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Merkel pledges to avert EU-China trade war

German Chancellor Angela Merkel pledged late Sunday to take steps to avoid a brewing trade war between China and the EU during a first visit by China's new premier to Germany, with both leaders calling for dialogue.

Merkel pledges to avert EU-China trade war
Photo: DPA

Germany will push in the next six months for discussions on resolving the disputes between Brussels and Beijing over Chinese telecom products and solar panels to avoid it ending in mutual tariffs, Merkel said.

Both she and Premier Li Keqiang, who is on his first foreign tour since taking office in March, told a joint press conference that they rejected trade protectionism which hurt both sides.

Under pressure from German industry, Merkel said Germany would do its utmost to resolve the issues by pushing for talks to avoid “lapsing into a kind of dispute which finally only ends in mutual tariffs”.

“I will, as head of the government, advocate that we, at the European level, as quickly as possible have intensive discussions with the Chinese side on the questions at issue,” Merkel added.

Germany is by far China’s biggest European trading partner. While German motor vehicles and auto parts, machinery and electrical goods find a vast export market in the world’s second-largest economy, China needs technology from Germany.

German exports to China amounted to €66.6 billion ($86 billion) last year, according to official German data.

But as both the EU and China suffer the knock-on effects of a sharp economic slowdown, the slew of looming trade disputes – over telecoms, solar panels and steel tubes – has turned up the heat.

Li, whose tour has also taken in Switzerland, India and Pakistan, said China “resolutely” rejected the European Union’s plans to probe the country’s telecom products and impose taxes on solar panels.

He said the move would not only threaten jobs in China and hit the branches concerned, but also affect the interests of European companies, consumers and industry.

“To this effect, this measure is a measure that doesn’t serve the particular interests and also damages others,” Li told reporters through an interpreter.

“Therefore we hope that through joint efforts and through dialogue and consultations, the trade disputes between China and the EU can be settled acceptably,” he added.

And he said that the EU decisions sent the “wrong signal” that trade protectionism had made a “comeback”.

Germany is the only stop among the EU’s 27 member states for Li on the trip, in a sign that Beijing wants to continue their special relationship, analysts say.

“From the German side, it’s all about trade. Germany sees China essentially as a large export market on which it’s increasingly dependent,” Germany expert Hans Kundnani, of the European Council on Foreign Relations, told news agency AFP.

Merkel made two trips to Beijing within just seven months last year and said Sunday the two sides wanted to further bolster their already “close” relations, citing four areas – industry, IT, urbanisation and agriculture.

But for China, Germany is not only economically important in providing much-needed technology but also plays a strategic part in helping to combat Beijing’s fear of the US and Europe teaming up against it, Kundnani said.

Li said his visit to Germany was also about visiting the EU. “We want through the intensification of cooperation with Germany, to also advance the relations and cooperation with the EU,” he said.

EU exports to China totalled $212 billion, with imports of $334 billion in 2012.

AFP/mry

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ALMEDALEN 2022

Swedish finance minister: voters may have to accept falling real wages

Sweden's finance minister had told The Local that this year's election will largely be about rising costs, but that his party is not planning to intervene to prop up real incomes and so worsen inflation.

Swedish finance minister: voters may have to accept falling real wages

Speaking at a seminar on Sweden’s economic situation hosted by Swedbank, Mikael Damberg agreed that the coming campaign would be a so-called plånboksval, or “pocketbook election”, where rising costs and falling spending power are the dominant issue, but he said he thought this would benefit rather than harm the Social Democrats. 

“Economic issues will be very important,” he told The Local, “and I think people will think about who will be best in charge of the public finances, and who has been in government and handled tough situations, and I think that Magdalena Andersson, as the Prime Minister with seven years as Minister of Finance, is the right woman to lead Sweden in these difficult times.”

His worry, he said, was that Sweden’s political parties would respond to inflation levels of close to eight percent by promising voters subsidies and cash transfers to make up for rising prices, which if implemented would then risk fuelling an inflationary spiral. 

“It might be |a problem] if the parties draw the wrong conclusion, and think that they can spend a lot of money right now. Because if they spend too much money, too broadly, not focusing on vulnerable groups, then inflation will go up, and interest rates will go even higher. And that would actually worsen the situation in the wallet for ordinary people.” 

Instead, Damberg said that people living in Sweden would ideally simply tighten their belts and tolerate a period of falling real incomes. 

“For 25 years in Sweden, we have had real wage increases for ordinary workers, and that’s kind of unique on an international perspective. So this year, there will be a drop in real wages because of inflation,” he said.

He said that he hoped that in next year’s negotiations between unions and employers over new collective bargaining agreements, unions were as responsible as they have been historically, and avoided calling for inflationary pay hikes. 

“It’s tough. The war has made us all less rich, and some groups will be affected very much. But I think, there’s no point in getting wage increases if it pushes inflation higher. The trick here is to get wage increase that are for real, and not just on paper.” 

In the seminar, he said that there was a danger that the huge emergency spending packages Sweden, like other countries, had put in place to soften the impact of the Covid-19 pandemic would set a precedent, leading voters and politicians to think it was possible for governments to spend their way out of the coming economic difficulties in a similar way. 

His intention, he said, if he was reappointed finance minister after the election, would be to keep the tax rate roughly level with where it is now, neither raising nor lowering taxes, in the hope that Sweden’s state finances go into a small surplus next year. 

He said it had been right this year to pass measures to increase the incomes of the poorest families and the poorest pensioners, and that his party would still seek to give aid targeted those least able to cope with rising prices. 

“Politics has a role,” he said. “But you need to be careful not to create too big a role, because if you think that politics can do everything, then we will start fuelling inflation. It’s a lot harder now than it was in the pandemic.” 

Shortly before the seminar, Ulf Kristersson, leader of the opposition Moderate Party, made a speech in which he accused the government of bringing in 46 new taxes over the last four years, and together in a “left-wing cartel” with other parties of planning a series of tax hikes, including a property tax, a tax on savings, a wealth tax, a tax on the highest incomes, and a reduced tax break on cleaners and other households services.

“I think they’re a bit desperate, because they’re not doing that well in the polls,” Damberg said. “So one way [of improving the situation] is to try to frighten voters. But I think our record speaks for itself, and I think Magdalena Andersson has got a lot of credibility when it comes to handling Swedish economy.” 

“She has not introduced a property tax, and she has not in the last period in government increased the tax burden on ordinary people. If you look at the tax burden in Sweden over the last period, it’s gone down, not up.”

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