The Trump administration’s trade war with China and the COVID-19 pandemic have no doubt accelerated the process of de-globalization. These factors have prompted the US to demand the European Union to choose between Beijing and Washington as investment and economic opportunities diminish. The dismantling of supply chains and the implementation of tariffs further politicize trade with China as Europe becomes less of a predictable US partner.
While Europe, especially Germany, ‘relies’ on US military security, it is still keen on increasing trade volume with China, and the potential US-China decoupling presents both the EU and individual European nations with choices that place France and Germany, for example, in two separate camps. In a recent European Chamber of Commerce survey in China, 70 percent of corporate respondents claimed that their supply chains shifted during the trade war, and 10 percent claimed that supply chains were severely disrupted.
Although some Europeans exporters look to adjust these supply chains to source capital from Europe or other third markets to avoid trade barriers, China remains a top export destination for European goods, especially for Germany.
The ‘Big Two’ Split – France and Germany Have Different Priorities
Germany is China’s 5th largest trading partner, while France is 17th or 18th on the same list. These different trading relationships force Germany to pursue a less hostile relationship with Beijing, while France is more likely to join a US-led transatlantic front against China. Therefore, this ‘split,’ creates two separate camps within Europe. Some other countries will firmly choose a side, while others may negotiate with both the US and China to maximize individual interests. Washington’s ability to diplomatically pressure European states will diminish as countries pursue more independent economic and political decisions.
China invested $320 billion into the EU between 2008 and 2018 when little other investment made it to regions and businesses environments in need. With Chinese credit and investment, the Europeans built ports and other critical infrastructure. Regardless of conditionalities, China is serious about providing Europe with investment, and although leaders like Ursula von der Leyen continue to complain about unbalanced trade and investment relations, both German and French private firms emphasize their enthusiasm about market opportunities in China despite the obvious split between Berlin and Paris.
Wang Yi Hopes to Revive Cooperation
In an effort to encourage economic activity post-COVID, Chinese foreign minister Wang Yi toured Europe all the while pro-democracy activists gathered to criticize China’s human rights record. Although states like Germany, ‘need’ a consistent export destination in China, along with stable domestic job opportunities associated with these goods, disagreements about humanitarian concerns, sovereignty, and human rights all create diplomatic obstacles. German leadership acknowledges that despite investment opportunities, the rule of law and human rights issues in Hong Kong are potentially ‘problematic’ for future cooperation.
Earlier this year, the EU imposed sanctions on China over its treatment of Hong Kong, signaling that it might side with the Trump administration against China. Last year, the EU labeled China a ‘systemic rival,’ and began screening Chinese investments with more scrutiny after Europeans became more concerned about their unbalanced trade relationships with Beijing. Even public opinion polls in Germany indicate that only 11 percent of respondents view China’s increased presence on the global stage as positive.
Wang Yi went to Italy, Holland, Norway, France, and Germany to improve Europe’s sentiments about China so that stronger economic ties could overshadow concerns about human rights or the origins of COVID-19. Premier Li Keqiang echoed similar claims that China wishes to correct trade imbalances with Europe. Despite the willingness for cooperation between Europe and China, the US, as evidenced by US Secretary of State Mike Pompeo’s words, would like to turn Europe away from Beijing. Pompeo said that “every investment from a state-owned enterprise should be viewed with suspicion.” Assuming that the Chinese do not liberalize their political and economic systems, which seems unfathomable given the current global circumstances, then the US will never trust the Chinese Communist Party (CCP) going forward. In response to Yi’s recent European tour, the US pressured Italy and its foreign minister, Luigi Di Maio, to reconsider infrastructure deals with China, especially Huawei’s involvement in a future 5G network.
Private Sector Sentiments
Although the French and German governments may disagree on China, the private sectors are fairly pro-Chinese. Representatives of German firms in Taicang, Suzhou, located in eastern China's Jiangsu Province, reported to the Global Times that they would not shift production away from China because of US political pressure. Instead, they claimed that they would strengthen business partnerships as the Chinese markets and the overall economy grow. As Emin Guemues, division manager of Kern-Liebers Taicang company said, “China has a huge automobile market compared with the US and Europe. China produces around 25 million cars each year, while Europe only produces 5 million.” These numbers seem to be swaying European countries eastward in defiance of Washington’s political pressure. Although the French government appears more suspicious of Beijing, French businesses are only increasing investment in China. Suzhou Hybiome Biomedical Engineering Company, an automated immunoassay test company is mostly held by the French company bioMérieux. An executive recently told the Global Times that the parent company will increase investment in Suzhou after deciding to build an additional site.
The France-Germany split reveals the pragmaticism of the region currently, which could pull many European allies away from the US toward China for economic and investment opportunities. Germany exported $400 billion in goods to China over the last 4 years and needs Chinese markets, unless it diversifies its export destinations. French firms also see the massive market opportunities, and will continue to invest in production sites in China as long as they are able. Although France pursues a foreign policy more aligned with the US, things will become clearer after the US presidential election in November. It is possible that America’s European partners, along with executives in the private sector, pray for a Biden victor which could result in a less hostile China policy directed by Washington. Nonetheless, it is also possible that US criticisms of China are too bipartisan to avoid a consistent foreign policy that will aim to steal economic opportunities away from Beijing. A Biden administration would also likely be tough on China, but not as tough or unpredictable as President Trump. Regardless, Europe will likely choose between Beijing and Washington in due time, but the results will vary significantly by each country’s specific needs and priorities. Just as France and Germany have their differences, so will each state within the European Union.