How Europe's Heat Wave Turned Into a Trade Fight Over Air Conditioners

The recent string of heat waves across Europe has sent residents clamoring for air conditioning. China is emerging as the big winner in this, as Europeans are increasingly relying on this nation's air conditioning units to stay cool. Here is a look at how the extreme heat in Europe is triggering an unlikely trade war.

Europeans Lining Up to Buy Chinese Air Conditioners as Heat Deepens

Unlike most of the rest of the Western world, Europe has been slow to adopt central air conditioning in its homes. However, residents are starting to realize the value of this cool air as the summers get increasingly warmer at the hands of climate change. Temperatures have routinely hit the triple digits in many areas of Europe in recent weeks, following the trend of the last few summers.

The extreme heat has sent residents lining up for portable air conditioning units in an effort to find a bit of relief. It appears as if China is the big winner in this quest. Major Chinese brands such as Haier, Gree, and Midea are reporting higher sales of air conditioning units overseas right at the same time that some European countries are threatening to impose tariffs on Chinese products, claiming that they are hurting their own sales.

Air conditioning unit exports are just a small slice of Chinese exports to the European Union (EU). However, China is jumping on the opportunity to grow this market in the EU.

The author of an op-ed in China's official state-run news agency was critical of EU policymakers for wanting to impose the tariffs, saying that “Blocking Chinese ACs won’t fix Europe’s problems –– it will only make life harder for ordinary people."

Trade Wars Between the EU and China Intensify

China and the EU are set to discuss the issue over the next few months, paying close attention to the current trade imbalance between the two regions. As China has continued to increase its exports to the EU, the gap is widening further. This is most evident when looking at the massive number of Chinese electric and hybrid vehicles being imported to Europe, threatening to dethrone what has historically been the continent's leading automobile brands.

Europe is not the only corner of the country that has been leaning on Chinese air conditioning exports. The U.S. is also buying Chinese units in higher volumes as heat domes become a more regular occurrence throughout much of the country. According to market intelligence company Euromonitor International, Chinese air conditioning brands represent about 50% of the U.S. market. This percentage jumps to 65% when pulled out to the global scale. The latest forecast models from Euromonitor International predict that the Chinese will continue to increase the percentage of the market that they serve with their air conditioning products as temperatures notch up every year.

However, Europe will continue to be the biggest prize. The continent averages about a 20% penetration of air conditioning. Compare this to the U.S., which has a 90% penetration rate, meaning that American consumers are not looking to add units to their homes, as they are already in place.

Economic experts also note that rising inflation rates in the U.S. and Europe are sending consumers to look to China for more goods, as these prices are typically more competitive. The rise of Chinese dominance in supplying air conditioning units to Europe is just the tip of the iceberg.

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