On May 20th, the European Commission announced plans to impose a flat €2 fee on the billions of low-value packages that enter the EU each year, by scrapping the current exemption for imports valued under €150 that are shipped directly to consumers. Often, European consumers buy these via platforms like Chinese-founded Temu and Shein.
Unsurprisingly, the French government is one of the actors pushing for this initiative in a bid to counter what it calls “fast fashion”, out of concern for its own clothing industry. Fevad, the French e-commerce lobby that represents over 800 online retailers, welcomed the announcement, saying it wants swift action to address “the unjustified advantages that Asian sites enjoy.”
In the background, there is also the trade war unleashed by U.S. President Donald Trump, which has increased fears that the European market would be flooded by Chinese products, as products originally destined for the United States now face sky-high tariffs.
The EU has also recently initiated probes into Temu and Shein to determine whether the companies are doing enough to crack down on non-compliant products and protect consumers. The move is part of the European Commission’s new e-commerce action plan meant to boost coordination among customs and market surveillance authorities across the EU and increase checks on faulty or counterfeit products.
To make sure that Asian competitors respect the same EU regulations as European companies is of course fair, but increasing taxes obviously means consumers will pay the price. As French best-selling economist Marc Touati recently explained:
We are importing products that we are no longer producing in France or in Europe at all. Imposing customs on this will increase inflation, and given the lacking purchasing power, in the end, it is the customer that will be paying.
The EU’s move is unfortunately a sign of the times. The U.S. has also just announced plans to reduce the tariff exemption threshold for low-value shipments from China.
Steel protectionism
The policy is part of a broader move against the economic rise of China. The question is, however, whether protectionism is the right response.
A key point of contention in this context is the attempted takeover of U.S. Steel by Japan’s Nippon Steel. The former U.S. President, Joe Biden, threatened to block this takeover in 2024, despite the fact that Japan is a solid Western ally. The proposed merger creates one of the world’s biggest steel companies outside of China and would inject more than $14 billion into the American steel industry. It would strengthen, not weaken, America’s national security, given how a combined U.S.-Nippon Steel entity could rival the world’s largest steelmakers in China.
At the moment, the American steel industry is in trouble, and things may even get worse. Thankfully, President Trump has now approved Nippon Steel buying U.S. Steel. He has thereby reversed a position he took during the presidential campaign, after the Japanese steelmaker announced it would invest an additional $4 billion in a new steel mill in the United States. In this case, Trump seems to be on the right path by refraining from protectionism as a response to the rise of China. Others in Washington should follow his lead.
An open market for the free world
Also in Europe, things are moving on this matter. In March, the European Commission unveiled its European Steel and Metals Action Plan, meant to make Europe’s ailing steel sector more competitive and to shield it from the impact of U.S. tariffs on imports of steel and aluminium, as well as the influx of cheap, subsidized Chinese imports.
The stakes are high. Complete Chinese dominance of the steel market would provide Beijing with enormous leverage over critical supply chains and also undermine global competition. The best response to this is to create a genuine open marketplace for the free world, where steel, like other strategic goods, can move efficiently across borders. That means embracing the free movement of investment capital and business ideas, not stifling them with political suspicion.
The negotiation over Trump’s recently announced tariffs as well as the steel and aluminium tariffs from his first term should therefore be used to scrap trade barriers between the industrial powers of the free world. It may not always be easy to determine whether countries are genuine allies, but clearly, Japan, but also South Korea, Australia, and Argentina should be considered as such.
Restricting China?
While opening up trade amongst free democracies is a no-brainer, the question of whether to impose extra trade restrictions on China, with its central planning and massive subsidies, is more tricky. Even in that relationship, however, it may well be a mistake to introduce more protectionism.
The boss of Nvidia, Jensen Huang, just called Joe Biden’s policies to increasingly restrict and block exports of advanced computing chips to China a “failure.” He argued that they were backfiring against American companies, explaining that Nvidia’s share of the Chinese market dropped from 95% to 50% during Biden’s term, while the restrictions had pushed Chinese companies toward homegrown alternatives, spurring Chinese investment in the industry.
“The fundamental assumptions that led to the AI diffusion rule in the beginning, in the first place, have been proven to be fundamentally flawed,” he said. At the time, many industry experts were already skeptical, but Biden went ahead with it anyway.
