Brussels Forum 2019 China and the West: The Turning Point with Andrew Small
The future of the TA relationship will increasingly depend on how we handle China - if we get this right, many areas of the transatlantic agenda that have stalled will be injected with new life. If we get it wrong, many of the things that we take for granted in our economic and security cooperation today may be under threat. In both Europe and the US, the last two years have seen probably the biggest rethink on China since 1989, and possibly even since the opening of diplomatic relations
The US shift has been more visible and more dramatic in its immediate effects and its potential long-term ramifications, what General Allen yesterday described as a “bipolar, long-term generational battle”. The elevation of China as a strategic competitor in the National Security Strategy and National Defense Strategy; the launch of a trade war and escalating tariffs; and then more recently, we’ve seen the translation of this into a form of technology war too, which will be far harder to throw into reverse even if a trade deal were to be reached
But the shifts in Europe have also been profound. Not so long ago it would have been hard to imagine the European Commission labeling China a “systemic rival” and European heads of government happily signing it off. Indeed, a few years back, the notion of an EU investment screening mechanism was anathema, China was on track to be automatically granted Market Economy Status, and reciprocity was a dirty word, seen as barely veiled code for protectionism
Now the EU is embarked on an overhaul not only of its approach to China, but a rethink of how all the instruments of European policy need to be rebalanced in light of the China challenge: not just trade, investment, maritime security and human rights, but competition policy, procurement, data, connectivity, industrial strategy; how the single market itself works.
No longer is the question- how do we change China’s behavior? But rather: what do we have to do differently on the assumption that China isn’t changing anytime soon?
How did we get here? One account has it that we’ve just been getting it horribly wrong for decades: liberal optimism or hubris led us to believe, first, that the more deeply China was integrated into the global trade and security order, the more deeply it would absorb free market practices and multilateral norms; and second, that economic growth and the transformative force of the internet would weaken the Chinese Communist Party’s grip on power.
From Uighur detention camps in Xinjiang to the artificial islands in the South China Sea, Xi Jinping’s deepening authoritarianism at home and assertiveness abroad has done a lot to strip any remaining illusions about this away.
But many of those who thought that the CPC was here to stay believed that Beijing would continue to see an interest in economic reform and market opening of the sort that we had seen painfully but successfully pushed through in China in the 1980s and ahead of its WTO accession. Instead, not only has this stalled, leaving in place a whole array of non-market practices, from subsidies to forced technology transfers, that China had promised would have been eradicated by now when it joined the WTO, we’ve also seen a clawing back of control by the Party over even the Chinese private sector.
If China had a much smaller economy, if its firms were only operating at the low-end of the value chain, or if they were only competing in the Chinese market, we would be dealing with a problem of a very different scale. But now we’re seeing this play out in the fields that were supposed to represent the future of our economies. Not just steel and textiles but electric vehicles, high-speed rail, synthetic biology, and the ripple effects from AI advances across virtually every industrial sector.
With the Belt and Road initiative and other Chinese outbound investments and loans, we’re also seeing the externalization of all the problematic Chinese domestic practices across virtually every region of the world; not only is the Chinese market inaccessible in key sectors but the same procurement practices, the same subsidies are hitting European and US firms in third markets, and even in their home markets. It has also become harder and harder to avoid the fact that the security, technology, economic, and values issues are intertwined, from surveillance and big data to debt and dual-use ports.
Indeed, the striking thing is that the biggest catalyst for change in European policy - and the very coinage of the term “system competition” - came not from human rights groups or the security community, but voices from business, and a section of European industry, in the shape of Germany’s BDI, that had been one of the biggest beneficiaries of China’s economic take-off.
Europe’s “commercial motivations” about China supposedly prevented this form of comprehensive thinking about strategic competition – instead today they are one of the main forces driving it.
The fundamentals of this analysis, if not all the nuances, are pretty much shared across the Atlantic. At the most basic level, neither Europe nor the US believe that the basic asymmetry that sees our systems stay relatively open to China, while China’s is relatively closed, is sustainable anymore.
Naturally enough then, there have been calls to elevate the importance of cooperation on China in the transatlantic relationship - even to turn it into the next big transatlantic project. In the context of US-China policy and the transatlantic conversation, this is new – on GMF’s Asia program, we’ve been working on this for the last fifteen years and the issue has never loomed as large as it does today.
In the old era of US-China competition - which was almost entirely focused on hard security in Asia - European powers were in the second tier at best, it was only treaty allies in Asia and new security partnerships with the likes of India that mattered. When US policymakers thought about China, they thought very little about Europe, and transatlantic cooperation in this area was seen as something “nice to have” if possible rather than something we “need to have”. As a result, China virtually never featured in summits or meetings among European and US leaders.
In the new era of competition - where access to technology, market size, regulatory power, infrastructure finance, and development aid - are at the very heart of the contest with China, the EU, alongside Japan, is the only other real peer or near-peer of the United States.
Yet so far - although there have been some modest efforts at cooperation - this entire agenda has remained highly underdeveloped, pretty much restricted to firefighting on 5G, limited coordination on trade measures, and some early, less publicly visible, steps on connectivity, investment screening, and countering influence operations
There are obvious reasons for these limitations, whether it be the wider political tensions in the transatlantic relationship; on trade, specifically, where it’s hard for allies to cooperate as effectively when they’re hitting and threatening each other with tariffs; or broader mistrust - there are some risks that you’re less willing to take when your partner looks like they may cut a deal behind your back.
But those reasons are only a part of it. As the US competition with China intensifies, Europe’s current inclination is to strike a somewhat different balance. It doesn’t want to give up on interdependence with China; it still wants to preserve major areas of cooperation. And more fundamentally, there is a different European view emerging on system openness: there is a push in the US to close down or restrict access to China in various sectors: not just through CFIUS but research, technology partnerships and aspects of scientific cooperation; Europeans even while looking to pare some of these things back from where they are today, don’t want to move as far.
Although this reflects some legitimate differences in view, one of the most important reasons for this - aside from European uneasiness about new cold wars - is that for the US, Chinese access to advanced technologies is also a question of their impact on military capabilities and security rivalry; for Europe, it’s still largely a question of economics. And so far, unlike on Russian or Iranian sanctions, say, where it was the European side that bore the main economic costs, in the emerging competition with China, the US economy and US firms have already been absorbing a hit, while Europe has been looking to maintain what is in effect a pain-free China policy.
The problem is that these aren’t areas where we can just agree to disagree. If a high degree of alignment isn’t achieved on everything from investment screening to 5G, there isn’t just the potential for a US decoupling from China, which for some US policymakers would be fine, there’s a risk that you end up with a partial transatlantic decoupling too. The relatively free flow of technologies, capital, components and other critical aspects of the transatlantic economy cannot continue in the same way if one partner is substantially more open to China than the other. The effect in these circumstances would not just be a bifurcation - a China-centered economic order and a Western-centered economic order - but fragmentation. We can’t reach decisions about system-openness separately; this has to be resolved together.
This isn’t just true in the commercial sphere; China’s involvement in Europe’s digital and physical infrastructure will also have clear implications for transatlantic security cooperation and NATO, including information sharing, US forward deployments, and mobilization capacity in a crisis. This is why reaching a deeper transatlantic agreement on China isn’t just about marshaling forces on trade, shared values, or a new security division of labor, it’s also about making sure we can even continue to do together the same things we do today
But this is only the starting point. The questions we should be asking are whether, to compete effectively with China, to maintain our regulatory power, our technology edge, our military edge, and our economic competitiveness, we need deeper integration between the major market economies and major allies: in trade and regulation, in data flows, in defense industrial cooperation.
As the multilateral trade architecture comes under strain, how we can strengthen the plurilateral alternatives. And whether we are really collectively geared up to win out in the battle for norms that is already underway with China across the developing world and even in the EU’s own neighborhood - in the digital sphere, democracy, infrastructure and development - is our offer now as strong as it needs to be?
We have seen some moves of this sort outside the transatlantic context - such as the CPTPP or the Japan-EU FTA and data adequacy agreement, building the world’s largest area of safe data flows. But whether it be public disquiet in Europe about TTIP, wariness in Congress about ratifying trade deals, or the gaps in our views on data privacy, the transatlantic cooperation agenda in many of these areas was seriously lagging or stalled even before our political disagreements intensified.
This is now clearly a far less propitious time for these “architecture-building” questions, given the current state of the transatlantic relationship, and a Europe that is being pushed into debates about strategic autonomy.
But this can be - or should be - reframed by China, where the underlying challenges that we are facing together are only going to grow more acute
Will we reach the point where we decide that the genuine and legitimate differences we have on so many of these issues are less salient than the differences we have with the Chinese party-state? Can we revisit the broader transatlantic agenda, not just “China policy” as such, but a readjustment of our overall priorities to take into account the fact that Chinese economic, technological, military and even ideological power is going to be a far more central issue to deal with in the years ahead?
And how quickly will we recognize that failure to align our overall approaches could damage the transatlantic security alliance and our mutual economic openness?
If we allow these difficult choices to drift for too long, fail to pull together, and get stuck on the defensive agenda against China rather than mutually strengthening our own collective capacities, there is a real risk that we weaken ourselves in the competition not just for economic interests or military advantage but beyond that: over who gets to write the rules and norms that govern people’s everyday lives across the world in the decades ahead.