With an economic showdown between the US and China looming over the new Biden administration, it’s increasingly clear that the European Union wants to sit this one out. That presents the US with a dilemma: in which areas can it afford to go it alone against China, and when will it need to pressure its European allies to hold the line?
The headline issue here is the EU-China investment deal, formally known as the Comprehensive Agreement on Investment. The arrangement, which will be finalized over the coming year, gives European companies access to various Chinese markets in exchange for allowing China to make bigger investments in European industries.
The agreement would make sense in a 1990s sort of world -- a time when issues of national security, human rights and intellectual-property theft were less acute. As of 2021, however, the deal is causing major consternation, especially in the US. First, it largely gives China a pass on human rights issues in the Xinjiang region, where the nation has put large numbers of the Uyghur minority in reeducation camps, forced many to perform slave labor and subjected the rest to a highly intrusive surveillance state. Though the CAI includes a Chinese pledge to make “continued and sustained efforts” to ratify International Labor Organization conventions on forced labor, it seems pretty clear that this toothless concession will do little to change the situation in Xinjiang.
Furthermore, the CAI clearly has geopolitical as well as economic implications. If the EU is politically closer to China, that could make it harder for the US to enlist European countries in the fight to keep Huawei Technologies Co. from dominating 5G cellular networks, or other national security-related disputes.
But it was always probably too much to expect Europe to form a united front with the US to tackle China. The simplest way of comprehending this is to just look at a map -- unlike India or Japan or Vietnam, Europe is under no territorial threat from China. Any geopolitical interest Europe had in China’s neck of the woods vanished with the end of colonialism back in the 20th century.
And given the lack of any compelling geostrategic angle to EU-China relations, the European countries have a natural incentive to focus on what they really care about -- money. European producers want to continue using China as a low-cost manufacturing platform.
The lure of China’s vast domestic market is also a tremendous incentive for EU companies to expand their presence there. And of course, EU companies don’t mind getting some cheap Chinese investment capital, especially given that this inflow has shrunk in recent years.
The EU is also very wary of getting caught in the middle of a protracted US-China economic struggle. US export restrictions, tariffs, investment restrictions and other initiatives are causing European companies to wonder if they’ll soon be forced to do business with only one country or the other. A report by the European Chamber of Commerce in China forecasts that many EU companies will have to divide their supply chains into a US-centric portion and a China-centric portion, with a firewall between the two.
So the EU-China investment deal should be seen as an indication that Europe intends to stay on the sidelines of the US-China competition as much as possible. How should the US respond?
One obvious measure is for the Biden administration to focus on steps that the US can take without European help. For example, restrictions on Chinese investment in the US don’t require EU cooperation. America can simply sit back and wait to see if European companies get burned by Chinese intellectual property theft, as France’s Alstom SA and Germany’s Siemens AG were when they entered into joint ventures in China.
The US should abandon its efforts to extend its export-control regime to allied and third-party countries. This was already a bad policy, threatening to create a new Iron Curtain around US technology industries. Now, the CAI makes it clear that Europe has little intention of cooperating. If the EU wants to be neutral in the US-China conflict, the US should let it be neutral as far as is reasonable.
But there are a few cases in which neutrality can’t be an option. Huawei is probably one of these -- if the Chinese company gained the ability to snoop on cell phone transmissions for the Chinese military, as some worry it might, that would compromise every US company that did business in Europe. So in a few narrow situations like this, the US will need to put continued pressure on the EU to rely less on China.
In most cases, though, the US needs to let Europe go ahead and sit it out. Further bullying of the EU into being the US’s junior partner in international conflicts will just result in that continent’s gradual abandonment of its transatlantic orientation -- and the concomitant economic isolation of American companies. The US would be better advised to enlist Asian countries in its effort to balance China -- places like India, Vietnam, and Indonesia, for whom their giant, illiberal neighbor represents a clear and present danger.
Bloomberg
