Complicated but Necessary: A Transatlantic Policy Approach toward China

“EU relations [with China] are complicated.” This is how German foreign state secretary Michael Roth recently described the European Union’s attempts to unify 27 members on a policy approach as Beijing actively “drives a wedge between the EU member states and weakens them.” This policy “complication,” or as some may argue contradiction, also stems from the fact that the European Union views China simultaneously as a partner, a competitor, and a systemic rival. 

As a partner, the European Union seeks to conclude an ambitious investment agreement with China by the end of 2020, but, as the results of the September 14 EU-China Summit reflect, Europe is growing increasingly concerned by China as a competitor and rival. The European Union has demanded that Beijing “tear down barriers” and give European firms greater access to the Chinese market in its call for economic rebalancing. Europe is also increasingly concerned by the deteriorating human rights situations in Xinjiang and Hong Kong as well as China’s role as a global carbon emitter. German chancellor Angela Merkel recently noted that the European Union was applying “pressure” on China but was doing so in order “to make progress on an investment agreement.” Europe and Germany find themselves caught in a dilemma of pressing for European values and competitiveness while trying to gain greater access to China’s market.

U.S. policy toward China can also be described as complicated, as it has rapidly transformed from one of engagement to “results-oriented” rebalancing, similar to that of the European Union. Strategic competition now extends beyond traditional economic and military realms and into technological and ideological spheres. There are now calls for complete decoupling in an increasingly adversarial environment. Although Washington’s China policy is ensconced within a larger strategy toward the Indo-Pacific region (A Free and Open Indo-Pacific, or FOIP) based on security, economics, and governance, U.S. policy is Sinocentric when it describes the current era of great power competition. At present, the United States’ China strategy focuses on ensuring freedom of navigation in the Indo-Pacific region; strengthening ties with Taiwan; punishing Beijing for violating Hong Kong’s autonomy; preventing Chinese technological dominance; addressing human rights issues related to China’s Uyghur, Tibetan, and Christian populations; and countering Chinese malign influence internationally while trying to preserve some trade and investment flows in its phase one trade deal.

Against the backdrop of both the European Union and the United States recalibrating their policies vis-à-vis China, CSIS hosted its third German-American Track 1.5 Dialogue on China in February 2020. Like the previous two Dialogues, these high-level discussions provide valuable opportunities for government officials and experts to share their experiences and more deeply explore policy perspectives. This year’s Dialogue covered a diverse range of topics, including China’s internal political dynamics, the future of the Chinese Communist Party, Beijing’s response to political challenges, and the future direction of China’s domestic economy and its external economic pursuits. These discussions are designed to better align U.S. and German strategies toward China in the future.

The timing of this particular dialogue lent the event a palpable intensity: Covid-19 had already exacted an enormous human toll in Wuhan and was just beginning to reveal its devastation globally. In addition, the German government was just a few months from assuming the rotating presidency of the European Union and was preparing to host the EU-China Summit in Leipzig, Germany, in the fall (which was postponed due to Covid-19).

It is clear that German policymakers and experts are actively working to manage the diversity of its policies that treat China as both a cooperative partner and a systemic rival. German industry has been an important driver of Europe’s policy shift toward more economic realism and less naiveté regarding China. China’s actions and policy responses have served to accelerate this shift. Both the European Union and Germany recognize Beijing’s exploitation of multilateralism, the many agreements it has not fulfilled, its increased use of surveillance at home and abroad, its use of malign and coercive influence, and its crackdown on domestic dissent.

But while these views better align with U.S. perspectives, the ongoing strains in the transatlantic relationship are a clear barrier to greater U.S.-German and U.S.-EU cooperation on China. German colleagues expressed concern that the United States was forcing upon Europe a choice: either Europe must unequivocally support the United States, or it must “choose” China. And, should Europe choose to pursue a third path, then it would be interpreted by Washington as choosing Beijing. It struck some U.S. officials as inconceivable that Germany would not completely align with the United States on a values-based approach and would choose an independent course. It was this clarity of exchange, and hard work by both German and U.S. participants to minimize policy divergences between the United States and Europe, that laid the foundation for such a rich and substantive dialogue.

Throughout the Dialogue, the discussants explored a variety of paths for China’s future development and their transatlantic implications: the successful realization of Xi Jinping’s “China Dream” under which China becomes a rich and economically dominant power and the Chinese military grows more powerful and supplants the role of the United States in Asia; the middle path, in which Chinese economic growth slows and the United States and its allies are able to successfully counterbalance China; or, a path where China is unable to escape the middle-income trap and is no longer viewed as a military or economic challenger to the United States.

U.S. and German industry experts discussed the conditions and challenges of doing business in and with China as well as the way in which industries and governments should respond to specific China-related challenges. There was significant discussion about Beijing’s Made in China 2025 plan and its implications for the German and U.S. economies and industries. The creation of Chinese industrial champions in key sectors through state intervention, massive subsidies, monopolistic control over key industrial inputs, and intellectual property theft or acquisition poses a major threat to Western companies. China’s overproduction and overcapacity has already altered global markets, suppressed global prices, and curtailed domestic production. China’s theft of intellectual property in the high-tech and industrial sectors is also a major concern for German and U.S. industry leaders.

The response of the U.S. government to China’s economic practices has been to impose tariffs as a lever to force Beijing to shift its policies on core issues (it has imposed tariffs on the European Union as well). The European Union has also imposed tariffs on China, but to a lesser extent. Because the Chinese market is viewed as a key region for EU economic growth (China is the EU’s second-biggest trading partner, behind the United States), particularly German exports and automotive sector growth, it fears Chinese trade retaliation, despite its bold rhetoric. China is well aware of the leverage it holds over Europe. It was not accidental that the Chinese government imposed a ban on imports of German pork to China two days before the September 14 EU-China Summit, partly as a means of delivering a political warning ahead of the meeting. For European governments and businesses alike, the need to change China’s economic behavior becomes more urgent as China targets strategic sectors and engages in unfair trade practices, but the risk of losing access to China’s large market is a significant deterrent. This dilemma plays out daily.

Importantly, the dynamics around this dilemma for Europe may be shifting and sharpening. On September 14, EU Council president Charles Michel noted that “Europe needs to be a player, not a playing field,” and that the European Union wants “more fairness . . . a more balanced relationship that also means reciprocity and a level playing field” when it comes to China. German foreign minister Heiko Mass recently asserted, "We want to help shape [the future global order] so that it is based on rules and international cooperation, not on the law of the strong."

The widest gulf in U.S.-German perceptions about China has long been the security threat it poses. Germany and the European Union do not view China as a proximate threat and worry less than the United States does about China’s growing military capabilities. The U.S. military bears by far the greatest burden in enforcing freedom of navigation and unhampered commerce for the $3.4 billion worth of trade (a sizable portion of which is coming from or going to the European Union) that traverses the South China Sea. In recent months, however, the transatlantic perception gap on the Chinese security threat has begun to narrow. After the Trump administration declared China’s nine-dash line and its “historic rights” claims in the South China Sea illegal in July, Germany, France, and the United Kingdom followed with a similar statement in a submission to the United Nations in September.

China also poses a security challenge to the integrity of Europe’s telecommunications infrastructure, an issue with an economic dimension as well. Addressing it requires a more significant transatlantic response and an acknowledgement of the scale of the challenge: Chinese-manufactured hardware and software equipment (untrusted sources, according to the United States) is already deeply entrenched in Europe’s telecommunications infrastructure. For example, one discussant noted that there is not a single antenna in Brussels that is not made by China. And while the Trump administration has been highly critical of individual European countries’ response to Huawei, the European Commission has enhanced transparency and antitrust measures and created a toolbox that allows for fast and effective risk assessments, enabling all member states to ban untrustworthy providers from their networks if they so choose. However, many choose not to ban them entirely.

Encouragingly, both German and American policies have evolved in relation to the issues discussed during the Dialogue. The United States released a report on its strategy toward China, and Germany issued its own Indo-Pacific strategy. Moreover, there are reports that Germany will enhance its IT Security Act to technically as well as politically assess “high-risk” vendors, a euphemism for Huawei’s hardware and software, and a major shift in German technology policy.

However, this rapid policy evolution requires more frequent and candid transatlantic dialogues, careful listening, and joint policy approaches to shape effective long-term strategies, not less. This is where the United States could play a decisive role, should it choose, by working closely with Berlin and Brussels (and not against them) as well as with partners like Japan, Australia, South Korea, and India to construct a comprehensive approach that focuses on rebuilding a strong, transparent Western economy and seeking alternatives to Chinese economic policies while insisting that trade with China can occur but only based on reciprocity and transparency. This is the thinking behind the United Kingdom’s Democracy-10 project, which seeks to rally these same countries to develop alternatives to Huawei’s 5G networks. This conceptual framework should be broadened to address a range of trade and economic issues, human rights, and the climate agenda for which the European Union would be a major pillar.

Perhaps that could be the subject of the next German-American Dialogue on China.

Heather A. Conley is senior vice president for Europe, Eurasia, and the Arctic and director of the Europe, Russia, and Eurasia Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Bonnie S. Glaser is a senior adviser for Asia and the director of the China Power Project at CSIS.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Heather A. Conley

Bonnie S. Glaser