As the trade war between China and the United States heats up, Europeans should think hard about who they turn to for assistance
In the early years of Xi Jinping’s presidency, China became increasingly assertive. It challenged neighbours and irksome international rules, while painting its behaviour as a measured response to other states’ mischief. Beijing lashed out at what it called Japan’s “militarism”; the “wrongful” deployment of the Terminal High Altitude Area Defense system in South Korea; “unfair” international arbitration on territorial claims in the South China Sea; the European Union’s “protectionist” view of China’s market economy status; Indian “provocations” on the Chinese border; and, of course, the United States’ “threatening” presence in East Asia. In reality, China insisted that status quo powers accept policies on its terms, while it became ever more unpredictable in its dealings with them. Europe learned this the hard way – through botched summits, interrupted or delayed dialogues, constant Chinese attempts to divide the EU, and Beijing’s sweeping disregard for implementing joint agendas and addressing European complaints.
Then came the ascent of Donald Trump. If there is one electoral promise the American president has fulfilled, it is that to unsettle China in ways his predecessor never countenanced. Trump initially discussed linking trade issues to China’s assistance on the North Korean nuclear issue, before charting his own way to Pyongyang and going for Beijing’s jugular on trade. As an isolationist, Trump was rumoured to be indifferent to the South China Sea – much like his predecessor, who left the way open for China to occupy and fortify almost every partially submerged feature in the region. Yet Trump’s America now flies bombers over the South China Sea while Japanese vessels conduct naval operations there.
This confrontation has given China pause like no other event since the 1997-1998 Asian financial crisis. Beijing knows the ins and outs of Washington: the vested interests in trade with China, the think-tankers and their consensus on globalisation, the coalitions in Congress, and the press that maintains an inconvenient but predictable interest in human rights. Accordingly, the Chinese government has long gained tacit support from US academics and other experts eager for the welcome mat in China.
If there is one electoral promise the American president has fulfilled, it is that to unsettle China in ways his predecessor never countenanced
But Beijing did not know Trump. For critics of the US president, the evidence leads to an unsettling conclusion: China has largely ignored Western engagement and inducements – seeing this as evidence of the West’s weakness and decline – but has been forced to change tack under intense pressure from the Trump administration. China’s boasts about the superiority of its economic model have given way to a quest for like-minded partners.
China has also begun to behave more amicably towards Japan; paused efforts to probe its neighbours’ weaknesses in the South China Sea; and listened politely as Malaysian Prime Minister Mahathir Bin Mohamad denounced Beijing’s “new version of colonialism”. China has rediscovered the virtues of signing joint summit statements with the EU, and finally freed prominent activist Liu Xia, as Germany persistently requested. Beijing raves about “multilateralism” in international forums and has even considered providing humanitarian aid to refugees in the Middle East and Libya. One could call this the “Trump dividend”.
When the European Central Bank released a study on the dire consequences of a scenario in which the US levied a 10 percent tariff on all imports, Chinese op-ed writers grasped at this as reassurance that the rest of the world sided with China. They have also taken comfort from the idea that the EU and Japan would not cooperate with the US on investment screening or controls on technology transfer because they disapprove of Trump’s protectionism.
However, while the EU may not side with Trump, neither will it side with Beijing. On issues such as China’s unfair trade, sectoral subsidies, and technology theft, the European Commission is almost completely in agreement with the Trump administration – as President Jean-Claude Juncker stated to the visiting Chinese premier last July. China’s dictatorial political system and controlled economy bear no resemblance to the US, regardless of American leaders’ current shenanigans. And there is little indication that this will change. Although some China watchers have interpreted the slight renewal of Chinese public debate on liberal economics as a sign of open opposition to Xi, it is much more likely to be public diplomacy designed to ease pressure from the US-China trade war. In fact, Xi recently reassured his Chinese citizens that state enterprises remain paramount in his plans.
Nonetheless, Europe faces a dilemma. The Trump administration combines a comprehensive strategy for challenging China’s unique economic model with attacks on a range of other trade partners. Canada, Brazil, South Korea, the EU, and Japan have all borne the brunt of these attacks – none of which heed long-established international rules. For instance, the Trump administration has stretched its interpretation of Section 232 of the Trade Expansion Act to claim that steel, cars, and other products are a matter of national security – which many see as a violation of the spirit, if not the rules, of the World Trade Organization (WTO) agreement. Worse, the US is undermining the WTO’s most significant institution, the Dispute Settlement Body. Within a year, appeals to WTO arbitration may halt altogether. Europe has responded with a review of the WTO’s shortfalls, as part of a hedging strategy designed to maintain American engagement with the organisation.
Chinese leaders would rather dispense with the rules and suggest that Europeans and others break with the US, having concluded that the global order is no longer sustainable
China has agreed to approach the issue of WTO reform with the EU. This is likely to prove an illusion. China has a record of engaging in extraordinarily long and convoluted negotiation processes that end without foolproof deals. China’s legally vague commitments in its 2001 WTO accession protocol illustrate that one does not easily bind the country to agreements. Beijing maintains the Leninist approach: negotiation – even on trade – is only the other face of war. Moreover, discussions among just these participants would neglect many other important members of the WTO, not least India, Brazil, and South Africa. China successfully blocked the organisation’s most recent attempt at negotiations, the Doha Round, by teaming up with several developing countries. Within this process, the West failed to split the BRICS (Brazil, Russia, India, China, and South Africa) at the WTO a decade ago. It should not repeat this mistake. (If anything, grudges against China’s growing trading power should make the job easier.)
Nonetheless, WTO negotiations will only be central to Europe’s strategy if the Trump administration decides against comprehensive protectionist measures. The biggest stumbling block for any such strategy is the unpredictability of Trump himself. So far, the US has been extraordinarily resistant to economic shocks from the US-China trade war due to the momentum of its economy. Beijing recognises that Trump’s decisions are crucial to the trading system’s future, as shown in its marked reluctance to escalate the trade war – one of the very few recent examples of China responding to an external challenge in a low-key manner rather than creating one through its assertive policies. The dispute appears to rattle Xi and his subordinates.
At present, the Trump administration’s tariffs exempt items such as iPhone components, while Beijing avoids measures targeting Apple and other US technology firms. In this, the two sides’ recognition that they have greatly benefited from global connectivity still ties them together. Further tariffs could be far more damaging. For example, a Chinese surcharge on all US imports would function as a border tax. This would harm most American consumers and reduce demand. China would also suffer, with many of its factories locating to other parts of the world. Yet it is also possible that Trump will avoid further escalation with China, targeting competitors in Europe instead.
In either case, China could break from the US-led trading system. The country has a huge domestic market, a long-standing programme for promoting indigenous innovation and industry, and established mercantilist practices in trade and monetary policy. If it reduced its dependence on the US, China could not hope to shift much more of its manufacturing surplus to Europe, which is already saturated with Chinese goods and alert to the country’s trade practices. In this scenario, Beijing would not grant the EU the economic reforms it has long denied the WTO. Chinese leaders would rather dispense with the rules and suggest that Europeans and others – those whom China used to refer to as the “second world” – break with the US, having concluded that the global order is no longer sustainable.
Thus, Europeans should think hard about who they turn to for assistance, before lashing out at Trump’s sovereigntist rhetoric and jibes against the international order. China is not waiting for a chance to embrace them as the last of the multilateralists.