Weights and Measures: The Great EU Balancing Act

July 12, 2024

About the author:

Despite increased diplomatic and economic exchanges, relations between the European Union (EU) and China will continue to deteriorate until Brussels reconciles its needs with reality.

President Xi Jinping's charm overtures in May to France, Serbia, and Hungary, extended unilateral visa-free entrance to China, and references to the successes of the Belt and Road Initiative (BRI) had little lasting effect on the EU, which remains divided on Ukraine, social issues, and trade with China, as it casts a wary eye on the US presidential election that appears to favor a return of Donald Trump.

Washington and most Western national media outlets saw Xi's trip as an attempt to divide Europe from the US – an ironic projection of Washington's own scheme to divide the EU from Russia, using NATO expansion into the previous Soviet bloc. The combination of cheap and plentiful Russian resources and EU manufacturing was viewed as a potential threat, much like Japan's rise in the 1970s and 1980s.

The root of the issue is Washington's desire to maintain its American exceptionalist hegemony, as it tries to deal with the higher costs associated with aging empires, the eroding competitiveness of its economy, political polarization, and debt.

Between Washington and Beijing, it is a prisoner's dilemma: if they choose to cooperate, they can limit harm; if they don't, both will suffer.

Between Brussels and Beijing, the situation is more complex. The EU's anemic growth, the situation in Ukraine, and relations with the US have landed Europe in the middle of Washington's push to maintain its hegemony at all costs.

The world is divided asymmetrically on security, trade, and culture. This asymmetry exists between developed nations, which represent a disproportionate share of the world's wealth and consumption, and developing emergent nations, which represent the majority of resources, production, population, and arable land.
Given the environmental, political, economic, and security issues the world faces, what is needed is dialogue and consensus. This consensus should be built on respect for other sovereign nations, acknowledging their cultures, security needs, and the right to find their own paths economically.

Security

In terms of security, the US, the Five Eyes, NATO, AUKUS, and the Quad are targeting Russia and China to distract and contain them. Has Washington done this before when it perceived a threat to America's hegemony? The answer is yes. In the late 1970s and early 1980s, Washington politicians publicly bashed Toshiba boomboxes and Toyota cars with sledgehammers and baseball bats, claiming that unfairly subsidized excess capacity was threatening US industries and jobs. In 1985, Japan was coerced into signing the Plaza Accord.

The combination of Russian resources and Chinese manufacturing is seen as an existential threat to US hegemony. Ironically, it was a combination created by Washington in its desire to isolate Russia and keep it from combining with Europe, particularly Germany.

When NATO, rather than being disbanded, expanded into the previous Soviet bloc countries, breaking a promise that had been a quintessential part of the peaceful dissolution of the Soviet Union, it resulted in Putin's about-face from when he addressed the German Bundestag in 2001, talking about Russia's desire to integrate into Europe, to 2007 when he made it clear he was determined to overthrow the US-led world order that aimed at containing Russia's rise at the Munich Security Conference.

After 2007, Moscow gave a series of warnings and engaged in several skirmishes with US proxies, culminating in the 2014 Ukrainian conflict. Moscow perceived the anti-government protests in Ukraine as a Western-supported and funded putsch against an elected president that wasn't favorable to the EU.

Ukraine and Gaza are thereby seen by Moscow and Beijing as by-products of Washington's desire to maintain its geopolitical hegemony – a desire that pits it against the developing and emerging multipolar world of BRICS, BRI, and the Regional Comprehensive Economic Partnership (RCEP).

The EU, Japan, and South Korea, while currently following the US lead, are caught between their desire for security and development. The rest of Europe, Central Asia, Africa, South America, the Middle East, and Southeast Asia are, for the most part, trying to avoid being forced into choosing one side or another, as they are not interested in being the grass under fighting elephants.

Politics

Politically, while the US has continued to press China on issues such as Taiwan, Hong Kong, Xinjiang, Tibet, and the South China Sea, the EU has mainly focused on Ukraine, despite paying lip service to these other concerns.

China was Ukraine's primary trade partner prior to the intensification of the conflict. Ukraine was a vital part of the BRI, offering alternative connectivity to Europe, the Middle East, and North Africa. Beijing's consistent position has been to call for peace talks that balance territorial integrity with the realities of Russia's need for security.

Beijing follows the Shanghai Cooperation Organization's (SCO) principles of combating terrorism, separatism, and extremism. It does not advocate for separatism or interference in the internal affairs of other countries, as evidenced by the continuing trade with Kiev even after the putsch in 2014.

China also recognizes that NATO's expansion, despite repeated warnings from Moscow and individuals like Henry Kissinger, John Mearsheimer, and current Director of the US Central Intelligence Agency (CIA) Bill Burns, and in violation of promises made as part of the dissolution of the Soviet Union, is aimed at containing Moscow politically, economically, and militarily. Consequently, while Beijing was shocked at the timing of Russia's expanded role in the Ukraine conflict, it was foreseeable.

The majority of the EU countries demand that China actively or passively side with NATO and cut off trade with Russia. Brussels, like Washington, views the combination of Russian natural resources and Chinese manufacturing as an existential threat to the existing developed nations' economic dominance. However, the main concern, as expressed by numerous ambassadors, is the proximity of the war within Europe. This concern is understandable, but given the historical indifference to suffering in the "rest of the world," this has not achieved the support Europeans believe it deserves.

The concerted campaign to poison the relationship between Moscow and Beijing therefore goes beyond the conflict in Ukraine. A public relations campaign plays out in the daily press briefings and media stories that try to depict Moscow and Putin as weak junior partners to Beijing and Xi.

Initially, NATO's strategy was based on crippling Russia economically and achieving victory on the battlefield using "superior" Western weapons of war.

Today, the narrative has changed. Economically, Russia outperformed the EU in GDP growth by nine times in 2023 and is on track to outperform it by over four times in 2024. Militarily, Russia's performance on the battlefield has cast doubt on NATO's tactical superiority. Unfortunately, the emphasis has been on blaming China for Brussels and Washington's economic and military miscalculations.

The EU and China share concerns about the direction of US politics. The Trump era strained relations with Brussels and Beijing. While both Brussels and Beijing sought stability and cooperation, four years later, China has continued to advance despite Trump's efforts, whereas events and numbers show that Europe has not.

A potential second Trump term (polls put Trump 10 points ahead of Biden going into the first debate) is making Europe nervous about existing security agreements like NATO as well as economic moves in terms of across-the-board tariffs.

China is hoping that Brussels will at some point see the reality. Whether by design or accident, the EU has been thrown under the bus by NATO's expansion into Ukraine, resulting in a conflict that has crippled European competitiveness and is threatening standards of living. If security and economic agreements with Washington are brushed aside by a Trump administration, there won't be much for Brussels to cling to.

Meanwhile, it must rankle Europeans that US businesses profited while they suffered by charging higher prices for food and energy sources lost in the Ukraine conflict.

In terms of peace in Ukraine, Trump has stated that he could solve the issue even before taking office if elected. The problem of trust will remain an issue, as attempts to keep Ukraine intact after the Western-supported putsch in 2014 and the resulting Donbas breakaway faded with the admitted bad-faith negotiations in Minsk I and Minsk II, involving Francois Hollande, Angela Merkel, and Washington. This has left regional and international powers struggling to bring parties to the peace table. If elected, Trump will be in power for four years, and there are concerns that a shift in Washington will make it difficult to reach a lasting peace without other regional and international guarantors.

Economics

The EU grew by 0.4% in 2023 and is expected to grow by 0.8% in 2024. Part of this story is due to the global economic crisis caused by high debt, high interest rates, low yields, and growing economic uncertainty, but, for Europe, the Ukrainian conflict increased inflation in essentials like food, logistics, and energy, as businesses suffered and jobs were lost.

Unfortunately, while Europeans struggle to maintain their standards of living, the response from Brussels has been to blame Beijing and push for tariffs, tech wars, and blacklisting of Chinese companies.

The EU's recently proposed 38.1% tariffs on Chinese electric vehicle imports have sparked increased tensions. China has threatened retaliation against European aviation, farmers, and spirit makers. German Economics Minister and Vice Chancellor Robert Habeck's recent visit didn't clear the air; instead, his desire to connect EU tariffs to China ending trade with Russia is a non-starter. Beijing has agreed to talk, but it is doubtful that much progress can be made if Brussels insists on mixing security and economic issues.

Brussels alleges that unfair state subsidies were given to China's auto manufacturing industry, posing an economic threat to European rival companies. The reality is that EU car manufacturers adopted a go-slow electric vehicle strategy to maximize their returns on existing capital, while China, beginning 12 years ago, pushed for creating efficient green EV, solar, wind, and energy storage industries. Incentives were given to develop and adopt these products, resulting in the most advanced, efficient, and low-cost providers. Ironically, Beijing's actions were in part influenced by the EU and others who lobbied Beijing to respond to its urban pollution problems and the need for climate change action.

Beijing also saw the need to change its reliance on unskilled labor, as it wanted increased wages and disposable income to support China's switch from an investment-led to a consumption-led economy. The result was a push to encourage technology, digitalization, and robotics as means of increasing profitability while maintaining manufacturing and logistical cost advantages.

The results can be seen in the rise of Chinese champions like Huawei, TikTok, and DJI, and the increased efficiency and scope of Chinese manufacturing and logistics.

Today, half of all industrial robots are installed in China, while EU companies continue to decrease their digital industrialization investments due to slowing global activity, putting them further behind China, South Korea, and Japan.

China is the dominant player in renewable energy, including solar panels and wind turbines, both in terms of technology and manufacturing costs. Brutal competition between Chinese companies has created the opportunity for a lower-cost transition to renewable energy, as they push their products outward while continuing to compete on value and price.

The EU has been unable to respond competitively due to a lack of applied technology and higher production costs, attributable to labor, compliance, and energy costs.

Rather than responding with a plan to increase its competitiveness, Brussels is creating trade walls, citing "unfair competition and subsidies." The problem is that protecting EU manufacturers will not make them competitive globally. They will be just another set of industries, including the fuel sector, agriculture, and aerospace, subsidized by EU taxpayers.

Cultural Context

China's historical experience of colonization and humiliation by European powers shapes part of its approach to international relations.

China witnessed what the US did to a rising Japan during the 1970s and 1980s, resulting in the Plaza Accord, which successfully undermined the Japanese economy. China will not sign on to a similar fate. The EU is at a crossroads on this issue: culturally, it tends to favor Western powers, but economically, it is having its own "Japan" moment.

Expectations Going Forward

China and the EU recognize the importance of their economic and political relations. The present issue is how a bloc of 27 countries can come together politically and economically around what is best for its collective citizens. With anti-Brussels sentiment growing among right-wing conservatives, Beijing believes the cold, hard reality will result in the EU taking a more independent political and economic worldview, which isn't in lockstep with Washington or Beijing. Thus, to avoid the false dichotomy of "either with us or against us," and "either at the table or on the menu," Europe has to choose what is best for its people, politically and economically. 

 

Please note: The above contents only represent the views of the author, and do not necessarily represent the views or positions of Taihe Institute.

 

This article is from the June issue of TI Observer (TIO), which explores China-Europe relations during a time of international upheaval, focusing on issues like green development, regional conflicts, and trade barriers as well as the opportunities and challenges ahead. If you are interested in knowing more about the June issue, please click here:

http://en.taiheinstitute.org/UpLoadFile/files/2024/6/28/152632490d3194c2-0.pdf

 

——————————————

ON TIMES WE FOCUS.

Should you have any questions, please contact us at public@taiheglobal.org