Will China Save Transatlantic Relations?

WARSAW: The second decade of the 21st century is marked by the restoration of a concert of powers. The multilateral world order is slowly fading into the past with new alliances forming and established ones questioned by their founders. The United States seems to pursue an isolationist policy, Europe is internally undecided, and China and Russia have cemented their marriage of convenience. In this battle for hearts, minds and wallets the transatlantic relationship has never been weaker. But there is one actor that could bring the United States and Europe closer together again.

China’s rise is not a new phenomenon. Its economy is already as large as that of the United States, and over the next decade, Beijing will contribute three times more than Washington to global commerce. The Chinese challenge is multidimensional including trade, military, technology and values. A US rivalry with China is of civilizational and ideological nature, suggested Kiron Skinner, who heads policy planning for the US Department of State. The Trump administration has officially called Beijing a strategic competitor while the new strategy paper from the European Commission describes this Asian power as a “systemic rival” with the ambition to become a technological leader promoting alternative models of governance.

Could the Chinese factor be enough for Europe and the United States to close ranks and present a united front vis-à-vis a formidable adversary?

Washington was the first power to respond to the Chinese challenge. The ongoing trade tensions between the two and tit-for-tat tariffs could not be resolved in negotiations. In the past two years Washington imposed tariffs on more than $250 billion worth of Chinese goods. Beijing was not shy about retaliating with increased levies on America-made products, which were limited in value, however, as China does not import enough to match the US numbers.

Additionally, the Trump administration put the Chinese telecom giant Huawei on a list of companies that need special permission to buy US microchips, software and other components. Interestingly, the structure of the first wave of US tariffs as well as the espionage accusations against Huawei point to the fact that Washington was not only keen on changing the trade relationship with China, but also looks to thwart the Chinese technological upgrade.

The US-China trade frictions are here to stay – as part of a struggle for hegemony in the global arena. The European Union, with the world’s largest trade surplus, is the only power that could potentially balance the scale between Washington and Beijing. However Europe is unwilling to pick a side just yet. The internal divisions towards China do not help. In 2016 Hungary and Greece – major recipients of the Chinese capital – blocked a strong EU Council declaration on Beijing’s operations in the South China Sea. 

Hypothetically, the European Union could emerge as a winner in the conflict of its two major partners. The composition of EU exports suggest economic opportunities both in China and the United States with the greater gains to be expected in the latter. Although Europe now exports across the Atlantic twice as much as to China in the long-term, Beijing is envisioned to call the shots not only in the global economy but also in technology – with quantum computing or bullet trains – and politics where the recent trend, also observed in Europe, has favored a model of a strong centralized government.

This poses a fundamental dilemma regarding alliances for policymakers in Brussels.

Aligning with China, next to economic benefits, might seem rational for Europe for other reasons as well. Europe and China share convergent positions on climate change, clean energy and the value of the multilateral global order. But there are also points of dispute. After a number of Chinese takeovers of strategic European businesses such as the Greek port of Piraeus, the German robotics company KUKA and elements of Italy’s electricity grid, Europe has begun to filter foreign investments. Another roadblock includes barriers in market access for European capital and the lack of reciprocity on the Chinese side. Also complicating the relationship are the excessive role of state-owned enterprises – Beijing retains a majority share in 99 out of its 100 largest public companies – as well as forced technology transfer.

The grievances that divide Europe and China draw the former closer to the United States. In theory, the common understanding of issues such as values, trade, investment, and the geo-economic significance of Beijing’s Belt and Road Initiative could be a solid foundation for a fruitful cooperation. Yet to forge a new transatlantic deal on China, the United States, embodied by President Donald Trump, must become less arrogant and Europe less lethargic and naïve concerning the future of multilateralism.

An intergovernmental dialogue on industrial subsidies among Japan, the European Union, and the United States which convened again in May is an example that Brussels and Washington can work together while under external pressure. This platform seeks to restrict governmental aid for state enterprises and is – without naming targets – aimed at China.

There is also a role for the private sector. In 2018, China delivered 40 percent of sales for the Volkswagen Group globally. The origin of most of Apple’s iPhones and iPads as well as its largest international market is in China. Both US and European businesses, having Beijing as a major partner, could facilitate and move forward a transatlantic debate in need of a positive agenda.

China for its part does not stand idle. Amid the US-China discord and the loosening of the transatlantic bond, Beijing seeks to develop its relationship with Russia. On the sidelines of the June meeting between presidents Xi Jinping and Vladimir Putin, the two signed an agreement, among others, allowing Huawei to develop a 5G network in Russia.

China and Russia seek to offset pressure from the United States by upgrading bilateral ties to a comprehensive strategic partnership. Washington unintentionally pushes its most advanced international opponent into embracing another that is even more harsh with anti-US rhetoric.

During the summit, Xi noted that both countries share common ground on a wide range of issues including trade, Iran, the Arctic Sea and terrorism. On one side, this visit has provided China with more leverage in its competition with Washington. On the other, US policymakers have been given more food for thought regarding Beijing’s diplomatic options as well as their own alliances including the one with the European Union.

Europe is still uncertain whether China is an opportunity or a strategic threat. Washington has made up its mind in this regard, but has not come up with a comprehensive policy, instead focusing largely on trade.

For now, Europe carefully maneuvers the murky international waters in which Trump’s Twitter torpedoes occasionally diminish the transatlantic bond and the Chinese lifeboat could appear as a rescue only at first glance. In mid-term, however, the United States and the European Union should side with each other in order to present a truly effective China agenda.