The EU's China Conundrum

National Review, May 11, 2023 (May 23rd Issue)

America’s support for Ukraine has removed any remaining doubts that the Cold War’s two leading adversaries are embarked on a new version of that contest. And Beijing is now in a very different position. After China’s break with the USSR in the early 1960s, the relationship between Moscow, Washington, and Beijing evolved into an intricate triangular dance in which the distance between the three vertices was always shifting.

Forty years on, the nature of that dance has changed, and not to America’s advantage. Thanks to its growing economic, technological, and military power, China has now emerged as America’s most formidable challenger. This challenge has been made even more dangerous by the way that Washington, beguiled by its faith in the end of history, felt there could be little to fear from a newly if only approximately capitalist state trading its way to prosperity. The result was that the U.S. allowed itself to become unhealthily dependent on China for a wide range of products, many of which are, or could turn out to be, strategically important.

Making matters worse for the U.S. is the rebalancing of relative strength between Moscow and Beijing. To the extent that China and the Soviets did cooperate in the Cold War, China was the junior partner. Those roles have reversed. Russia may still be a bicontinental superpower with the capacity to finish us all off, but it is much weaker than its Soviet predecessor. It is also entangled in a costly (in many senses) war in Ukraine with no resolution in sight. Sanctions may have been less effective than once hoped, but they have sharply reduced Russia’s access to Western markets, and that has forced it to turn to China.

Vladimir Putin’s imperial adventure has, ironically, transformed Russia into a de facto Chinese client state reliant on Beijing — as a customer for its raw materials, as a supplier of goods it can no longer obtain elsewhere, and, critically, as a source of geopolitical support. Maintaining a hold over Russia, a resource-rich country with which it shares a long border, is worth a lot to China, which, for ideological and, more ominously, strategic reasons attaches enormous importance to self-sufficiency (or something acceptably close to it). Moreover, for all its problems, it would be useful for Beijing to have Russia waiting in the wings should China ratchet up the pressure on Taiwan. As it is, Russia’s war in Ukraine is already proving helpful to China. It’s a major distraction for Washington and a drain on America’s reserves of military equipment. Unless the war spirals out of control, with consequences that might be impossible to manage, its continuation is in Beijing’s interest.

Nevertheless, France’s President Macron believes or pretends to believe that Beijing might be persuaded to play peacemaker. In early April, he visited China and reportedly told Xi Jinping, recently returned from meeting Putin in Moscow, that he expected the Chinese leader to “reason” with Russia. Macron was careful to reiterate that he wanted not just a halt to the fighting “but respect for Ukrainian sovereignty and territorial integrity.” A noble objective, but it is clear that even if Beijing makes no effort to help him achieve it, that will not stop him from trying to develop a closer relationship with the Chinese regime. Nor, if he can get away with it, will the struggle for faraway Taiwan.

For years, Macron has argued that the EU should aim for “strategic autonomy.” Quite what that phrase (which first surfaced in Brussels a decade ago and was adopted by Macron at around the time he took office in 2017) might mean in practice is uncertain, but Macron clearly intends that the development of this autonomy be guided by France and for France. There’s nothing new about this: It’s merely a variant of the old idea that France — a country, after all, with nuclear weapons and a permanent seat on the U.N. Security Council — should use its clout inside a large European bloc to restore it, if not necessarily to the first rank of global powers, to something not far below it. And the logic of that — France or the EU as more than a part of a Washington-led “West” — must mean that that autonomy would be based on a degree of distancing from the U.S. China’s leaders understand that Macron is set on such a realignment. They also know that even attempting it would stir up division within both the EU and NATO. It’s no coincidence that Macron received a notably warm welcome in China.

And that was before the publication of Macron’s interview with journalists for Les Echos and Politico on his flight home from China. Even if his talk of the EU’s becoming a “third superpower” was hyperbolic, it signaled the way he was thinking, as did his grumbling about European reliance on American energy and American weaponry and the extraterritorial reach of the U.S dollar. And so did his observations about the risk of the EU’s being caught up “in crises that are not ours,” a reference to Taiwan. Although Macron claimed that “the ideological battle on strategic autonomy” for the bloc had been won, he warned that the EU was not yet in a position to be able to steer its own course in the event that the dispute over Taiwan’s future took a serious turn for the worse. Should that happen, Europeans “would become vassals instead of a third pole.”

Macron was heavily criticized for these comments, particularly (but certainly not only) in the EU’s eastern member states, long suspicious of France’s accommodating attitude to the Kremlin and appalled by the prospect of any breach with the U.S. Speaking, appropriately, in Washington, Poland’s prime minister, Mateusz Morawiecki, jeered that strategic autonomy sounded “fancy” but meant “shifting the center of European gravity toward China and severing the ties with the U.S.” It would be the equivalent of “shooting into our own knee.” Politely confining himself to collective pronouns, Lithuania’s foreign minister, Gabrielius Landsbergis, lamented: “Unfortunately, our geopolitical blindness has not yet been cured. We chose not to see the threat of Russian aggression, and now we are choosing not to see the threat of Chinese aggression.” Morawiecki also relied on the ocular when he condemned a shortsighted focus on increasing exports to China despite the “huge geopolitical costs.” As he would have known, the entourage that accompanied Macron to China included more than 50 business leaders. Various deals were concluded, in sectors such as aviation and nuclear energy — sectors, it might be thought, of some consequence.

Meanwhile, as French diplomats were offering reassurance about France’s commitment to the Atlantic alliance, Charles Michel, president of the EU Council, told Politico that “quite a few” European leaders shared Macron’s views, even if they wouldn’t put them the same way.

Another EU leader, Ursula von der Leyen, the president of the EU Commission (Brussels’s top bureaucrat), won’t have appreciated Macron’s undermining of her drive to craft a tougher, unified EU response to China. She summarized her approach in a speech delivered shortly before joining Macron in Beijing, where she was given a pointedly less effusive welcome than was the French president, punishment, probably, for what she had said. She had criticized the Beijing regime’s human-rights record and demonstrated a more sophisticated understanding of Xi’s ambitions than had Macron, who appears to imagine that Beijing will be satisfied if China is one of the big three (the U.S., China, and the EU), dominant only in its region. Von der Leyen, however, reckons that Xi wants China “to become the world’s most powerful nation,” at the center of an international order reshaped on authoritarian lines. This, incidentally, would be an arrangement with no room for Macron’s fantasy imperium.

When it came to trade, von der Leyen wanted not a decoupling from China, a “systemic rival,” but a “de-risking.” In part, this would involve more-effective export controls based on the EU’s “security interests.” Other elements would include improving the EU’s economic “resilience” by measures such as establishing securer supply chains, achieving closer cooperation with like-minded countries, and diversifying trade.

The inclusion of diversification reflects the problem presented by the breadth and depth of the EU’s trade with China. According to von der Leyen, China accounts for 9 and 20 percent of the EU’s exports and imports of goods, respectively. (China’s share of U.S. trade, in either direction, is slightly less.) That said, those raw numbers are a poor indicator of the EU’s “real” dependence on China, which varies from country to country and is affected by the types of products concerned and the ability to replace them with substitutes produced domestically or elsewhere. (The pandemic-related supply-chain disruptions revealed that some products are more essential than had previously been thought.) Any estimates of the damage that would be inflicted by an economic war between the West and China contain a lot of guesswork, which is not reassuring.

It’s not only imports that can create dependence and therefore an opportunity for China to use trade as a weapon. Germany’s economy, the EU’s biggest, is powered by exports. China is its second-largest export market and the source of much of its growth this century. In addition, some German companies have set up manufacturing facilities in China to help meet local demand. For example, including joint ventures, Volkswagen (which sells around 40 percent of its cars in China) has over 40 plants located there, while chemicals giant BASF has 30. Both companies are investing yet more billions to increase production in China. But the more German companies increase their stake in China (and VW and BASF are by no means alone in doing so), the more vulnerable they — and Germany — are to Chinese blackmail.

In her speech, von der Leyen highlighted instances when China had abused its “economic leverage” (including by what she labeled “trade coercion”) to bully other countries. Part of de-risking involves reducing that leverage. The difficulty is that much of it has arisen out of deeply embedded and, at one level, mutually advantageous trading relationships. Scaling those back, even if the EU’s member states can be persuaded to try to do so, won’t be easy. One reason von der Leyen rejects decoupling is that it simply would not be “viable,” she said. For now, that holds true for the U.S., too. Even so, the path to be taken on both sides of the Atlantic should be toward decoupling.

For its part, Berlin has taken some steps that suggest a slightly more skeptical attitude (the signals are distinctly mixed) to trading with China than in the Merkel years (a very low bar). But when Germany’s chancellor, Olaf Scholz, visited China in November, he, like Macron, was accompanied by prominent business leaders, more evidence that Germany’s corporate establishment still regards the Chinese market as vital for their companies and, by extension, the German economy. That viewpoint tends to be reflected in their current significant exposure to China. And that’s why, however imprecise the calculations, there can be little doubt that if the West and China start exchanging sanctions, Germany will be the hardest hit. The implication of that, combined with Macron’s strategery and, in all likelihood, the reluctance of others to participate, is that there is currently next to no chance that the EU would be able to come to an agreement to impose sanctions on China even in the event of an invasion of Taiwan. No such constraints would restrain Beijing, if it so chose, from waging economic war against the West.

In his remarks in Washington, Morawiecki warned that “some European countries” risked repeating the mistake they had made with Russia’s natural gas, replacing one dependence with another. Barn door. Horse. And the result is that no small part of the economic weaponry the West could deploy against China will backfire, possibly quite badly. Reducing that danger, and thereby increasing the West’s freedom of maneuver, will take care, time, and persistence. But for the EU to follow Macron in the opposite direction would lead not to autonomy, but to catastrophe.