As the US and China stumble into a trade war, Europe cannot stay neutral and untouched forever. On Thursday, President Donald Trump threatened to impose tariffs on a total of $150 billion of Chinese exports. In response, China asked for the EU’s assistance “to stand up together” against protectionism “and uphold the rules-based multilateral trade order”. Europe is between a rock and a hard place.
The US is also urging the European Union to join its fight against China. Both the EU and the US have suffered economic harm from China’s practice of stealing trade secrets from Western firms while simultaneously shutting them out of Chinese consumer markets. But the EU may well decide not to enter an alliance with the US.
Even before the current trade tensions, China had been trying to win over Europe for its vision of a non-US-led world order. In a speech at the World Economic Forum in Davos in January 2017, President Xi Jinping offered a vision of China as the future guardian of global free trade. This offer was initially greeted with polite dismissal by many Western experts and policymakers, who saw it as just another ploy in China’s geo-political stratagems.
German business leaders, meanwhile, accept China’s rise as inevitable.
More than a year into the Trump presidency, however, German Chancellor Angela Merkel may be open to taking President Xi up on his offer. In a call on 18 March, the two leaders emphasized the close ties between their countries and agreed to deepen their strategic partnership. President Xi reportedly proposed a deeper cooperation with Germany in China’s geo-political investment framework, called “Belt Road Initiative” (BRI). At heart, it is a plan to revive the ancient Silk Road by turning the vast Eurasian land mass and accompanying sea lanes in a Chinese-dominated trade network.
German business leaders, meanwhile, accept China’s rise as inevitable. Joe Kaeser, CEO of Siemens, Europe’s largest industrial conglomerate, said earlier this year: “The China One Belt, One Road is going to be the new WTO — like it or not”.
Rather than coaxing Europe out of China’s growing field of gravity, however, Donald Trump appears bent on pushing Europe further into it. Trump’s protectionism and nationalism turned out to be everything China’s rise was supposed to bring about. He is threatening geopolitical stability, risking trade war, and boosting economic nationalists everywhere. Some 82 percent of Germans are now worried about President Trump’s actions, according to a recent poll, while only 53 percent feel that way about Russian President Vladimir Putin.
The US president has surrounded himself with hardliners who despise multilateralism. Donald Trump has signaled that he wants to advance American interests outside the World Trade Organization (WTO). This month, he even alleged that the WTO is treating the US unfairly, while giving privileges to China. Europe, meanwhile, still faces US tariffs on aluminum and steel, from which it has only been temporarily exempted until 1 May.
China has promised to cooperate with the EU in multilateral forums such as the WTO and the G20 and praises global trade rules — even if it doesn’t abide by them. Moreover, Beijing has reaffirmed its commitments to the Paris climate agreement and Iran nuclear deal, which the EU considers crucial policy successes but which Mr. Trump derides and threatens to undermine.
The American consumption machine that keeps European export economies humming may stall.
In all sorts of ways, therefore, the US is presenting itself to Europe as a less attractive ally, and China as a more attractive one. European economies in general, and Germany in particular, largely depend on exports, of which the largest share goes to the US. Analysts predict a downturn in the US economy within the next 18 to 24 months. From a European perspective, Mr. Trump’s economic policies, such as his tax reform and spending bill, will leave the US defenseless as heads towards this recession.
The American consumption machine that keeps European export economies humming may thus stall. And if US demand for European exports drops, Germany and the EU may find economic stabilization in China. The country is finally changing from its past surplus model into a more balanced economy with stronger domestic demand.
European countries might still be willing to compromise with the Trump White House to reach a permanent exemption from US steel and aluminum tariffs. This could even include common steps against China in the short-term. But the transatlantic partnership is now about damage control and economic self-preservation rather than about shared values and prosperity.
That is a big win for China as it tries to gain influence in the world, and in Europe, at America’s expense. Three more years of “America first” in Washington may drive the EU into the arms of the Unites States’ main geostrategic competitor.
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