Bill Echikson
Should we “decouple?” Or should we “de-risk?”
China’s authoritarian model includes an aggressive push to take global tech leadership. From semiconductors to green tech, underwater Internet cables to bridges and roads, the US and the European Union are engaged in a running rivalry with Beijing. They are subsidizing their own national champions and institute different, sometimes conflicting, regulatory regimes. As Brussels becomes a global tech regulator, EU policies — due to their breadth and scope — risk unintended consequences when it comes to ensuring security.
CEPA’s new Confronting China project convenes a working group of transatlantic thought leaders to evaluate how best to meet this challenge. This Bandwidth special offers a preview of its work. Full-length policy papers will follow throughout 2024.
The allies have made important strides toward creating the foundations for alignment. Start with the philosophical. Both sides agree that the best approach is to “de-risk,” not “decouple.”
The US initially supported a radical break. President Donald Trump, raised tariffs and spoke in military terms of overcoming China. President Joseph Biden reinforced the hard line, introducing new rules to limit US high tech exports and investments. Administration officials began describing all ties with China as economic and security risks.
Europeans were aghast. In March 2023, European Commission President Ursula von der Leyen called instead for “de-risking.” “I believe it is neither viable — nor in Europe’s interest — to decouple from China,” she said. “Our relations are not black or white — and our response cannot be either.”
The US accepted the change. In April 2023, US National Security Advisor Jake Sullivan adopted the European vocabulary, asserting “we are for de-risking, not for decoupling,” Sullivan said. This “means having resilient, effective supply chains and ensuring we cannot be subjected to the coercion of any other country.”
But this common definition of “de-risking” remains blurry. How should it work in practice?
One goal is to loosen China’s chokehold on key metals including nickel, copper, lithium, and cobalt. The EU imports almost 98% of its consumption of 17 minerals from China. The US imports more than 50% of its need for 25 critical minerals. In response, the allies have launched joint early warning systems to prevent supply chain crises.
Both the US and Europe are boosting their domestic industries to fight climate change, and both are attacking Chinese subsidies. The US has opened investigations into trade malpractices by Chinese solar panel firms, and electric vehicles manufacturers. The EU recently launched an anti-subsidy probe into Chinese electric vehicles.
At the same time, the US and EU are pushing back against China’s Belt and Road initiative and financing joint infrastructure projects in the Global South. They are attempting to coordinate on frontier technologies, ranging from artificial intelligence to quantum computing.
The unanswered question is whether these moves will prove sufficient. As much as they partner, Washington and Brussels squabble.
Consider semiconductors. Both the US and the EU agree on the need to create secure supply chains and restrict Chinese access to the most advanced chips. Both have imposed sanctions on cutting edge technology, the US on Intel, NVIDIA, and Qualcomm chips, the EU on the most advanced Dutch-produced ASML lithography equipment. Both aim to “friendshore” domestic production capability, launching expensive publicly funded programs, the US CHIPS and Science Act and the EU’s CHIPS Acts.
Despite this broad alignment, Washington and Brussels face significant obstacles to full alignment. US export controls remain stricter and stronger than anything the less centralized EU is capable or desiring to impose. Both face a backlash from their own semiconductor industries, who fear that the export restrictions could backfire. Western chipmakers will lose income from the Chinese market and Beijing could retaliate by withholding access to certain minerals, legacy chips and solar panels. The export controls encourage China to produce its own cutting-edge chips.
Europe faces significant divisions within its own ranks. While von der Leyen’s adoption of “de-risking” toward China represents a toughening of the previous conciliatory attitude, both Germany and France remain skeptical of a “security-over-sales” approach. The European Commission runs trade policy, but national governments remain responsible for national security — a key component of economic security. US companies often accuse EU regulators of discriminating against American tech firms to help EU companies. If Europe tries to prop up domestic tech champions, it will continue to lag behind the US in driving innovation, which leaves space for large Chinese firms to reinforce their competitive advantage.
Another danger is protectionism. Although both the US and EU have made fighting climate change a priority, they privilege domestic production, often at the expense of the other. The $350 billion US Inflation Reduction Act imposes stringent domestic production requirements. Europe’s ambitious carbon tax plans block a hoped-for transatlantic deal on steel and aluminium tariffs, the potential basic building block of an ambitious decarbonization alliance.
Protectionism remains an ever-present threat. At the most recent EU-US Summit, the allies failed to reach an agreement over the steel and aluminium tariffs. The proposed solution would have created club of countries that agree on shared environmental standards and limits on government subsidies and overproduction for these two crucial products. Countries that do not accept these rules would face tariffs.
A final unanswered question is whether the US and EU will be able to deliver on their promises. Both agree that they must combat China’s Belt and Road project to build bridges, roads, and other infrastructure in the Global South. But efforts to jumpstart competing projects require financing and logistical coordination that so far seems absent. A good test project will be whether the US and EU are able to complete the Lobito Corridor, a $1 billion infrastructure project linking the Zambian Copperbelt with the Western coast of Africa.
Expect the challenges to mount. China is determined to grab global leadership in cutting edge technologies such as artificial intelligence, telecommunications, and quantum computing. The US and EU are determined to block this goal and stay ahead. Only a strong transatlantic tech alliance can ensure success.
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