ECB study: Less democracy in the name of trade with China in the WTO, EU shares some blame

Brussels – China’s entry into the World Trade Organization (WTO) marked a decline in the level of democracy among the EU’s trading partners, the European Central Bank said in an analysis published on the ECB blog, marking a frontal attack on the People’s Republic and its political model.

Trade and free trade benefit the economy and peaceful coexistence, fostering cordial relations and prosperity. This is the belief underpinning the European Union’s actions, which the ECB is now, however, scrutinizing. However, the result of unconditional free trade is that values, principles, and rights are being sacrificed. In essence, democracy suffers when there is too much free trade.

The underlying question is why the democratic profile of Europe’s trading partners has declined over the last 25 years? According to the ECB, “It is possible this development is entirely driven by China.​“ After spending decades outside the international trading system, China joined the World Trade Organization in 2001. “Given China’s very low score” in the democracy-weighted trade index, “it could be that the observed deterioration in the democratic profile of the EU-15’s imports is entirely the result of EU trade with this very influential partner,” the ECB said. 

Chinese and Russian presidents Xi Jinping and Vladimir Putin among generals during the military parade in Moscow to celebrate the great victory [photo: imagoeconomica]

There is, however, an underlying problem that relates to a more general global deterioration and the EU’s own choices, that of not isolating authoritarian and illiberal governments. “rading with dictators” amounts to generating profits for regimes that often have an explicit expansionary and militaristic agenda,” the ECB analysis notes. Deciding not to close the doors to certain actors produces “increased geopolitical risk has implications for all aspects of the global economic order.” The list of issues includes monetary policy, financial stability, and international capital flows, “especially for an open economy such as Europe’s.” In the end, it does not change much whether it is Turkey of the anti-democratic Erdogan, Israel headed by Benjamin Netanyahu, accused of crimes against humanity, or Putin’s Russia: “Ultimately, this can potentially become an existential challenge to the EU.” 

China may have played a role, but for the EU the “most obvious” challenge in contracts and trade agreements “concerns its reputation as a values-based economic and political union” In this sense, the ECB further notes, “The decline in the quality of democratic governance of its average trading partner since 1999 can be perceived as inconsistent with the EU’s sustainable trade policy goals of respecting democratic, human, and social rights.” Considering that over the past 25 years the Union “has increasingly traded with autocrats and dictators, the EU cannot successfully claim” this.