By Conor Gallagher
European leaders have finally woken up to the fact that Washington is benefitting at their expense with the US/NATO proxy war against Russia in Ukraine. Despite their economies being harmed by Washington, the EU continues to take a much tougher stance against Beijing.
NATO leaders are set to meet Nov. 29-30 in Bucharest and will discuss ways to “reduce dependency” on China. At the same time, EU leaders are debating how to deal with their US “ally” coaxing European industry to American shores.
Ahead of French President Emmanuel Macron’s visit to Washington, Paris is signaling that Europe would be more willing to go along with a more hardline China stance if the US backs down on efforts to poach European industry with its subsidies in the Inflation Reduction Act. Yet, there are reasons to believe that’s a dead end, and some Europeans are already waving the white flag.
While the EU is suddenly in emergency mode over its industry being wiped out by American rivals – something that’s been obvious to many for months – its focus all year has been on Moscow and Beijing. Here’s a brief roundup of the China focus:
The bloc is busy hammering out an Anti-Coercion Instrument, which aims to take countermeasures against outside countries that attempt to pressure bloc states using the member states’ economic dependencies. China, which implemented a de facto trade embargo against Lithuania after it allowed Taiwan to open a liaison office in Vilnius, is widely seen as the primary target of the rule.
European lawmakers are also finalizing new rules to curb acquisitions or bids for public contracts by subsidized foreign companies. Again it is widely believed the rules are aimed primarily at China. It came on the heels of the uproar over Chinese efforts to obtain a controlling stake in a Hamburg port terminal. In the end, Berlin approved a sale of 24.9% of the terminal to Cosco.
American companies could also face scrutiny from the new legislation due to the Inflation Reduction Act, which has subsidies for US-based manufacturers of electric cars, batteries and renewable energy products and consumers who buy such American-made products. But it would only apply to American companies if they try to buy EU companies or in public procurement bids and not in the case of EU companies relocating production or building of future factories.
China’s Global Times argues that Europe should blame the US for its decline in competitiveness but doesn’t believe that will be the case:
Europe has a kind of concern or fear about the rise of China, which is also consistent with the strategy of containing China pursued by the US, Zhao Junjie, a research fellow at the Chinese Academy of Social Sciences’ Institute of European Studies …
He added that this decision by the EU is very unwise, especially when European economic prospects are unclear, as the implementation of trade protectionism and blocking of normal market business behavior will ultimately damage European companies.
And once again, back in September the European Commission unveiled a plan to ban products made with forced labor, which is intended to target China despite claims the rules would be “non-discriminatory.” The proposal doesn’t go as far as hawks wanted as it mostly leaves responsibility for rejecting goods to individual EU countries.
The EU’s largest economies in Germany, France, and Italy are already taking a harder line on Beijing. While there is a definite split in Germany between the “transformation through trade” politicians that favored a reliance on cheap Russian gas imports and exports to its largest trading partner, China, and the Atlanticists who favor marching lockstep with Washington’s hardline policies on Moscow and Beijing. So far, the Atlanticists are winning. The cheap Russian gas imports are gone and the exports are halfway out the door.
Additionally, Germany sent a frigate to East Asia in 2021, and dispatched fighter jets to Japan, South Korea and Australia this year. The moves are part of unprecedented military deployments to East Asia. President Frank-Walter Steinmeier recently said that the country will continue to support security arrangements in the Indo-Pacific region and keep sending its troops to Asia to check the rise of China.
The German Green Party is full of China hawks and holds two key posts in Chancellor Olaf Scholtz’s government. German Economy Minister Robert Habeck is working on a new economic policy to reduce dependence on China.
China is Germany’s second-largest export market and its largest source for imports. Much of Habeck’s concern stems from a hypothetical Chinese attack on Taiwan, as he recently told DW:
“This is something very threatening. And this will have a disastrous effect on the whole world. We have seen that a regional conflict, like the Russian war on Ukraine, has brought the whole world into turbulence,” Habeck said. “That [a Chinese attack on Taiwan] would be far more catastrophic.”
Earlier this month Habeck blocked Chinese investors from buying a German chip plant, saying the country had to protect key industries like telecommunications, energy, chips, semiconductors, airports, hospitals or ports.
Germany’s Foreign Minister Annalena Baerbock has sworn fealty to the US. She’s formulating Germany’s first “China strategy,” which will be released early next year and is expected to argue that Berlin should join the US in its economic war on China.
Part of the China Strategy is reportedly going to be putting up more roadblocks for German companies active there. Reuters reports that part of the draft document includes the following:
We aim to oblige companies particularly exposed to China to specify and summarize relevant China-related developments and figures, for example in the form of a separate notification obligation, on the basis of existing disclosure requirements.
On this basis, we will assess whether affected companies should conduct regular stress tests in order to identify China-specific risks at an early stage and take corrective measures.
Italy has also done a u-turn on Chinese investment. Back in 2019, the government led by then-Prime Minister Giuseppe Conte ignored criticism from Brussels and Washington and opened Italy to Beijing’s Belt and Road initiatives and courted Chinese foreign investments to Italy.
Then Mario Draghi was appointed prime minister and killed those efforts. It doesn’t look like they’re going to get resurrected anytime soon – no matter if it might be beneficial for the troubled Italian economy.
New Italian Prime Minister Giorgia Meloni is a leading China hawk. Even before being elected, she was jumping into the middle of the Taiwan issue, giving the Taiwanese media an exclusive interview denouncing Chinese “threats” and calling for the EU to do more. She also said she would promote bilateral contacts between Italy and Taiwan, something of a red line for Beijing.
During the pile on from Washington and across Europe over the Hamburg port issue, Meloni’s new industry minister Adolfo Urso said Italy will not be dependent on Chinese trade or technology and will safeguard any sector deemed as strategic. From Reuters:
We will not put ourselves into the hands of the Chinese. If others intend to move from energy dependency, and therefore from Russian power, to technological or to some extent commercial dependence on China, we will not follow them.
A key question for the EU, and the Netherlands in particular, is whether they block the sale of extreme ultraviolet lithography equipment to China. The Netherlands is home to ASML, which dominates the market for deep ultraviolet lithography machines used in chip making.
The US enacted a series of export controls in October to cut China off from certain types of semiconductor chips made anywhere in the world with US equipment in an effort to strangle advanced parts of China’s technology industry. But the EU, Japan, and South Korea have so far declined to join the effort.
The Dutch foreign trade minister recently advised the US to back off. In an interview with a Netherlands-based newspaper, the minister stressed, “The Netherlands will not copy the American measures one-to-one, We make our assessment — and we do this in consultation with partner countries.”
To accommodate some of these companies, the U.S. Department of Commerce has been granting them temporary waivers, but Washington is still pressuring them to get on board. According to Bloomberg:
While ASML hasn’t sold any of its most advanced extreme ultraviolet lithography machines to China because the Dutch government has refused to grant it a license under US pressure, the company can still sell less sophisticated chipmaking systems to the Asian country. …
Senior US officials – including Alan Estevez, the undersecretary of commerce for industry and security – are traveling to the Netherlands this month to discuss export controls.
Apparently France is pushing a deal that would see the EU get tougher on China in return for the US backing down on measures in the Inflation Reduction Act, which provides $369 billion worth of subsidies and tax breaks at a time European industry is being killed by higher energy prices due to the NATO proxy war against Russia in Ukraine.
Macron will be hosted by Biden this week and a French diplomat told Reuters the French president will argue the following:
The pitch will be: there’s obviously a Chinese challenge and we can help get others in the EU out of their naivete on this. But you can’t ask us to help on China and do an [Inflation Reduction Act] on us.
It’s hard to see how such a proposal goes anywhere. Euractiv explains:
EU diplomats are skeptical about whether this can be achieved since the legislation was passed by the US Congress. In October, US Treasury Secretary Janet Yellen lowered expectations, saying that the law had to be implemented the way it was written.
Additionally, the EU knows it can’t win a subsidy battle, especially as it’s shoveling money at its energy crisis. Again, from Euractiv:
It is unclear how the EU would finance its own subsidy scheme that could rival the US model, considering that there is not much appetite for a large new pot of EU money and that leaving it up to member states might further strain the level playing field within the internal market.
Some in Europe are already backing down, claiming that if they get into a subsidy spat with the US, China will be the ultimate winner. According to Politico, EU trade chief Valdis Dombrovskis urged everyone to look at the bigger picture and warned about “the danger of conflating the Inflation Reduction Act with our broader relationship with the United States.”