As China sabotages its own economic interests in Europe, the United States should seize the opportunity
[This piece has been published in Restoring America to highlight how the U.S. can assert its economic dominance.]
For some years, China has hampered its own economic engagement with the European Union. Chinese diplomats are often described as “wolf warriors” for aggressively, sometimes offensively, asserting China’s interests on the international stage. As a result, even in the absence of a serious and robust US government approach to trade with Europe or anywhere else in the world, China’s aggression has inadvertently helped keep the US in the game.
China has doubled down on its “wolf diplomacy” in Europe. In 2020, the Chinese Embassy in the Czech Republic threatened Czech businesses if the Senate Speaker visited Taiwan. After EU sanctions against China for human rights abuses against Muslim Uyghurs in Xinjiang in 2021, China retaliated with its own sanctions against the EU.
And in January this year, China imposed a trade boycott on Lithuania after the latter allowed Taiwan to open a de facto embassy there. Most recently, in May, China warned the EU not to “bet on the Taiwan issue”, following the EU’s decision to improve trade and investment relations with the island.
The most visible impact of this series of political clashes was the impending approval of the EU-China Comprehensive Investment Agreement in the European Parliament. The deal has been in the freezer, as one MP said, since last year.
Does China really want to sever its economic ties with the EU? The answer is no. China sees the EU as a key counterweight to the US, so much so that negotiations for the comprehensive investment agreement were concluded in December 2020, a month before the Biden administration took office. and could have imposed even higher tariffs and other trade barriers against China.
To reach the agreement before the new administration, Beijing made several concessions. He agreed to give EU companies better access to several manufacturing and service sectors in China. The agreement also included provisions on the regulation of Chinese state-owned enterprises, the imposition of subsidy transparency, the prohibition of forced technology transfers and equal access to standardization bodies for European companies.
The EU described the agreement as “the most ambitious that China has ever concluded with a third country”.
Apart from geopolitical considerations, investments from EU countries are also vital to China’s current economic development needs. Encouraging foreign investment in high-end manufacturing is part of China’s dual circulation strategy to strengthen its role in the global supply chain network.
The EU has been a key investor in Chinese manufacturing industry. In 2019, for example, the EU invested $4.3 billion in manufacturing there. It was only behind South Korea ($4.4 billion) and Hong Kong ($15 billion) and far ahead of US manufacturing investment ($0.9 billion), according to the Chinese ministry. of Trade.
Indeed, even Hong Kong investment may be less remarkable than it appears, as much of it is Chinese capital in Hong Kong returning to China after going back and forth in the territory.
In the first quarter of this year, the EU was also China’s second largest trading partner, only after the Association of Southeast Asian Nations, a union of 10 member states in Southeast Asia, according to the General Administration of Customs of China. China-EU trade is mainly in machinery, vehicles and other manufactured goods.
In comparison, the direct industrial link between the United States and China through trade is relatively weak. China mainly trades finished products with the United States, exporting final consumer goods and importing mainly foodstuffs, electrical machinery (including semiconductors), other machinery and transport equipment (including planes).
Unlike the notable manufacturing investments of EU companies in China, many US companies rely on manufacturing in other Asian countries with only final assembly in China. At the same time, the United States dominates intellectual property licensing and design and research and development activities in the Asian-American production network.
Chinese companies also need the Comprehensive Investment Agreement with China to preserve their position in the EU market. In 2020, China invested $10 billion in the EU compared to just $6 billion in the United States, according to China’s Ministry of Commerce.
Over 80% of Chinese investment went to the Netherlands, Sweden and Germany. Most of its investments in the EU went to manufacturing (35%), followed by mining (19%) and financial services (14%).
While China’s Belt and Road Initiative focuses on infrastructure investment (roads, buildings, communication networks, etc.) in Eastern and Southern Europe, the Comprehensive Investment Agreement would complete the Chinese investment map. in Western Europe by allowing more investment in the manufacturing and service sectors. .
Beijing believes its huge market and closer economic and industrial ties with the EU will give it greater political clout with Europe. So far, the EU has resisted political pressure from China. For example, it has supported Lithuania by providing financial assistance to companies affected by trade restrictions imposed by China. Furthermore, the EU continued to support not only economic cooperation with Taiwan, but also Taiwan’s democracy and national security.
Despite all the benefits it can derive from a better relationship, Beijing does not seem to be coping. Authorities hoped to get things back on track with Europe in April. However, the EU-China summit that month ended without much improvement in their relationship due to China’s disregard for EU concerns over human rights issues with the Uyghurs and its refusal to condemn Russia’s invasion of Ukraine, a major threat to European security.
Instead of responding to concerns, China called on the EU to formulate and pursue an independent policy toward China different from the United States. European officials deeply felt the implication that their policy followed that of the United States.
China needs Europe as a market for its goods and as a source of technology, especially given the dire state of its relationship with America. Ratification of the comprehensive agreement on investment in the European Parliament would also offer China a political and economic victory on the world stage. Yet China’s political chauvinism has prevented it from advancing its relationship with the EU – to America’s benefit.
China is giving the US leeway to get back into the trade game and position itself for long-term competition with China. The United States should benefit more from the opening.
This piece originally appeared
and is reproduced by kind permission of the Heritage Foundation.