Reorienting China Policy By Working With Europe

To the President-elect of the United States

Mr. President-elect,

The past four years have ushered a significant new course for policy toward China in both Europe and the United States. Yet on both sides of the Atlantic, there are reasons to believe that actual results, as opposed to declarative policy, are still lagging behind China’s many actions and initiatives.

Tariffs have inconvenienced China’s exporters but have not changed the overall picture of the U.S. trade deficit with the world. Export restrictions for critical technology are often a contentious topic among allies, some of whom fear a systematic unwinding of supply chains and a costly economic decoupling with China.

Europe has been generally more united than it was before on defensive trade measures and in some sectors where foreign direct investment and technology interact with internal security and national defense. But European efforts to leverage this newfound unity to gain concessions from China have not met with success so far.

Belatedly, Chinese President Xi Jinping has voiced a commitment for China to achieve carbon neutrality by 2060. However, this long-term commitment is decades away from realization and is undermined by current Chinese policies that run contrary to this goal. In addition, the issue has often divided Americans and Europeans over the last few years.

On fundamental principles and values regarding policies toward China, the two sides of the Atlantic have actually come closer, particularly in 2020. The egregious actions against minorities in the Xinjiang region and beyond, the National Security Law applied in Hong Kong, and the Chinese disregard for international arbitration in the South China Sea, among other issues, have reminded both sides about how Chinese behavior threatens the liberal international order.

But neither Europe nor the United States found a way to move China. An almost continuous engagement by Europe and its emphasis on multilateral institutions evoke only superficial answers from China (such as an empty commitment to World Trade Organization [WTO] reform). The United States’ hard-nosed approach in the areas of trade and technology, including efforts to press its allies for restrictive measures on technology, is meeting with mixed results in Europe’s approach to China.

The progress so far is manifested mainly where defensive measures are concerned, with some advances in opposing China’s statism despite Beijing’s conspicuous disinterest in changing direction. On subsidies and anti-monopoly rules, Europe may have an example to offer.

In the areas of foreign and security policy, Europeans and Americans have undoubtedly come closer. France and Germany have now articulated different but complementary Indo-Pacific policies, and they exhibit a growing interest in deepening cooperation with the Quad partners (Australia, India, Japan, and the United States). Wherever the European Union can find unanimity among its members, it takes positions on human rights issues in international institutions that are close to that of the United States. Above all, the endorsement by all member states of a strategy that builds on the recognition of China as a systemic rival is a milestone in Europe’s policy toward China.

Both Europe and the United States face a largely sullen and unresponsive China, which continues to exacerbate tensions in the Indo-Pacific while steadily increasing its military capabilities designed to intimidate its near and far neighbors. A painful lesson is that engagement through multiple dialogues with China—which Europe has pursued over the last few years—has not brought productive results. And the United States’ quasi-suspension of these dialogues, along with largely bilateral countermeasures, may have hurt China but have not changed its course.

The defensive measures the United States and Europe are pursuing as an initial response need to be debated and coordinated for effectiveness: it is striking that many companies, whether American and European, are not moving decisively in the direction of disengagement or decoupling from China. On the contrary, they are preserving, and often even increasing, their stakes inside the Chinese economy. Meanwhile, a Chinese economy that is heavily indebted—but perhaps not more so than many Western economies after the onset of the coronavirus pandemic—has also regained considerable financial comfort in 2020. This is thanks to a record trade surplus and a rebounding current account surplus, even with accelerated purchase of foreign financial assets.

China’s asymmetric economic model and its failure to implement many international rules requires an effective response, particularly better transatlantic coordination on policy issues. Recent U.S. efforts to target its European partners through tariffs have not helped the cause when a unified approach to China is a crying need. Ending the special tariffs put in place against various European sectors—from steel and aluminum to cosmetics, luxury goods, and some food and alcohol items—is urgently required to jumpstart transatlantic economic coordination vis-à-vis China.

Beyond this priority and absent a Trans-Pacific Partnership or a Transatlantic Trade and Investment Partnership (TTIP) accord, the Europeans and Americans need a better entente in key sectors that have been the subject of transatlantic disagreements: aviation, digital platforms, and norms for data transfer and storage are cases in point. On all of these, convergence and coordination are preferable to mere reliance on extraterritorial leverage. Renewed cooperation on climate change mitigation measures is another key need. Currently, the gap between the United States and Europe is more rhetorical than real when one looks at actual energy trends. This nonetheless leads to heightened misunderstanding.

This agenda appears only indirectly related to China. But it is still important because China is increasingly the leading partner, competitor, and rival of either the United States or Europe, or both. Every one of the U.S.-European mutual divergences improves China’s capacity to resist the demands for structural change to its statist economic model.

On major issues regarding human rights and values, a case can be made at the United Nations that some of China’s actions against religious and ethnic minorities not only violate basic human rights but also fit criteria that define genocide. Any response to these outrages would benefit from a common transatlantic approach.

Finally, a coherent transatlantic response needs to be developed that will impose costs on China for egregious behaviors while avoiding a violent conflict that no one desires. The United States has unqualified hard power advantages in the Indo-Pacific in comparison to its European allies. The European Union, along with Japan and Australia, can bring to bear its economic and soft power tools. But the transatlantic community needs to strategize how best to leverage these contributions. The European allies also need to do their part to better defend the European continent and contribute toward sensible burden-sharing: inevitably, this will lead to more competition among defense providers, a reality that should be accepted by the United States, as such competition is already the case among Europeans.

Your administration can take some steps to facilitate this path of common action. One is to increase dialogue not merely on issues where America asks more of its allies but rather on the entire range of our interests and goals toward China. A short list should include:

1. Developing common norms in partnership with Japan and defining a unified approach for screening Chinese outward investment as well as regulating U.S., European, and Japanese technology transfers to China, including a coordinated review process to update what should become unified export control and entity lists. This implies more sharing of information and cooperation among governments and with private stakeholders.
2. Adopting a common stance, again in partnership with Japan, on a range of issues to include China’s competition policies, its nontariff barriers, its abuse of regulatory provisions, its state subsidies, and its state-owned enterprises. A coordinated policy on these issues would require resolving some long-standing transatlantic disputes and moving together toward more transparency in remaining offshore capital markets, where China is now a key actor.
3. Converging on a common approach to WTO issues and reform. This should consist of several elements: a return to functioning arbitration in the short term; a joint stand toward China on WTO reform, including the service sector, public markets, and an end to China’s status as a developing economy (which it is no longer); preparation of alternate multilateral trade agreements, with an inclusive approach to other emerging economies, that could supplement or even replace the WTO if China insists on the status quo. The high standards, especially on investment arbitration, that were a feature of the TTIP project should be weighed against this need for inclusiveness.
4. Narrowing the gap on data transfer and data privacy issues, which implies a careful review in the United States of its diverse legislation. The example of India, which has moved recently from its previous emphasis on digital sovereignty to a higher priority on security issues—leaving less room for Chinese platforms and information technology—shows that an agreement within the transatlantic community and with Japan is vital. Some fragmentation of the digital world is inevitable given the state practices of China and Russia. Differences between the transatlantic partners in these areas should be reduced in order to sustain a global majority for recognized rules.
5. Recognizing that the climate crisis applies to all, and that neither the United States nor Europe can persuade emerging countries, especially China, to curb emissions without moving together on the regulatory front, both sides must discuss the possibilities for common approaches to reducing CO₂ emissions that complement the multilateral dialogue process of the Conference of the Parties. Here again, an inclusive coalition of the willing can help move the multilateral process.
6. Consulting together to develop the contingency plans required in cases of continued Chinese violations of international norms or more egregious assertiveness. This cannot be put off for much longer because the diplomatic, economic, or military actions undertaken in response to Chinese threats not only benefit from prior coordination but must be implemented in ways that enhance transatlantic security.

Mr. President-elect,

America and Europe remain the largest and most integrated trading space in the world. Clear progress in creating a common framework for new services and technology, narrowing the regulatory gaps, and improving the arbitration process would create an unsurpassable global lead and set standards for the rest of the world to emulate.

U.S. and European capacities are not evenly distributed, and there are ongoing debates on both sides over how to reflect their values in their laws and regulations. These differences, however, pale when compared to the path that the People’s Republic of China is now taking.

The United States and Europe each have their own vulnerabilities to and dependencies on China’s economy. But China is also dependent on both—perhaps, even more so. Together, the United States and Europe have the leverage that eludes them separately.

China’s leadership accords strong attention to relative strength. Cooperating to forge common positions—where necessary, with other international partners—would enable the United States and Europe to restart the necessary dialogues with China and achieve the results that have escaped each of them thus far.

This content was co-published with Institute Montaigne.