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Mar 24, 2023

Europe’s Delicate Balancing Act

The gloves are off between the United States and China. How should the Europeans respond?

German Chancellor Olaf Scholz meets Chinese President Xi Jinping in Beijing, China November 4, 2022.
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European capitals are looking on with a growing sense of unease as relations between the United States and China veer from bad to worse.

At the turn of the year, their hope had been that Washington and Beijing would find a way to lower the diplomatic temperature in 2023, establish a regular dialogue, and reduce the risks of a conflict. That was the signal sent by a cordial meeting between Presidents Joe Biden and Xi Jinping at the G20 meeting in Indonesia last November.

Instead, the discovery of a Chinese balloon over US air space and the decision by the Biden administration to shoot it down has set off a chain of events that have stoked mutual resentment and suspicion between the two superpowers, sending the relationship into a downward spiral and dimming prospects for anything resembling a US-China détente in the foreseeable future.

In Washington as well as Beijing, domestic political considerations are increasingly shaping the relationship. The Biden administration is determined to show toughness toward China in the run-up to the US presidential election next year. The shooting down of the balloon, the cancellation of Secretary of State Antony Blinken’s planned trip to Beijing, and Washington’s decision, figuratively speaking, to drop a bomb at the Munich Security Conference in mid-February, warning publicly that China was considering arming Russia, point to a gloves-off approach from the Biden team—all the talk about guardrails notwithstanding.

In response, Beijing has dialed up the rhetoric several notches. In a rare direct attack on the United States in early March, Chinese President Xi Jinping accused Washington and its allies of “all-round containment, encirclement, and suppression” of China. New Foreign Minister Qin Gang has warned of conflict with the West: “If the US doesn’t hit the brakes and continues to barrel down the wrong track, no amount of guardrails can prevent the carriage from derailing and crashing, and there will surely be conflict and confrontation,” he said.

For Europe, a sharp deterioration in US-China relations represents a significant challenge. It was four years ago that the European Commission described China as “a partner, economic competitor, and systemic rival.” Since then, the balance between these three labels has shifted decisively in the direction of rivalry—a process accelerated by Beijing’s deepening partnership with Russia as it wages a brutal war in Europe’s backyard.

There was little in Xi’s recent trip to Moscow to suggest that China might be prepared to play a constructive role in ending the conflict in Ukraine.

Competition or Rivalry?

Nevertheless, some European capitals still cling to the idea that a return to friendlier ties with Beijing may be possible. The European Union’s ever-expanding China policy toolbox remains defensive and reactive: It is primarily designed to ensure economic reciprocity in the relationship rather than fundamentally reshape ties for a new era of geopolitical confrontation. The preservation of a rules-based international order and free trade and investment flows remain at the heart of the European agenda even as the cracks in global governance and globalization grow bigger by the day.

Over the coming year, as the US-China competition heats up, Europe will come under increasing pressure from Washington to recalibrate its approach, leaning further out the window on a broad range of issues, from restricting its technology engagement with China to playing a greater role in deterring Chinese ambitions in Taiwan. Europe will also be feeling pressure from Beijing to resist Washington’s pull. This may come in the form of market access carrots, but at some point it could also involve sticks—or threats of retaliation against European businesses operating in China.

Being squeezed between the world’s two superpowers is not a comfortable place to be. It will present Europe with a series of zero-sum policy choices, which risk putting it on a path of confrontation—either with Beijing or with Washington. Straddling between the two superpowers is about to become much more difficult.

Improved Dialogue

Since Biden entered the White House, the transatlantic dialogue on China has improved significantly. Blinken’s speech in May 2022 at George Washington University, in which he laid out the administration’s approach to China, was applauded in Europe for its balanced tone. And the language that Washington and European capitals use to describe the China challenge has converged over the past two years, as the Biden team jettisoned the needlessly provocative rhetoric of the Trump years, which portrayed Chinese Communist Party rule as illegitimate.

But transatlantic cooperation on China remains a delicate balancing act. It can be knocked off balance if Washington grows too confrontational with Beijing or Europe veers in the other direction. Washington was rightly worried when German Chancellor Olaf Scholz jetted off to Beijing in early November 2022 with a business delegation in tow, triggering a wave of diplomatic engagement between European capitals and Beijing. Now it is Europe’s turn to worry, as electoral politics becomes a growing factor in US China policy. At the first hearing of a new select committee in the House of Representatives that is singularly focused on China, Republican chairman Mike Gallagher warned of an “existential struggle” between the US and China.

The Europeans have gotten a glimpse of where all of this is headed: The US will be offering EU capitals, in the words of Godfather Vito Corleone, deals they can’t refuse. In recent months, the Netherlands has bowed to US pressure to restrict the sale of advanced semiconductor production equipment to China, while the German government, after coming under renewed pressure from Washington, has promised to revisit the dominant role of Chinese suppliers like Huawei in the country’s 5G network.

This dynamic is poised to accelerate in the months ahead. Soon, the White House will publish an executive order on outbound investment screening. US officials have been busy briefing their European allies on the plans—and encouraging them to follow suit. If US firms are being restricted from investing in China in sensitive sectors like artificial intelligence, quantum computing, and semiconductors, then European firms will have to stick to the same rules, or face penalties in the US market.

Europe’s Offer

How should Europe respond? Even if it doesn’t share Washington’s vision of relations with China, and the role national security considerations should play in shaping economic engagement with China, it will need to get serious about the concept of economic security. Judging from European Commission President Ursula von der Leyen’s recent visit to Washington, she understands this. In the joint statement issued after her meeting with President Biden, the two noted that existing controls should be “upgraded to correspond to a changing geostrategic environment” and stressed the need to prevent firms from transferring capital, expertise, and knowledge that could fuel the technological advances of strategic rivals.

But this view is not shared across European capitals. German government officials have told me that there is little they feel they can do to prevent transfers of technology from German companies that are deeply invested in China. The chancellery, I was told, is not a fan of the term “economic security” (they prefer “economic resilience”) and is planning to push back against language echoing the messages sent by Biden and von der Leyen when G7 leaders meet in Japan in May.

Deutsche Telekom, which is partially state-owned, has been allowed to run wild in deploying Huawei gear across the German 5G network. Deutsche Bahn, which is fully owned by the state, decided as recently as December to use Huawei technology for its new IP network. It is part of a dangerous years-long pattern in which Berlin has outsourced important decisions affecting its national security to companies that have other priorities. This approach will be unsustainable in a world of intensifying US-China confrontation.

In exchange for adopting a more restrictive approach to economic engagement with China, however, Europe should be insisting on the removal of transatlantic trade and investment barriers. The Inflation Reduction Act, as it was originally conceived, did the opposite. But European pressure has led to adjustments, including plans to create a critical raw materials club, that offer a promising blueprint for future cooperation. This is the European offer that Washington shouldn’t refuse.

Noah Barkin is a visiting senior fellow in the Indo-Pacific Program of the German Marshall Fund of the United States.

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