Capital Economics: EU to Avoid Full Trade War With China Despite Tough Talk

Brussels will keep tempering its posture toward Beijing, according to Capital Economics, which said the bloc would "continue to pull its punches" in any confrontation. Speaking at an event in Hong Kong on Wednesday, the London-based research firm pointed to a lack of consensus among and within Europe's member states as the central obstacle to a unified hard line. Fear of Chinese countermeasures is a second constraint, the firm added, noting EU concerns over retaliation should it escalate trade tensions. A third factor is what Capital Economics described as lingering hopes in Europe of preserving the rules-based global trading system that previously served the continent's interests. European leaders have nonetheless adopted increasingly assertive rhetoric on China, fueling speculation about a broader trade war. The analysts' assessment suggests that rhetoric will not translate into a full-blown confrontation, with internal division and the risk of reprisals limiting how far the European Union is prepared to go.