Relations with the U.S. being stuck in a fiercely competitive mode, Beijing has been actively working to strengthen trade ties with ASEAN and the European Union.

Those are China’s two largest trade partners. They accounted for 29% of Beijing’s total foreign trade during the first 11 months of this year. Over the same period, trade with the U.S. was only one-tenth of China’s total overseas merchandise trade transactions.

While economic and political relations with the ten Southeast Asian countries (ASEAN) remain stable and expanding, Beijing’s dealings with the E.U. have been negatively affected by the confrontation between the trans-Atlantic community and countries, led by Russia and China, challenging the West’s “rules based international order.”

Looking for a way out of this situation, a heavily trade dependent E.U. sought to distance itself from Washington’s hostile posture toward Beijing by advocating a “de-risking” -- as opposed to decoupling -- trade policy with China.

Trade is a big problem

Led by a recession-bound Germany -- which does nearly one-third of all the E.U.-China trade – Brussels bureaucrats were apparently convinced by Beijing to quietly abandon their oxymoronic “de-risking” formula in favor of China’s “win-win cooperation.”

That concession was obvious during last week’s E.U.-China summit in Beijing – partly because it goes a bit further than the U.S. recognition that a complete trade decoupling with China would not serve America’s interests.

The problem for the E.U. is that it is running a systematic and excessive trade deficit with China. In the first nine months of this year, imports from China declined 17.5%, the trade gap narrowed considerably, but at €221.4 billion it was still nearly three times larger than the E.U. trade deficit with five of its largest trade partners.

The E.U. readout of the last week summit with China notes an unbalanced relationship of the two economic systems trading more than “€2 billion in goods every day.” China was asked to open market access and to offer an even playing field to E.U. companies. Beijing responded that the trade gap would narrow – if the Europeans allowed more exports of advanced technology.

That’s a tough bargain with strong hints that the Sino-European trade relations will remain a permanent source of economic and political frictions. The Europeans warned, for example, that they have to “diversify supply chains,” citing the case that China restricted last October exports of graphite, one of rare earth minerals used in defense industry. That, Europeans argued, had consequences for their “sovereignty and strategic autonomy.”

But Europeans said nothing about the fact that they maintain a long-standing ban on exports of “dual use (civilian/military) technologies” to China. They also glossed over the latest example of blocking China’s access to advanced semiconductors, cloud computing and artificial intelligence.

Strategic and systemic differences

A closer look at summit proceedings shows, therefore, that trade problems, as serious as they are, look like a sideshow, because the E.U. called China to task by raising some of the most flammable and divisive issues of the moment: Wars in the Middle East and Central Europe, the status of Taiwan, contested borders in the South China Sea, China’s human rights problems, and its “human rights violations” in Tibet and Xinjiang (with “slave labor” allegations).

On all those problems, the E.U. and China have irreconcilable differences, where no progress could be made during months of high-level dialogues to prepare last week’s summit.

The question is: How can E.U. and China continue to keep a strong trade relationship while being so fundamentally at odds on key issues of world order and social values?

For the E.U., that is obviously a big problem -- otherwise such issues would not be raised at the highest level of government.

China thinks differently. Opting for a world order based on the U.N. charter, China firmly stands for equality, peaceful coexistence and non-interference in internal matters of other sovereign states. That implies that issues of war and peace raised by the E.U. should be dealt with in a cooperative and peaceful manner. And allegations about China’s internal problems (human rights and territorial integrity) are off limits based on the principle of non-interference. In fact, such issues were not even allowed to be part of the agenda during earlier E.U.-China summits.

International trade and foreign direct investments are very important to China as a source of demand and free access to technological innovations. Germany, China’s largest E.U. trading partner, has staked the future of its automobile and chemical industries on Chinese markets.

The U.S. should be watching all that with a sense of urgency to get its economy back on a path of steady, sustained and balanced growth. The global competitive environment also shows that America might wish to carefully review the allocation of its critically needed resources.