Will the United States Push Europe Toward China?

The more politically challenging question is whether advanced European sectors might be displaced by Chinese competition that has benefitted from Chinese state support. Many of the Chinese exports that account for the growth in the export surplus fall in the emerging technologies bucket, including batteries, semiconductors, and EVs.

Many of Europe’s concerns mirror those of the United States and other countries in both the developed and developing world. In an ideal scenario, pressure from Europe and like-minded countries including the United States might lead the Chinese government to reconsider some of its most contentious policies and mitigate the excesses of its industrial policy and export-driven growth strategy. Those kinds of reforms would strengthen China’s economic resilience in the long term and reduce friction with its trading partners. This approach would also increase prosperity outside of China by leaving more space for U.S. and European and other countries’ exports and investments. In this scenario, derisking and economic security concerns would coexist with a more balanced trading system with select openness to specific investments.

However, that is not the world we live in. Neither the Biden nor the Trump administration has presented a clear set of requests for China to act on, and the Trump administration in fact seems to be moving away from coordinating with partners and allies when it comes to China policy. The presence of language in the Trump administration’s deal concluded with the United Kingdom that appears to target Chinese investment in and trade with the country, and the focus on transshipment in the deals that the Trump administration is finalizing with Vietnam and Indonesia, might be harbingers of what future trade agreements could look like, but there is not a lot of information on how the United States plans to enforce these clauses. It doesn’t help that the text of the deals with Vietnam and Indonesia are not public, and that much of the related sections in the UK deal are describing general principles and future areas for discussion. Moreover, mixed signals from the White House over the U.S. position on Chinese investment in the United States is creating confusion regarding the ultimate goals of the administration’s China policy.

The Implications of a Transatlantic Trade War for Europe’s China Policy

The reality is that a transatlantic trade war is certain to weaken Europe in the short term. Beyond the broader implications for defense spending, U.S. exports, and other issue areas in an impoverished Europe, a dampened economic outlook will certainly undermine European governments’ resolve regarding China. The Trump administration’s goal is presumably to ensure that Europe accepts higher tariffs on exports to the United States and commits to more purchases of U.S. goods. However, it is not clear if the White House is considering that a likely knock-on effect is that European governments will have reduced leverage in negotiations with China and be much more receptive to Chinese offers to increase the level of foreign direct investment of Chinese firms in Europe, particularly in the EV and automotive sectors.

While a negotiated increase in Chinese foreign direct investment in key sectors might benefit European innovation and manufacturing, this outcome is contingent on a coordinated European approach that ensures that economic and national security concerns are addressed and that dependencies on China are maintained at an acceptable level. Already, Chinese investments in Europe such as a BYD factory in Hungary, a Chery joint venture in Spain, and a CATL plant in Germany have been moving forward and benefitting from European state support without a European framework in place, even as European companies have been negatively affected by export controls on rare earths. This has meant that European policymakers have so far not been able to negotiate higher rates of localization and potential technology transfers.

Although these seem like European problems, it shouldn’t take too much imagination to see why increased integration between Europe and China on Chinese terms does not benefit the United States. Among other things, it would reduce European willingness and ability to support the United States in the future when it comes to countering China on a variety of issues, including Taiwan. But on a perhaps less obvious point, more localization by Chinese firms would also enable more supply chain diversification and the transfer of knowledge, potentially enhancing the competitiveness of Chinese rivals in key technologies. It is telling that Beijing is moving to introduce export controls on exactly many of the technologies needed to make lithium-ion batteries—exports of which have been a major driver of the recent uptick in the trade surplus with Europe. Supporting the emergence of more diversified value chains may not matter for U.S. trade balances, but it certainly has an impact on economic security and technological chokepoints. Finally, although multilateralism is no longer in vogue in Washington, it is still true that having a coordinated system with rules and having partners that try to keep Beijing accountable and ensure it engages according to globally accepted norms are ultimately in the United States’ best interest.

Brussels Is Stuck Between a Rock and a Hard Place

Brussels finds itself in a challenging moment. After having spent the past couple of years identifying its competitiveness challenges and developing careful strategies to address them, it now has to implement these reforms as it confronts geopolitical changes taking place at an unexpected pace. Mistakes were made: The cracks in the transatlantic relationship were not appreciated despite the warning signs, and the challenges posed by China’s increasingly innovative ecosystem combined with its industrial policy strategy were not fully acknowledged either. In a world that is increasingly shaped by economic security, it seems like Europe is still playing catch-up.

Some observers had hoped that the upcoming summit between European and Chinese leaders in Beijing would offer an opportunity to make progress on resolving some of the outstanding disputes. However, expectations that the summit will lead to a breakthrough are currently low on both sides. And while Beijing made some minor concessions aimed at pacifying Brussels, there seems to be little willingness to address bigger issues. As a result, the relationship is still acrimonious. Indeed, a recent speech by President von der Leyen reads like a laundry list of complaints. The lack of common areas for cooperation is not good news, as it is unlikely to bring structural resolutions to issues that plague the global trading system.

From a strategic perspective, the United States’ hope at the moment may be that China will continue to offer too little too late to woo the Europeans. There are high chances that this will be the case. Yet, although chance plays a big role in international affairs, it is usually best to ensure that desirable outcomes are achieved through diplomatic effort rather than the law of probabilities. This would require U.S. policymakers to undertake a comprehensive strategy that combines diplomacy, commercial goals, and strategic vision in engaging with partners and rivals alike. Such an approach would involve more nuanced tactics on trade negotiations with allied countries and engaging in quiet diplomacy to understand what the real constraints and capabilities of partners are, and how it impacts the United States’ broader goals when it comes to China.

Success will also require the United States to clarify its own goals toward China and the rest of the world and recognize that there may be discrepancies in how others prioritize various objectives. Acknowledging differences with partners is not a sign of weakness but of shrewdness, and allows for crafting more effective policymaking. To this end, and to avoid long-term strategic losses, the United States should take heed of the broader implications attached to undermining Europe’s geoeconomic position and should instead consider a more tailored approach to addressing trade imbalances globally.

Ilaria Mazzocco is deputy director and senior fellow with the Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies (CSIS) in Washington, D.C.