COVID-19 has worsened tensions between China and the US, and Europe risks being caught in the middle. The EU faces the difficult task of managing its complex relations with Beijing and Washington in a way that protects the rules-based global order from further harm. This paper considers what the EU can do to reduce the risks of a China-US conflict and mitigate the effects of their bilateral confrontation, and what it should do to protect its own interests against pressure from both sides.
In the early post-Cold War period, the relationship between the EU, the US and China seemed to be mutually beneficial. That is no longer the case: both the EU and the US have tense relations with Beijing. But Donald Trump’s hostility to the EU has made it harder for the West to manage those strains jointly.
Trump’s hostility to multilateralism has given Xi Jinping the opportunity to exercise considerable influence in the global system. China’s role creates a dilemma for the EU, which is instinctively multilateralist but sees that China’s priorities and values do not coincide with its own The EU and the US depend on China for many critical products, but the dependency is mutual: China has not yet mastered all the technologies it needs to become self-sufficient. China is seeking to acquire some of those technologies by investing in Western companies and acquiring their intellectual property.
China’s military power is beginning to match its economic power. Its goal is to have forces by 2049 that can fight and win global wars. China’s strategy of ‘military-civil fusion’ is designed to incorporate innovative civilian technologies into military systems. The US and European states are seeking to tighten export controls to slow down China’s defence and security modernisation.
China is investing in the Arctic in ways that could have security implications. NATO and the EU have been reluctant to treat the Arctic as a potential theatre of great power military rivalry, but if the Chinese presence in the region continues to grow they will have to take Arctic security more seriously.
China’s assertiveness in the East and South China Seas threatens Europe’s democratic partners in the Asia-Pacific region. Europeans should work with their partners on sharing intelligence and joint planning.
Europe is watching nervously to see whether China and the US are caught in the so-called Thucydides Trap, in which conflict between the rising power and the status quo power becomes inevitable. Despite historical examples of such conflicts, however, the US and China are not in the same situation as Athens and Sparta: they are economically interdependent and nuclear armed.
The EU cannot be equidistant between democratic Washington and authoritarian Beijing. Its values are bound to be closer to those of the US. But it needs to be autonomous enough to push back against ill-considered US policies.
The EU needs to:
Invest in studying Chinese and American foreign policies towards Europe and each other, and their domestic roots.
Adopt policy objectives grounded in a factual analysis of its partners, not wishful thinking.
Take China more seriously as a security risk, and scrutinise exports and technology transfer more carefully.
Hedge against a less reliable partnership with the US. Even if Joe Biden becomes president, the forces that brought Trump to power will not vanish.
Work intensively with both the US and China to prevent the escalation of tension between them.
Accept China’s economic rise, but push back against unfair competition. Stopping China’s development is probably impossible, but keeping its behaviour within international norms should not be.
Combat deglobalisation, and make the case for open markets internationally.
Compete more effectively with China for senior jobs in international organisations.
Act in unity to defend and promote its values. Introducing the use of qualified majority voting for certain foreign policy issues would make the EU more effective.
Provide a model of successful democratic governance. China (and other authoritarian states) argue that liberal democracy has shown itself ineffective. The EU and the member-states should prove otherwise.
Europe should not get sucked into a contest between China and the US for global hegemony. It should remain open to co-operation with China where that is in Europe’s interest. It should use its influence to ensure that both China and the US use their power with restraint. For the foreseeable future, the triangular relations between the three powers will contain elements of attraction and elements of hostility. The EU should work with Beijing and Washington to pursue pragmatic policies that maintain stability.
There is no inherent reason for a global pandemic to trigger a geopolitical crisis, but COVID-19 has significantly worsened tensions between China and the US, and Europe risks being caught in the middle. China senses an opportunity to become the dominant power of the era, as its rivals struggle with the health and economic effects of the coronavirus. The US is floundering in its response to the pandemic, beset by political dysfunction and polarisation, and distracted by the prospect of its presidential election in November. Most EU member-states are focused on recovering from lengthy lockdowns and avoiding a prolonged recession.
In recent months, China has imposed a new security law on Hong Kong that effectively ends the ‘One country, two systems’ arrangement set out in a treaty with the UK prior to Hong Kong’s return to Chinese control in 1997. Beijing has stepped up its persecution of the Muslim Uyghur minority in Xinjiang. It has clashed with Indian troops on their disputed border, and made territorial claims against neighbouring Bhutan. It has aggressively pressed its claim to almost all of the South China Sea, sinking a Vietnamese fishing boat in April and attacking another in June. And it has suggested that it might take control of Taiwan by force, while making increasingly aggressive military manoeuvres near the island. It has imposed tariffs and other sanctions on Australia for proposing an international inquiry into the origins and spread of the COVID-19 pandemic. Meanwhile, Chinese diplomats have used strident language to respond to any foreign criticism of China.
On the other side of the Atlantic, Donald Trump has repeatedly lashed out at China, slapping tariffs on billions of dollars of Chinese products and blaming Beijing for the pandemic. But he has also railed against America’s traditional allies in Europe, criticising them for not spending enough on defence and accusing them of unfair trade practices. According to his former National Security Adviser, John Bolton, Trump described the EU as “worse than China, only smaller”. The transatlantic partnership is fragile; if Trump is re-elected it might not survive another four years of his hostility to alliances and multilateral diplomacy.
The EU and US saw China as a country whose system would converge with their own.Tweet this
Even if the Democratic candidate, Joe Biden, wins the election, however, there is no guarantee that transatlantic relations will instantly return to ‘business as usual’, or that Europe will be at the centre of the new administration’s attention. Like Trump, Biden is likely to focus on developments in the Asia-Pacific region and the threat to American primacy that China poses. In an article setting out his foreign policy, Biden said that the US needed to get tough with China.1 One of his main Asia advisers, Ely Ratner, put his name to a bipartisan report to Congress that stated that “the erosion of conventional deterrence in Asia would threaten to undermine the full range of US economic and political interests in the region” and called for a “new American way of war” to counter the threat from China.2
The EU faces a difficult task: to manage its complex relationships with Beijing and Washington in a way that protects the rules-based global order from further harm. The consequences of failure could be fatal to an international system already suffering from many serious underlying problems, ushering in an age without rules, where undemocratic and unscrupulous governments can flourish.
This policy brief looks at the economic interdependence between the EU, China and the US. It analyses China’s place in the international system and the attitudes of the US and the EU to the rules-based international order. It examines China’s increasing military power and what it means for Europe and the US. And it asks whether proponents of the ‘Thucydides Trap’ are right to think that conflict between the US and China is inevitable, regardless of what the EU or its member-states might do. Finally, it makes recommendations on what Europe can do, if anything, to reduce the risk of great power conflict between the US and China, and to mitigate the impact of confrontation on European interests. Ultimately, Europe has to find a way to defend its values, which implies being aligned with like-minded democratic states and taking a firm line with China; but without following the US lead unquestioningly, regardless of whether that serves European interests.
A HISTORY OF DISILLUSIONMENT
In the post-Cold War period, as the Chinese economy grew rapidly, the relationship between the EU, the US and China seemed to be win-win-win. Despite the Communist Party’s brutal suppression of the Tiananmen Square protests in 1989, the West was quick to resume normal business (with the exception of US and EU arms embargos which remain in place even now). China wanted investment and know-how, which the EU and the US could provide; the EU and US wanted a source of low-cost manufactured goods, which China could provide. The EU and US largely saw China in the same light, as a country whose system would converge with their own as it became more prosperous, and a ‘responsible stakeholder’ in global efforts to face shared challenges. And – with occasional but important exceptions, such as the Iraq war and climate change policy – European countries and the US were generally on the same side of most international issues, in particular in supporting a rules-based international order, within which competition between states could be managed and co-operation maximised.
The picture in 2020 looks very different: all three legs of the relationship are buckling under the strain of disputes. In relation to China, the Trump administration now speaks of “the long-term strategic competition between our two systems”.3 The relationship has been deteriorating for more than a decade, as the US became increasingly concerned about China’s rise to become a peer competitor, both economically and militarily. Rather than seeing China as a potential partner, whose influence in the international system would inevitably have to be accommodated as it became a more prosperous country, politicians and strategic thinkers in the US increasingly came to view China as a threat to American interests.
In the economic sphere, the Trump administration has moved on from inevitable arguments over unfair competition and intellectual property disputes – regular issues in previous administrations’ dialogues with China. It is pursuing a much broader effort to reduce China’s role in supply chains for advanced technologies, and in some cases to cripple Chinese companies that it accuses of posing a threat to national security.
Though US military power vastly outweighed that of China, from the mid-1990s the US began to worry that China was developing capabilities that would enable it to call into question the US’s dominant position in the Western Pacific and its ability to defend its allies there. From 2002 onwards, the US Department of Defense has produced an annual report to Congress on China’s military power, tracking Beijing’s acquisition of new weapons systems and its evolving strategy. The report has documented China’s increasingly advanced weapons technologies and its growing assertiveness, first in seas near China and then further afield.
As Secretary of State under Barack Obama, Hillary Clinton spoke of a US “pivot to new global realities”, and called for the US to invest more diplomatic, military and economic effort in the Asia-Pacific region.4 Though Clinton made clear that the Obama administration’s aim was to shift resources from Afghanistan and Iraq, and that it still regarded Europe as “a partner of first resort”, the concept of the pivot led to European worries that the US would turn its back on its transatlantic partners. These worries were only partially allayed when Clinton reframed the pivot to Asia as being a shift with Europe, not from it.5
Europeans were focused on the commercial opportunities offered by a billion increasingly prosperous consumers.Tweet this
Though some EU member-states worried about China’s human rights record, and its territorial claims in the South and East China Seas, most Europeans were slower than Americans to perceive China as a strategic threat. Even after there was clear evidence that China was perpetrating large-scale human rights abuses in Xinjiang, and was creating military bases in the South China Sea, the EU continued for some time to behave as though China was still on a course of convergence with the West. After the EU-China Summit in Beijing in 2018, European Council President Donald Tusk spoke of “a fruitful meeting in which we agreed to develop the EU-China strategic partnership further”.6 If the US was divided between those who saw China as an economic partner and those who saw it as a long-term rival, Europeans were more focused on the commercial opportunities offered by a billion increasingly prosperous consumers; perhaps Beijing’s military might was a problem for the US and its allies such as Japan and South Korea, but China was a long way from Europe. Europe’s sense of China as an economically vital partner was reinforced by Beijing’s contribution to keeping the global economy afloat after the 2008 global financial crisis.
It was not until March 2019 that the European Commission and the European External Action Service referred to China in a paper to guide European Council discussion as a “systemic rival promoting alternative models of governance” – and even then the document also described it as “a co-operation partner with whom the EU has closely aligned objectives”.7 The new line reflects the fact that over the last decade the EU-China relationship has deteriorated from the warmth of early co-operation in the G20 framework. There have been disputes over trade issues, such as the dumping of cheap Chinese steel on European markets, and the sense that China competes unfairly by subsidising its firms. There has been friction over the transfer of intellectual property to China, as Europeans realised that it was moving up the value chain in part by using Western technology either squeezed out of investors as the price of gaining entry to the Chinese market, or simply stolen. And Europe is increasingly concerned about the future of the international order, in which China is no longer seen as a potential ‘responsible stake holder’, but as the proponent of a rival set of values and institutions.
Even China’s soft power carries risks for the target country. Much Chinese language teaching at the school and university level in Europe (and the US) is carried out by or under the auspices of Confucius Institutes, affiliated with China’s education ministry. Every country in Europe except Sweden (which closed its last one this year) hosts at least one. Confucius Institutes are controversial. On the one hand, they give access to a reliable standard of Chinese language teaching; on the other hand, they promote the Chinese Communist Party’s world view, avoid discussion of ‘difficult’ subjects like the Tiananmen Square protests, and use their financial muscle in the (often cash-strapped) universities that host them as a means of encouraging foreign academics to self-censor.8 The US government has designated the Confucius Institute US Center in Washington, which supervises 65 Confucius Institutes in American universities, as a foreign mission of the Chinese Communist Party, forcing it to be more transparent about its activities.
The US and the EU are right to be concerned about China’s direction of travel. As the Cold War ended and communist governments elsewhere in the world collapsed, China’s then leader, Deng Xiaoping, urged that China’s foreign policy should be to “hide our strength and bide our time”, and never to claim leadership. His first few successors largely followed this advice; but since the global financial crisis, from which the Chinese system emerged in better shape than the West’s, China’s leaders have become more assertive. Xi Jinping, General Secretary of the Chinese Communist Party since 2012, struck a very different tone from Deng when he told senior party leaders in 2013: “We must concentrate our efforts on … building a socialism that is superior to capitalism, and laying the foundation for a future where we will win the initiative and have the dominant position”.9
Beijing’s actions show that it has seen Western democracies as systemic rivals for a long time.
Xi’s belief in the inevitable victory of ‘socialism with Chinese characteristics’ is combined with a more practical respect for military force. In 2017 he set a target for China’s armed forces to become “world class” by mid-century. Xi has presided over a major increase in defence spending; the deployment of significant numbers of Chinese forces abroad; and the construction of artificial islands and military bases enabling China to assert its claims to the South China Sea. But Xi has not relied solely on flexing China’s military muscles; he has also used China’s economic weight to increase its global political influence, above all through the ambitious ‘Belt and Road Initiative’ (BRI), which (according to the Chinese authorities) now involves projects or proposed projects in at least 125 countries. China’s strength is now very obvious, and Chinese representatives are happy to threaten other states when (in the view of the Chinese authorities) they fail to recognise China’s fundamental interests. In November 2019, the Chinese ambassador to Sweden, Gui Congyou, undiplomatically commented: “We treat our friends with fine wine, but for our enemies we have shotguns”.10
At the same time, however, China’s Communist Party leadership acts in ways that suggest it is still worried that China is vulnerable to the attractions of Western-style liberal democracy. In spring 2013, the party leadership issued a communiqué to its members, known as ‘Document 9’, warning against “false ideological trends” including “promoting Western constitutionalism”, “promoting universal values” and “promoting civil society”. The document accused Western diplomatic missions and media organisations of “spreading Western ideas and values and cultivating so-called ‘anti-government forces’”.11 Since then, there has been increasing suppression of political dissent, including the detention of lawyers and human rights activists. The imposition of the new national security law on Hong Kong seems to be part of the same effort to crack down on heterodoxy. These are not the actions of a regime that feels fully secure. Chinese diplomats may complain that the EU calls China a systemic rival, but it is clear from Beijing’s actions that it has seen Western democracies as systemic rivals for a long time.
The strains in relations between the China and the West would be easier to manage if the US and its European partners were working together. But Trump’s hostility to the EU and many of Europe’s political leaders complicates transatlantic co-operation when dealing with Beijing. Fortunately, there are still people in the US administration who want the EU and its member-states to work alongside the US in trying to push back against China. A Biden administration would almost certainly have more interest in working with allies – though its focus would probably be on building up the capabilities of its partners in the Indo-Pacific region, and their links to the US, rather than on getting European nations to engage more in East Asian problems.
China is exploiting the tension between the US and its allies (as well as tensions between EU member-states). It has used the COVID-19 crisis to draw a contrast (fairly or not) between its successful effort to counter the pandemic and help other countries, and the US’s chaotic attempts to suppress the spread of the coronavirus and failure to offer any international leadership. Early in the crisis, while the US imposed a travel ban on Europeans without consultation or even warning, and attempted to get exclusive rights to any COVID-19 vaccines produced by a German manufacturer, China supplied COVID-19 test kits, ventilators and protective equipment to Europe, and sent teams of doctors.
Since then, there has been something of a backlash, with questions over what China knew when, and what information it shared with the rest of the world; and complaints over faulty protective equipment and medical supplies. Reportedly, a think-tank affiliated with the Chinese intelligence agency warned the Chinese government of the danger of a wave of hostility linked to the pandemic.12 Chinese foreign minister Wang Yi visited five European countries in late August 2020 in an effort to repair relations, and to encourage Europe not to get dragged into a new Cold War on the side of the US.
DIVERGING VIEWS ON THE INTERNATIONAL RULES-BASED ORDER
Despite its growing military strength, China is still far from being able to match the US for hard power. But Trump has given Xi the opportunity to exercise considerable influence in the global system. Trump’s open hostility to international organisations and multilateral diplomacy has left the field open for Xi to appear as their champion. For the EU, Trump’s preference for dealing with issues unilaterally or at best bilaterally is a particular challenge: a supranational institution is bound to feel more comfortable operating in an environment where other major powers are committed to multilateral approaches to solving problems. Indeed, had Xi been more patient and subtle in his approach, China’s position could by now have been even stronger.
Xi’s best move was to deliver a keynote speech in Davos in January 2017, three days before Trump’s inauguration, in which he portrayed China as the champion of globalisation, calling for continued openness in the world economy: “Whether you like it or not, the global economy is the big ocean that you cannot escape from. Any attempt to cut off the flow of capital, technologies, products and industries between economies …is simply not possible”. Trump, on the other hand, spoke in his inaugural address of “America First” and declared that the US must “protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs” and “buy American and hire American”.
Trump’s open hostility to international organisations has left the field open for Xi to appear as their champion.
In relation to trade, Trump has hamstrung the World Trade Organisation’s appeals system by blocking the appointment of new members to its Appellate Body; China has joined the EU and a number of other trading powers in setting up a temporary replacement system. This makes China look like a good global citizen, even if it does nothing to address the complaints of China’s trading partners about unfair barriers to trade or unfair subsidies to Chinese exporters.
The contrast between EU and US approaches to the UN is striking. In a speech that promoted nationalism and mentioned the UN only in order to criticise it, Trump told the UN General Assembly in September 2019: “The future does not belong to globalists”. Marking the 75th anniversary of the end of the Second World War in Europe in May 2020, EU High Representative for foreign affairs and security policy Josep Borrell told the UN Security Council: “The European Union and the United Nations are sisters and brothers in our DNA”.
Trump’s attacks on the UN and his withdrawal from international bodies like UNESCO, the UN Human Rights Council and the World Health Organisation have left the field open for China to increase its influence simply by taking part, even if in practice its financial contributions to international organisations are often smaller than those of Western countries. In 2019, for example, Germany contributed 16 times as much as China to the UN Development Program (indeed, China’s contribution was smaller than Guatemala’s). There is one exception to this picture: China is the second largest funder of the UN’s overall peacekeeping budget after the US, and has considerably increased its participation in peacekeeping operations – it is the tenth biggest troop provider, and the largest among the permanent members of the UN Security Council, currently with more than 2,500 active peacekeepers.
While the US has treated the UN system with benign neglect (under Obama, for the most part) or active hostility (under Trump and in George W Bush’s first term), China has been more strategic than others in seeking to get its appointees into senior positions in UN specialised agencies. As a result, it now heads four of the 15 UN agencies – the International Civil Aviation Organisation (ICAO), the International Telecommunications Union (ITU), the Food and Agriculture Organisation (FAO) and the UN Industrial Development Organisation (UNIDO). Only belated co-operation by Western countries prevented the Chinese candidate from becoming the head of the World Intellectual Property Organisation (WIPO) in March 2020. Much of what these agencies do is routine and technical, but they play an important role in setting international standards. The heads of organisations can ensure that China’s national priorities become the organisations’ priorities. Zhao Houlin, the Secretary-General of the ITU since 2015, has been accused of actively promoting the BRI and of defending Huawei against US criticism, for instance.
For the EU, China’s role in the UN system poses a dilemma: the EU is instinctively multilateralist, and feels that it ought to be on the same side as a power that also claims to be multilateralist. Equally, Trump’s attacks on international organisations go against the fundamental interests of European countries, which lack the individual weight to defend themselves bilaterally, and rely on the rules-based system to protect them. But most member-states can also see that China is putting itself in a position from which it can shape the UN’s agenda in ways that do not coincide with EU priorities or values.
Despite its rhetoric, China engages with the rules-based order only selectively: for example, it rejected the jurisdiction of the arbitral tribunal convened under the UN Convention on the Law of the Sea (to which China is a party) which in 2016 ruled in favour of the Philippines and against China’s claim to almost the whole of the South China Sea. When the UN Human Rights Council debated the new Hong Kong national security law on July 1st 2020, China was easily able to round up a majority of countries to block a critical resolution. And when, as often in the UN Security Council, China cannot assemble a majority to back it, it has become more willing to use its veto than it used to be. Since 2007, China has cast a veto 12 times, having only done so three times from 1972-2007. Consistent with China’s view that non-interference in the internal affairs of others is the most important international norm, nine of those 12 vetoes were imposed jointly with Russia to block resolutions on the Syrian civil war.
The EU and the US have not always seen eye-to-eye on UN issues – the US has often been sceptical about the activities of parts of the UN system, even under Democratic presidents (it was President Bill Clinton who withdrew the US from UNIDO). But the EU finds itself more isolated than before, as it deals with an American president for whom the concept of a rules-based order that constrains the US is anathema.
TRADE AND ECONOMIC RELATIONS
In 1990, China, the EU and the US accounted for 57 per cent of world GDP.13 In 2018, they accounted for 58 per cent; but China’s share had risen from 1.6 per cent to almost 16 per cent (Chart 1).
China, the EU and the US between them account for over a third of world exports and almost two-fifths of world imports. Since the global financial crisis, China’s share of those figures has increased slightly – from 11 to 14 per cent of exports and 7 to 10 per cent of imports – while the EU and US shares have declined.
The three also trade a great deal with each other. China’s trade with the EU and US makes up almost 30 per cent of its total trade (even though exports to the EU have declined significantly since the global financial crisis); the EU’s trade with China and the US makes up more than 30 per cent of its total trade; and US trade with China and the EU makes up more than 35 per cent of its total trade (Charts 2, 3 and 4). Both China and the EU run large surpluses with the US – something which Trump has tried, unsuccessfully, to change.
Within the EU, the importance of trade with China and the US varies. In 2018, 18 member-states plus the UK did more than 20 per cent of their total trade (excluding intra-EU trade) with the US and China combined (Chart 5). Of those, nine did more trade with the US and ten with China. A few of the 19 stand out because so much of their trade was with one partner or the other. More than half of Ireland’s non-EU trade in 2018 was with the US. Several Central European countries, by contrast, did much more trade with China – perhaps surprisingly, in view of their close security ties with the US. In the case of the Czech Republic, its trade with China (29 per cent of the total) was more than three times its trade with the US; even Poland, with its pro-Trump government, did twice as much trade with China as with the US. Despite Prime Minister Viktor Orbán’s willingness to fight China’s corner in the EU, a relatively modest 16 per cent of Hungary’s trade was with China, as against 10 per cent with the US.
The aggregate figures do not tell the whole story, however. China is the dominant supplier of a number of critical products globally. Research by the Henry Jackson Society shows that China is the world’s largest producer of active pharmaceutical ingredients – particularly bulk, low-cost drugs such as aspirin and some common antibiotics; it produces more than a third of the world’s lithium-ion batteries (those used in consumer electronics and electric vehicles), and about 40 per cent of the world’s lithium to go in them; and almost 70 per cent of the world’s laptops.14 Europe and the US would both find it hard to locate alternative sources, were supplies from China to be disrupted for any reason.
China has not mastered all the high-technology sectors it would need in order to become self-sufficient.
But while the rest of the world is certainly dependent on China for a variety of goods (including medical equipment, as the COVID-19 pandemic has revealed), it is not one-way traffic. China has not yet mastered all the high-technology sectors it would need to in order to become self-sufficient. One recent example: the US has imposed sanctions on the Chinese telecommunications giant Huawei, banning the sale to it of chips made anywhere in the world using US equipment or software. China is currently unable to make equivalent chips, so Huawei will be forced to find other sources – possible, but by no means easy.
China has been reducing its reliance on foreign technology for some time. In 2015, Prime Minister Li Keqiang launched the ‘Made in China 2025’ (MIC2025) programme, aiming to enable China to replace imports of a number of advanced products with indigenous production. The sectors covered by the programme include IT, aerospace, high-speed rail, energy and pharmaceuticals.
Analysis by the Mercator Institute for China Studies (MERICS) identified a number of threats to Western interests from MIC2025.15 First, it involves discrimination against Western companies in the Chinese market, and protection and subsidies for their Chinese competitors. Second, it involves the acquisition of high-technology companies outside China and the transfer of their intellectual property to China – with the best-known examples in Europe being the purchases of the German robot-maker Kuka, the Swedish microchip company Silex, the Swedish semiconductor company Norstel and the British chip designer Imagination Technology.
OECD data shows that China increased the amount of value added domestically in its computer, electronic and optical products from 43 per cent to 52 per cent between 2005 and 2015 (the last year for which figures are available). That still left almost half of value added coming from elsewhere, in particular South Korea and Taiwan (about a quarter between them). It seems inevitable that since 2015 MIC2025 will have further increased China’s domestic value-added in high-technology products. A relationship in which China needs the West for an ever-decreasing number of technologies and components while the West increasingly relies on China for final products will become unbalanced. That would leave the West more dependent on China and China less dependent on the West, and potentially more able to leverage its market dominance in critical technologies – ironically, exactly what the US has done in blocking the sale of chips to Huawei.
China’s pattern of outward investment is strongly influenced by the priorities of MIC2025. US investment screening, which is stricter than that of most EU member-states, and has kept a close watch on Chinese activity for some years, has hampered but not entirely prevented Chinese investments in sensitive sectors of the US economy. But according to the American Enterprise Institute’s ‘China Global Investment Tracker’, a database that aims to track all major Chinese investments globally, more than half of Chinese investment in EU member-states from 2015-19 was in sectors relevant to the programme, and more than 85 per cent was in the form of acquisitions of existing European companies, rather than ‘greenfield’ investments creating new facilities and new jobs in Europe.16 By comparison, EU greenfield investment in China has outstripped acquisitions in every year since 2000 – often by a very large margin.17 The picture in relation to the patterns of US investment in China and Chinese investment in the US is very similar.18
Investment in high technology is not the only form of Chinese investment causing concern in Europe. China also has significant and, in some cases, controlling interests in major European ports, including Antwerp, Rotterdam and Piraeus. Military planners worry about the possibility that such ports might not be available at short notice if forces had to be moved through them in a crisis. At the request of the US, NATO has conducted a (classified) review of relations with China. One of the recommendations was reportedly a more active role for NATO in assessing the security risks of Chinese infrastructure investments and warning individual allies. Greece, however, has wholeheartedly embraced China’s take-over of Piraeus. Port traffic increased by 300 per cent over the first six years of Chinese control.19
Chinese investments may be calibrated to achieve political as well as economic effects.Tweet this
Apart from traditional foreign direct investment (FDI), China has also strengthened ties with a number of nations by promising (though not always delivering) major construction projects funded by Chinese loans. Such projects are often badged as part of the BRI, which has become a sprawling programme of infrastructure and other investments spreading far beyond the original concept of improving land and maritime connections between Europe and Asia. Beijing has paid particular attention to EU member-states and applicants in Central Europe and the Western Balkans, bringing them together in regular ‘17+1’ summits and ministerial meetings since 2012, to increase co-operation on infrastructure, transportation and logistics.20
China has shown its willingness to exploit its investments and projects in third countries, including 17+1 participants, to influence their stance on issues of interest to China. China’s investments in European countries are often small – for example, OECD figures suggest that from 2013-18 China was responsible for about 3 per cent of FDI in Hungary, compared with 70 per cent from elsewhere in the EU.21 But investments may be calibrated to achieve political as well as economic effects: the Hungarian section of the Budapest-Belgrade railway will be built by a partnership between a Chinese company and a firm associated with a close friend of Orbán (if the project is not blocked by the European Commission for failure to follow proper procurement procedures). In the case of the port of Piraeus, Chinese investment brought political dividends to Beijing, because it came at a time when many Greeks felt that the rest of the EU was more interested in punishing them for economic mismanagement than showing solidarity in a crisis.
Larger projects can create a different sort of leverage: in Montenegro, which joined NATO in 2017 and is well-advanced in its negotiations to join the EU, Chinese lending has financed 85 per cent of the cost of a Chinese-built motorway (which is eventually supposed to connect the Montenegrin port of Bar with Belgrade). The European Commission and other international financial institutions do not believe that the road will have enough traffic to be viable, but by the time it is completed, Montenegro (population: 622,000) will owe China about €900 million, or close to 20 per cent of its GDP.
In absolute terms, however, no country is as indebted to China as the US is. China owns more than $1 trillion of US Treasury Bonds. Though this figure is down slightly since 2014, and China is now second to Japan as an owner of Treasuries, in theory Beijing could still make life uncomfortable for the US government by selling off a significant part of its holdings. In practice, as a US official said privately some years ago, on a previous occasion when China seemed to be thinking of selling off some of its Treasuries, “We have them over the same barrel they have us over”: any such move would hurt China itself at least as much as the US. While China could drive up US borrowing costs by selling US government bonds, in doing so it would reduce the value of its remaining holdings, while strengthening the renminbi and making China’s exports less competitive. Relations would have to be in a much worse state than they are now before China could contemplate doing something so self-destructive in the hope of damaging the US.
DEFENCE RELATIONS AND TENSIONS
China has already become an economic heavyweight; now its military power is growing to match. Xi has declared that China’s objective is to develop a “world class” military force that can “fight and win” global wars by 2049.25 Chinese defence spending has increased steeply over the last ten years, and according to most estimates is second only to America’s. Strengthening and modernising the Chinese navy has been a particular priority; China now has the world’s largest navy.26 In 2017 China opened its first overseas military base in Djibouti, strategically located on the Gulf of Aden, to support Chinese operations in Africa.
At the Munich Security Conference in February 2020, US Secretary of Defense Mark Esper said that the US, while not seeking conflict with China, considered it necessary to prepare for high-intensity warfare. He warned that US concerns about China’s commercial and military expansion should be Europe’s concerns as well. But Europe has not made up its mind whether China poses a direct security threat, or what Europe’s stance on the US-China rivalry should be.
European countries vary in their enthusiasm for offending China by limiting its access to their universities.
There are good reasons for Europe to be wary of China’s military ambitions, even if it is reluctant to confront China as aggressively as the US does. For one thing, China is trying to make its defence industrial sector more efficient, innovative and globally competitive. In 2020, all eight of China’s defence-related state-owned businesses ranked in the top 25 of global defence companies, while only five European companies did.27
The US is competing with China in a race over the development and control of emerging defence technologies. Beijing is investing in precision-guided munitions, electronic warfare and anti-satellite capabilities, and is developing hypersonic missiles, with the first model expected to be operational this year. The Pentagon has said it will probably be several years before the US has one.
China is not resting on its laurels. Xi has given new impetus to the longstanding effort to bring the innovative approach of the civilian industrial sector into defence production. At the heart of the effort is the strategy of ‘military-civil fusion’ (MCF), which seeks to give China both ‘guns and butter’.28
Since 2017, Xi has chaired a Central Military-Civil Fusion Development Committee, which among other things has pushed forward the creation of MCF industrial zones, which link military technology requirements with civilian technology companies. Some of the things done under the heading of MCF seem relatively innocuous – for example releasing declassified patents to support private companies entering China’s defence industry.29 Other aspects are causing concern in Europe and the US, such as the acquisition of emerging Western technology companies by MCF firms; or students with links to military scientific research establishments carrying out research in Western universities. The US in particular is seeking to prevent such activities, and is looking more closely at Chinese-funded research programmes and the Western scientists who participate in them.
There is no comparable EU scrutiny of Chinese activities in Europe, although the Commission has produced a draft of what it calls a concept note, suggesting guidelines for dealing with foreign interference in universities and research bodies. Though the concept note was produced as a result of a meeting with various institutions concerned about China, it carefully avoids singling out any country.30 It is unclear how member-states might translate the concept note into policies and rules: European countries vary in their ability to keep track of who is studying what, and in their enthusiasm for offending China by limiting its access to their universities.
It is Beijing’s declared ambition to become a world leader and close the technological gap with the West in areas like artificial intelligence, quantum technology, unmanned systems, robotics, cyber and space, all ‘dual-use’ technology with both civilian and military value.31 To achieve this goal, Beijing has been investing heavily in start-ups and research and development (R&D). But China has also been accused of stealing designs and other intellectual property from Russia, the US and other countries.
Europeans do not play in the same league as the US and China when it comes to dual-use technological innovation. The risk for the transatlantic relationship is that in its race with China the US may leave the Europeans behind. That could reduce the interoperability of American and European troops, and thus weaken NATO. NATO Secretary General Jens Stoltenberg has referred to 5G, facial recognition and quantum computing as three areas where China has emerged as a global leader, and where the alliance must keep pace. But European governments have cut defence R&D budgets in recent years, even as overall defence spending increased.
The Chinese government is not just exporting technology; it is also exporting its own authoritarian norms.
The EU is trying to address Europe’s innovation lag by identifying some newer technologies as priority investment areas for funding. As part of her goal of achieving European ‘technological sovereignty’, European Commission President Ursula von der Leyen has stressed that Europe should have its own digital capacities in quantum computing, 5G, cybersecurity and artificial intelligence. The Commission also plans to use up to 8 per cent of the money allocated for the new European Defence Fund – set up to encourage EU member-states’ defence R&D – to support ‘disruptive‘ technologies. And it has included provisions in the defence fund regulation to protect intellectual property from leaking to ‘foreign entities’, such as Chinese firms.
But EU governments disagree over their approach to emerging technologies in defence, with some, like France, pushing for more development of AI-enabled capabilities, and others, like Germany, more hesitant to engage with AI in warfare.32 And the budget for the European Defence Fund has shrunk considerably in the wash of the EU’s long-term budget negotiations. The priority for Europeans remains investment in the conventional capabilities sorely needed to fulfil its traditional crisis management ambitions.
While the EU hesitates, China has become the world’s second-largest arms producer, behind the US and ahead of Russia, according to the latest data from the Stockholm International Peace Research Institute. It has also joined the US, Russia, France and Germany as one of the world’s five largest arms exporting countries.
China’s arms sales should be of concern to Europeans, for two main reasons. First, most of its weapons exports go to developing and unstable countries, and often China puts no conditions on their use (whereas the US and EU countries generally follow basic human rights considerations when they decide who to sell weapons to, and they usually restrict re-sales and transfers to recipients other than the original buyer). China has had particular success exporting armed unmanned aerial vehicles (UAVs) to the Middle East, Central Asia and Africa. Saudi Arabia has deployed Chinese UAVs in Yemen, for example, while Nigeria has used them against Boko Haram, and Iraq against ISIS.
Second, China is exporting arms and offering military help to regions that European troops operate in. China has for example been trying to increase its influence in Afghanistan by offering limited quantities of military equipment and training to the Afghan authorities and supporting Afghanistan’s counter-terrorism efforts. China’s Xinjiang region shares a short border with Afghanistan, and Beijing has used its concern about links between Uyghurs there and Islamist extremist groups involved in the Afghan conflict to justify its brutal policies against the Uyghurs. China also sought to establish a military base on the Afghan side of the border. Discussions with the Kabul authorities have stalled over Afghan concerns about China’s motives.33 But NATO has been concerned about increased Chinese involvement in the country, partly because China’s forceful and repressive anti-terrorism policy runs counter to the Western approach of de-radicalisation.
For now, China appears to rely on arms sales more as a way to raise revenue than as an instrument of foreign policy.34 But its exports of dual-use technology are a different matter. Beijing has sold surveillance technologies to authoritarian and would-be authoritarian governments: Chinese companies have been involved in exports of facial recognition technology to Singapore, the United Arab Emirates, Zimbabwe and Malaysia and have sold surveillance technology to Ethiopia, Ecuador, South Africa, Bolivia, Egypt, Rwanda and Saudi Arabia.35 The Chinese government is not just exporting technology; it is also exporting its own authoritarian norms for controlling populations through surveillance.36
The US introduced its new Export Control Reform Act in 2018, which makes it harder for US companies to export dual-use technologies that can potentially be used for security purposes to China. In 2016 the European Commission proposed strengthening the EU’s Dual-Use Regulation to include export controls on cyber surveillance technology, and the European Parliament argued for the inclusion of human rights considerations, calling on the Commission to add clear criteria and definitions to the regulation that would protect the right to privacy, data protection and freedom of assembly.37 The proposal has not yet become law, but in its final version it could further restrict the export of dual-use technology to China, thus potentially slowing down China’s military modernisation as well as the development of its security apparatus. China’s imposition of the new security law on Hong Kong has led EU governments to restrict the export of any dual-use technology that could be used as a tool of political oppression. Any new export controls should be closely co-ordinated with the EU’s partners, including the US, to achieve the greatest possible effect.
Any new EU export controls should be closely co-ordinated with its partners to achieve the greatest effect.
Apart from China’s challenge to the West’s technological superiority, its Arctic ambitions can be seen as a more conventional threat, with the potential to affect Europe’s security and economic interests. Though none of its territory lies within about 3,000 kilometres of the Arctic Circle, China has declared itself a ‘near-Arctic’ state.38 As part of the BRI China is developing Arctic shipping routes, to build what Beijing calls the ‘Polar Silk Road’. It is investing in Arctic research, infrastructure and real estate. And it is pursuing access to natural resources, drilling for gas off the Russian coast and searching for minerals in Greenland.
China does not currently have territorial claims or a permanent Arctic military presence, but it operates two icebreaking vessels, and has announced plans to build more, including a nuclear-powered icebreaker. Despite having more than 1000 kilometers of coastline north of the Arctic Circle, the US also has only two icebreakers, but is planning to build more (Russia has a fleet of 40). The US is concerned that China’s civilian efforts in the region could eventually turn into a strengthened Chinese military presence in the Arctic Ocean in the future, potentially including the deployment of submarines. American concerns about Chinese involvement in Greenland may to some extent explain Trump’s otherwise bizarre suggestion in 2019 that he would like to buy it.
The US Department of Defense considers the Arctic a potential arena for expanded great power competition and aggression, and declared it a US interest to “limit the ability of China and Russia to leverage the region as a corridor for competition that advances their strategic objectives through malign or coercive behavior”.39 But it has not persuaded its NATO allies that the alliance should play a more prominent military role in the region.
The EU’s Arctic strategy likewise focuses on non-security issues: climate change, sustainable development and international co-operation.40 EU and NATO self-restraint has not dissuaded Russia from increasing its military presence – in recent years Russian President Vladimir Putin has established or re-opened a number of military bases in the Arctic.41 If China also continues to increase its presence in there, it may be harder for European countries (whether in a NATO or an EU context) to ignore the security implications of increased regional rivalries.
Closer to home, China has also expanded its maritime presence in the South and East China Seas in recent years. The area is of strategic and economic importance – the South China Sea is rich in natural resources like oil and natural gas, and an estimated 20 per cent of global maritime trade passes through it annually, including more than 60 per cent by value of China’s trade.42 The Philippines, Vietnam, China, Brunei, Taiwan and Malaysia all stake different – sometimes overlapping – territorial claims to the sea and its various islands (Map 1). To establish its own claims, China has constructed military outposts, runways, loading piers and communications facilities on Chinese-built artificial islands, as well as deploying anti-ship and anti-aircraft missile systems on the Spratly archipelago.
In the East China Sea, Japan and China both assert claims to the Senkaku or Diaoyu Islands northeast of Taiwan. These islands may hold oil and natural gas reserves, are located near prominent shipping routes, and are surrounded by valuable fishing areas. In 2019, Japan declared China its greatest national security threat.
China’s legally dubious claims pose a threat to the rules-based global order that the EU and Europeans aim to defend. It is also in Europe’s economic interest to protect free and safe shipping corridors. The 2016 EU Global Strategy states: “In East and Southeast Asia, we will uphold freedom of navigation, stand firm on the respect for international law, including the Law of the Sea and its arbitration procedures, and encourage the peaceful settlement of maritime disputes. We will help build maritime capacities and support an ASEAN-led regional security architecture”.43
China’s legally dubious claims in the South and East China Seas threaten the rules-based global order.Tweet this
The US began actively challenging China’s claims in the South China Sea in 2015, deploying surveillance aircraft over artificial islands and sending ships into disputed waters in so-called ‘freedom of navigation operations’, meant to enforce international law in the area. Europeans are involved in the region through their diplomatic ties to regional actors like Australia and Japan, and through the EU’s support to its regional counterpart, ASEAN, but European military involvement has been limited. Since the publication of the EU Global Strategy, France and the UK have both conducted (joint) freedom of navigation operations and exercises in the South China Sea. But no other countries in Europe have the capability and political will to deploy there.
The NATO alliance is not discussing deployments in the region either. Central and Eastern European countries in the alliance fear that the Far East could become a distraction from NATO’s efforts to protect them against Russia, and most other allies do not want to risk getting involved in military operations so far from home. Stoltenberg summed up the alliance’s policy, stating that “it’s not about moving NATO into the South China Sea, but it’s about taking into account that China is coming closer to us.”44 Short of sending troops, Europeans can best support their allies in the Indo-Pacific through close collaboration on matters such as intelligence sharing and joint planning. Through its operation in Afghanistan, NATO has forged relationships with countries in the region, including Australia, Japan, Singapore and South Korea. The alliance should revive and deepen these partnerships, modelling them on the very close relationship NATO has with non-members Sweden and Finland.45
Neither NATO nor the EU have well-established dialogues with China on defence and security issues. NATO and China held four rounds of military staff talks from 2010 onwards; then talks lapsed before being revived in 2018, only to lapse again (despite an agreement to hold talks in Beijing in 2019). There have been occasional contacts between the last EU High Representative, Federica Mogherini, and successive Chinese defence ministers – she met defence minister Wei Fenghe in Singapore in the margins of the Shangri-La Dialogue in June 2019, and his predecessor, Chang Wanquan, in Beijing in 2017. But Chinese defence ministers have not been involved in the regular EU-China High-Level Strategic Dialogue, the 10th round of which took place by video conference in June 2020.
US-CHINA RELATIONS AND THE ‘THUCYDIDES TRAP’
As China rises, economically, militarily and diplomatically, Europe is watching nervously to see whether China and the US are caught in the ‘Thucydides Trap’. This is a fashionable metaphor among foreign policy analysts for the likely trajectory of US-China relations. Coined by the American scholar Graham Allison, it refers to the classical Greek historian Thucydides, who stated in his 5th century BC ‘History of the Peloponnesian War’ that “it was the rise of Athens, and the fear that this inspired in Sparta, that made war inevitable”. Thus, the Thucydides Trap is shorthand for the danger of war precipitated by a rising power challenging the ruling power.
In today’s increasingly multipolar world, third parties can potentially exert significant influence on both the US and China.Tweet this
As the power gap between China and the US decreases, the metaphor suggests that China will become ever more discontented with the rules and norms of the existing order, shaped by the US to its advantage. China will naturally demand greater influence within the existing system and revision of the order. Such demands will inevitably alienate the US. For its part, the US will respond to the challenge by defending the status quo, thus risking conflict which could develop into a wider war.
Central to the escalatory logic of the Thucydides Trap is that both sides perceive themselves to be in an adversarial power struggle, as opposed to a situation in which they could potentially pursue peaceful coexistence. In such circumstances, the Thucydides Trap risks becoming a self-fulfilling prophecy, as the lack of trust between the two powers will lead each to view almost any action by the other – however defensively-motivated – as an attack on its interests, necessitating a response. In 12 out of 16 historical cases, power transitions ended in war, according to Allison. History is not destiny, however, and there are at least three factors which undermine the theory that a conflict between the US and China is inevitable.
First, a shift in the balance of power is not itself enough to cause war. Thucydides himself identified several other factors that contributed to the outbreak of the Peloponnesian War, including alliance entanglements (Sparta and Athens were drawn into war by a conflict between their respective allies Corinth and Corcyra) and poor decision-making driven by hubris and fear. The classicist Donald Kagan argued that the Peloponnesian War “was caused by men who made bad decisions in difficult circumstances. Neither the circumstances nor the decisions were inevitable”.46 Structural forces affect but do not determine history.
Second, the Thucydides Trap rests on the questionable premise that history repeats itself. But times change. The US and China are both nuclear powers, which should deter either of them from risking major conflict as long as they possess second-strike capability – the ability to retaliate against an initial nuclear attack, leading to mutually assured destruction. And globalisation has led to unprecedented interdependence among the major economies, thus raising the costs of war to all parties more than in any previous transition of power.
Third, the Thucydides Trap suggests that power transitions principally involve two powers. But in today’s increasingly multipolar world, third parties can potentially exert significant influence on both the US and China, as well as the shape of the future international order. On the positive side, potentially powerful actors like the EU or regional powers like India or Russia have no interest in a US-China war, and can pressure both sides to de-escalate. On the negative side, the risks of US-China conflict are increased by China’s territorial disputes with Japan – a treaty ally of the US – and its claim to Taiwan (on whose behalf US law obliges the US government to “resist any resort to force or other forms of coercion”).47
China has been behaving increasingly aggressively around Taiwan, including flying aircraft across the median line in the Taiwan Strait several times since March 2019 – the first time it had taken such a step in 20 years. For the first time in four decades, the Chinese prime minister’s report to the Chinese parliament referred to reunification with Taiwan without qualifying it as “peaceful”. And the recently re-elected president of Taiwan, Tsai Ing-wen, rejected China’s sovereignty claims – though without proclaiming Taiwan’s independence, which China has made clear would be a casus belli.
If they are to reduce the risk of stumbling into conflict, Chinese and US policy-makers must understand the main lessons to draw from the Thucydides Trap, above all that the leaders of Athens and Sparta could have taken different decisions with different results. Unfortunately, Xi, with his Marxist background, may be tempted to think that the victory of ‘socialism with Chinese characteristics’ is historically determined; while American presidents, of all political stripes, tend to believe that democracy’s ultimate triumph is inevitable. Those are dangerous certainties to rely on in a crisis.
THE WAY FORWARD FOR THE EU
The risk of conflict between the US and China poses grave dangers to the EU. Despite the transatlantic tensions of recent years, it is clear that the EU cannot be equidistant between democratic Washington and authoritarian Beijing. Ultimately the EU and the US have more values and interests in common than the EU and a techno-authoritarian China ruled by the Communist Party ever could. Under a Biden administration, there would be more scope for the EU and US to work together to analyse and respond to the challenges created by China’s assertiveness beyond its borders. But the EU needs to define its interests autonomously, and devise policies to achieve its own objectives, even if that means pushing back against ill-advised US policies or putting economic benefits at risk in order to stand up to China. Unfortunately, it is far from being able to do that yet. Although Borrell described strategic autonomy recently as “a state of mind”, it has to be founded on political, economic and military power, and unity of purpose in using it.48 The EU has economic power (even if, as Borrell commented, it suffers from a “psychology of weakness”); but it lacks military power, and member-states are divided in their attitudes to the US and China – which often suits the two antagonists.
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