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Foreign Policy

Has China Lost Europe?

May 09 , 2018
Recently, German Chancellor Angela Merkel and French President Emmanuel Macron visited Washington DC in a vain attempt to tame the mercurial U.S. President Donald Trump. The most powerful duo in Europe left the White House with mixed results. Europe’s exemption from the U.S.’ steel and aluminum tariffs was extended until June, yet it did not become permanent as the European Commission has demanded. In addition, Merkel and Macron failed to persuade Trump to abandon his campaign promise to pull out of the Joint Comprehensive Plan of Action (the Iran nuclear deal).
While Germany and France have attempted to gratify the iconoclastic American president, their rhetoric towards China has been less considerate. Macron, during his recent trip to Australia, called for a new Indo-Pacific strategy and cooperation with the democratic “Quad” (Australia, India, Japan, USA) essentially to balance the rise of China in the region. German think tanks have for the past year advised that Europe form a defense against China’s “sharp power,” and have noted in a warning tone China’s increasing assertiveness in exporting its authoritarian ideas, division of Europe with the 16+1 initiative and acquisition of prominent European assets. As a German think tank put it, the chancellor herself “has reportedly named China’s rising influence a key challenge in global affairs for her final years in office.” 
It is of course understandable that European and American values converge. The relationship between Europe and the United States is bound by shared Western democratic ideals, freedom of the press and the rule of law as expressed in the declaration of independence, the Atlantic Charter and the classical corpus of western heritage. Yet Europe’s failure to condemn economic nationalism, paradigmatically reject ultra-nativist demagogy and take serious action to deter Trump’s onslaught against multilateralism undermines both the long-term cohesion of the Atlantic community in a post-Trump era and the domestic stability of the EU. At a time when the Eurozone’s economy has just recovered from its lost decade, any disturbance in the global system would reverberate into yet another round of populist revival. With the EU lacking any automatic stabilizers such as a banking union, a new shock could break it. Nigel Farage - Trump’s European acolyte - would be triumphant.
At the heart of Europe’s inability to decisively protect its own interests and promote a stable global system is not China’s creeping influence in Europe, but Germany’s well-disguised economic nationalism and the inability of the Paris–Berlin axis to catalyze the political and strategic integration of the EU. The Euro has provided enormous benefits to German industry, boosting its competiveness as its value compared to a hypothetical Deutsche Mark is undercut by weaker industrial economies of the south. Empowered by this invisible currency devaluation, Germany has been one of the largest beneficiaries of the status quo, while southern Europe has experienced the largest welfare stagnation in peacetime. From a position of financial strength, Berlin has coerced Paris to slow its efforts towards European political reform, a banking union and proactive industrial policies. Furthermore, German-imposed punitive austerity and the consequent political instability have made the EU a laggard in venture finance, further undermining its innovation infrastructure. The EU has significantly fallen behind China in artificial intelligence and other technologies that will be pivotal for future economic growth.
While in the recent past German elites were among the most passionate European supporters of a strong partnership with Beijing, they have now retracted. For many, the “Made in China 2025” initiative will eventually turn Chinese companies into peer competitors to the German industry and limit the attractiveness of German products in the vast Asian market. When Geely, a Chinese automobile manufacturer, acquired 10% of Daimler, Berlin doubled down on its effort to set up an EU-wide investment screening mechanism. However necessary this may be, it still falls short of the imperative of a truly united Europe, able to defy Washington’s commercial blackmail and negotiate with China from a position of coalesced strength.
To be sure, right after Trump’s arrival at 1600 Pennsylvania Avenue, the EU did extend its hand to Beijing in an attempt to forge a joint front to save the Paris climate accord and preserve systemic stability. China, however, repeatedly declined the EU’s diplomatic overtures and demanded that the EU accept its market economy status at the World Trade Organization and endorse its Belt and Road Initiative. The May 2017 Belt and Road mega-summit in Beijing was the breaking point. The EU declined to endorse a joint declaration and since then the European Commission has urged members to consolidate a new connectivity strategy and balance China’s BRI. Yet however strained the Sino-EU relationship currently is, this does not prima facie make Beijing an existential threat to the EU’s interests. Competition may intensify but conflict is not preordained. There is still an opportunity for negotiations on a possible bilateral investment agreement, and more importantly, on a truly strategic engagement across Eurasia that makes China and the EU the “building blocks of a working world order,” where trade and people flow in both directions.
While the transatlantic partnership remains a priority for Europe, this should not make the EU strategically biased against China. Instead, it should urge Europe to become a more autonomous strategic actor and to negotiate its global interests from a principled position of consolidated strength. Manifestly, China never really owned Europe. But China may have lost Europe’s strategic trust, at least for the moment, as the EU is worried about China’s BRI intentions. This European Sino-phobia, however, originates in Europe’s domestic inability to insulate European ideals from populist-nationalist backlash as its economy underperforms. If Europe does not fix its own house, reform and integrate its member states following the exceptional principles that its founding fathers underwrote, it will eventually lose itself.
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