• The rapprochement of Europe and China – and the US

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    DAN STEINBOCK

    The new consensus between Brussels and Beijing involves converging economic interests between Europe and China – and diverging strategic interests between Europe and America.

    Not so long ago, after still another NATO-trade-climate spat in Europe, German Chancellor Angela Merkel suggested that Trump’s America was no longer a reliably close ally. An outcry ensued, with analysts on both sides of the Atlantic warning about an epochal shift in relations. Afterwards, Chinese Premier Li Keqiang called for joint efforts to promote globalization during his visit to Germany.

    It was that consensus that led China and the European Union (EU) to begin an effort to save a global pact against climate change from which US President Donald Trump said he will withdraw. In a statement, by European Council President Donald Tusk, European Commission President Jean-Claude Juncker and Premier Li, the EU and China pledged they would commit to full implementation of the Paris Climate Agreement.

    In Washington, the standard interpretation was that China saw an opening in the rift between the EU and US and exploited it. As before, the shift was understood as a reaction to a policy vacuum created by Trump.

    In reality, the ties between Brussels and Beijing have grown steadily since the 1990s, even when US-Chinese ties have been strained.

    Shifts in China-EU-US trade and investment
    In goods trade, both the US and the EU have a significant deficit with China. In both cases, Chinese imports exceed hundreds of billions of dollars. Yet, the US deficit is almost twice as large as that between the EU and China. Although China has become one of America’s fastest-growing export destinations, EU companies export to China almost twice as much as US multinationals (Figure 1).

    In services, both the US and EU have a significant trade surplus with China. This is a typical divide between advanced economies, which drive innovation, and emerging economies, which seek to catch up with the technology gap. However, as Chinese companies are becoming more competitive and innovative, the gap is shrinking.

    In foreign direct investment (FDI) stocks, both the US and the EU have significant deficits but those of the EU are three times larger than America’s, not least because EU companies have invested more in China. However, this status quo has been shifting as Chinese capital began to move abroad in the early 2010s and Chinese companies have been able to invest in Europe more relative to the US (Figure 2).

    In the coming years, Sino-EU ties are likely to increase via goods and services trade, and foreign investment. Moreover, as China is moving from net exports and investment toward consumption and innovation, the role of European technology companies and brands is likely to increase in China, while Sino-EU innovation cooperation could thrive as well. Due to US barriers against technology exports to China, the EU is already the mainland’s primary technology partner, not the US.

    Convergence of Sino-EU economic interests
    In the Bush era, America and Europe nearly divorced because of disagreements about security. Today, the calls for annulment are fostered by a bitter split about trading ties and climate change.

    Like the US, the EU does believe in the West’s unique values and interests. But unlike Washington, Brussels does not believe that Europe should serve as a “shining light” to the rest of the world; Brussels does not share Washington’s strategic interest in global military superiority. True, Europe has periodically supported America’s messianic regime changes, but usually with costly political aftermaths.

    Just think of Tony Blair’s political collapse after the Iraq invasion; or French President Hollande’s drastic plunge in ratings after the French interventions in North Africa and the Middle East; or Prime Minister Matteo Renzi’s periodic military support for US “democracy promotion.” In the UK, Iraq disasters paved the way for David Cameron’s conservatives, whose continued reliance on US contributed to UK Brexit. In France, military interventions ensured Socialist fragmentation and Emmanuel Macron’s election triumph. In Italy, similar interventions opened the door to Beppe Grillo’s center-to-left Five Star Movement and Matteo Salvini’s radical-right Northern League.

    It is not just Trump’s neo-protectionism and climate policy that are pushing Europe’s largest economy, Germany, and Chancellor Merkel toward China, but almost three decades of US neoconservative dreams of American Empire, Democrats’ liberal interventionism, and the progressive dissolution of the American welfare state since the Reagan revolution. None of these ideas—imperial fantasies, regime changes, and laissez-faire conservatism—have substantial support in Europe.

    While the transatlantic economies tend to share similar values, their interests are diverging, even as those between China and the EU are converging.

    Dan Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

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