Negotiations can avoid need for costly 'insurance policies'

The European Union is trying to "insure" itself by pricing ever more elaborate policies against "risks" that are of its own making.

Brussels' latest proposal — a "solidarity instrument" designed to "compensate" companies that diversify critical supply chains away from China and cushion any "Chinese retaliation" in a future trade dispute — is the latest example of this practice.

But "insurance" costs. The proposed fund would require significant financial backing at a time when multiple EU governments are struggling to agree on a tighter multiannual budget. European taxpayers could find themselves subsidizing the commercial consequences of policies that Brussels chooses to pursue rather than needs to pursue.

Worse still, there is no obvious ceiling to the bill. The more extensive the confrontation, the larger the compensation required.

The irony is that Brussels is preparing this new instrument just when China and the EU have set up an institutional channel to prevent bilateral economic relations from sliding into precisely the sort of confrontation the fund is meant to address.

The China-EU trade and investment consultation mechanism launched last month established four dedicated workstreams covering the trade balance, export controls, intellectual property and World Trade Organization reform, while creating a joint monitoring mechanism intended to improve transparency and manage frictions before they spiral into crises.

That initiative deserves to be treated as more than diplomatic window dressing.

No serious observer expects Europe to abandon trade-defense instruments altogether. Brussels concerns over market access, industrial competitiveness and supply-chain resilience are not to be dismissed. These are difficult issues that require negotiations to resolve.

The danger lies in Brussels adopting a "fight while talking" strategy — constructing ever more sophisticated restrictive mechanisms while simultaneously insisting that dialogue remains the preferred path. Such "dual-track" economic diplomacy may satisfy internal political audiences in the short term. In practice, however, every new coercive instrument risks narrowing the political space for compromise.

China has repeatedly signaled that it prefers differences to be managed through consultation while warning that discriminatory restrictions will invite countermeasures. Beijing has also indicated its willingness to discuss expanding imports from Europe and promoting more balanced trade within the new consultation framework, even as both sides continue to disagree over export controls and market access.

Neither side enters these negotiations from a position of weakness. Europe possesses advanced technology, world-leading industrial standards and a vast consumer market. China remains indispensable to many global manufacturing chains and is one of Europe's largest trading partners. Mutual dependence and win-win cooperation are not temporary inconveniences; they are the defining characteristics of their economic relationship.

That reality makes "decoupling" an illusion. The EU is entitled to strengthen resilience, but resilience should not become a euphemism for expensive protectionism. Every euro devoted to subsidizing disengagement is a euro unavailable for innovation, productivity or competitiveness.

The coming October deadline, that European Commission President Ursula von der Leyen has unilaterally drawn, therefore matters far beyond the technical details of tariff schedules or export licenses. It will test whether Brussels is sincere when it says it prefers dialogue.

If the EU enters negotiations convinced that confrontation is inevitable, no consultation mechanism — however carefully designed — will succeed. If, however, both sides treat the new framework as the principal avenue for resolving disputes, then "defensive" tools may remain what they should always have been: "insurance policies" that never need to be claimed.

Trade wars are easy to announce and costly to sustain. Negotiation is slower and less theatrical. But for two economies as deeply intertwined as China and the EU, it remains the only strategy capable of producing something rarer than leverage: durable mutual benefit.