EU faces tough choices at Davos: Decouple from China or risk trade war with US

European leaders are converging on Davos this week for the annual World Economic Forum, where their speeches provide a glimpse into the anxiety gripping the continent amid economic turmoil and geopolitical tensions.

Panels titled “Europe: Finding the Money,” “Debating Tariffs,” “How to Project Europe’s Power,” and “Diplomacy amid Disorder” reflect the concerns of leaders grappling with faltering economies and the looming shadow of Donald Trump’s potential second term in office, Caliber.Az reports citing foreign media.

Trump’s approach is pushing European leaders into a difficult position, presenting them with a lose-lose choice. The first option is to align with Trump’s call to fully decouple from China, a move that would strain unity among the 27 EU member states, provoke retaliation from Beijing, and further weaken their already struggling economies. The second option is to stand aside, allowing Trump to act unilaterally on China, which could provoke US tariffs on European goods and, again, damage the EU’s economic recovery.

French Foreign Minister Jean-Noël Barrot reflected on the global situation, asking, “Have we entered into a period of time when it is survival of the fittest?” His answer was blunt: “My answer is yes.”

But even the most resilient economies within Europe may not survive the mounting pressures. EU governments face both political and economic instability, with economic engines sputtering as empty coffers, burdensome bureaucracy, high interest rates, and a cost-of-living crisis stifle innovation and consumer spending—the lifeblood needed to compete against China and the US.

The EU's two largest economies, France and Germany, are at the epicenter of this crisis. France has seen four prime ministers in the past year amid a budget impasse and ballooning deficit, with the country veering toward an economic meltdown. Meanwhile, Germany, grappling with its own budget issues, has reported two consecutive years of shrinking GDP, an unprecedented situation in the past two decades, dragging the rest of the EU down. Chancellor Olaf Scholz’s leadership is highly unpopular, forcing him to call a snap election in February that he is almost certain to lose.

The EU’s economic future could be further jeopardized if Trump follows through on his pledge to impose a 60 per cent tariff on Chinese goods. Such a move would likely disrupt global trade flows, flooding the EU market with discounted Chinese products, thus threatening its already fragile manufacturing sector.

Mirek Dušek, the managing director of the World Economic Forum, said “forces of fragmentation that are playing out and influencing geoeconomic relations, geopolitical relations,” are squarely on both the official and unofficial agenda in Davos, where many European leaders will gather to parse over the world’s problems (and drown their sorrows) over the coming week.

“There is widespread consensus that we have moved into a more competitive, geostrategic, geoeconomic environment. We are seeing shifts around supply chains, shifts around trade flows. That whole landscape is being reshaped,” Dušek said.

By Vafa Guliyeva