Trade tensions between the EU and China are deepening. On June 16, the EU’s trade chief, Maroš Šefčovič, said the bloc’s unbalanced trade relationship with China “had reached a point that requires a reset”. The German chancellor, Friedrich Merz, then criticised Beijing days later for what he claimed were its unfair trade practices.

In comments made in Brussels after a European Council meeting, Merz accused China of “flooding markets” through the use of “high subsidies”. He also said China’s currency was undervalued by 30%, making its goods artificially cheaper in global markets. Merz pointed to the Plaza accord as an example of how this issue could be addressed.

Signed in 1985 between the US, Japan, Britain, Germany and France, the Plaza accord was an agreement which saw Japan agree to appreciate the value of its currency, the yen, against the US dollar. The five signatory nations also collectively agreed to intervene in currency markets to weaken the US dollar, which had appreciated massively in the early 1980s, reducing the global competitiveness of US goods.

The yen’s value quickly increased following the Plaza accord, appreciating by around 46% against the US dollar by 1986. In doing so, the imposition of protectionist measures against Japan was avoided.........

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