Netherlands are also significant exporters.
However, at less than US$2 billion last year, pork accounts for a tiny sliver of the trade between the EU and China, which topped US$280 billion last year. So why is China going after a sector that, economically, matters so little?
The answer is politics.
Beijing is deploying a playbook it has used in previous trade skirmishes with Europe, the US and Australia. By targeting agriculture, the soft (pork) belly of Europe, China achieves two objectives: It keeps the conflict contained and leverages the outsized influence of Europe’s farming lobby.
Beijing obviously hopes that EU nations would pressure Brussels into softening the EV tariffs before they are officially imposed on Thursday next week.
Germany was already unhappy with the duties, fearing for its own auto sales in China; Spain and France, which appeared undecided, could join Berlin against Brussels.
However, EU nations can avoid playing into China’s hands. Take Spain, where pork can make headlines in news bulletins and the quality of meat is a source of national pride.
Last year, Spain exported 12.2 billion euros (US$13.1 billion) in meat, including not only pork, but also beef and poultry, to every nation in the world.
Yet during the same period, its exports of automobiles, motorbikes and auto components reached nearly 54 billion euros. It is clear what sector matters the most economically.
Then, consider that Spain has no rival in China when it comes to high-end pork, but Spain and China are competing in the very same segment in the auto industry: small, cheap vehicles for the growing ranks of the world’s working and middle classes.
Spain has so far focused on gasoline and diesel-powered vehicles, while the Chinese are leading on electric ones.
Without tariff protection, it is unlikely that Spain would be able to switch from gasoline to electric vehicles, and without that switch, its auto industry would slowly die.
China has used the local farmers of its trade antagonist for its own benefit before: It pressured Australia by targeting its farm exports, including barley, beef, wine and lobsters, and it tried to force the hand of the US by restricting the soybean trade.
The farming lobby is particularly strong in Brussels. After all, autoworkers do not take their vehicles to the center of Brussels as farmers do with their tractors when they need to protest government policy.
China also knows that its imports of European pork, particularly of low-value-added meat, is going to decline as its pig herd grows again to meet local demand, which the Europeans also know and are braced for.
European nations should play their cards carefully. China has opened a window for negotiation. Its probe into European pork exports is likely to last six months, potentially a year, leaving plenty of time for talks. In that vein, its response to Brussels is not the start of a trade war, but rather the beginning of prewar talks.
Both sides can find a solution. Ultimately, Europe should not trade off its multibillion-euro auto industry to content its politically active farmers. Agricultural exports are important, but they are more valuable for sentimental reasons than for economic impact.
Focus on the euro value alone and cars win — by a long mile. That should be the focus in Brussels, and in Madrid, Paris, Amsterdam and Copenhagen.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. He is coauthor of The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.
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