Talleyrand’s staircase: some reflections on future EU-China relations

“May you live in interesting times!” – This Chinese curse was in mind as I chaired a roundtable last week on EU-China relations, during the Friends of Europe think tank’s annual navel-gaze State of Europe.

Participants ranged from senior diplomats to head of a prime minister’s cabinet, MEPs to a former foreign minister.

I posed the question: China and Europe, Quo vadis? With a new European Parliament and Commission, a new US administration, and an expansionist China, is it time to reassess the relationship? The EU’s China Strategy dates from 2019, declaring China variously as a partner, competitor and rival.

We felt that changes since 2019 justify a reassessment.  Firstly, the pandemic, which damaged trust in China’s transparency, and highlighting the risks of supply chain dependencies.

Secondly, China increasingly takes advantage of divisions amongst EU member states, peels away other countries (such as through the 16+1 initiative) and positions itself as leader of the Global South-  a long-term strategy to undermine Western hegemony and restore China’s dominant position following the century of humiliation. This may explain why President Xi visited Hungary and Serbia this year but not Brussels, Berlin or Warsaw.

Thirdly, China’s support for Russia against Ukraine- which weakens the West and creates China-centric dependency. This is a game changer, leading, if not yet the EU, both NATO and Mario Draghi in his recent Report to consider China as a systemic security threat.

And the wild card, an incoming Trump administration which may trigger a trade war in order to reduce the trade deficit, in which case the EU may be pressed to choose sides.

EU strategic choices

So should Europe modify its China strategy? Is it intelligent enough to analyse this through Chinese eyes?

Firstly trade. All at the roundtable agreed that China paradoxically seeks a politically weak yet economically strong EU, given its dependence on the EU as a market and foreign direct investment (FDI) destination. The EU and China are trade-dependent in a way that the US is not: €2.32bn of goods trade per day.

With the US shutting out China from its economy, China needs Europe. China, lest we forget, is also derisking from undue dependencies through greater self-sufficiency and diversification. But in the short-to-medium term, it will remain EU-dependent for exports, inward investment, and technology and talent transfer.

So derisking, not decoupling, is needed. The participants felt that we must expand the scope of critical sectors for derisking, notwithstanding the trade-off between sheltering domestic capacity versus an affordable green transition.

Tariff man meets dumping man 

To the more familiar world of trade defence instruments, now wielded in Europe to an extent not seen for decades, largely with China in the sights. Participants felt that the EU is striking the right balance: firm but following the WTO. Recent trade disputes over electric vehicles, pork and dairy, were managed and proportionate. The EU adheres to the rule of law, so can never do what US and Canada did-– arbitrary 100% tariffs on Chinese vehicles. China’s tit-for-tat retaliation against Europe’s electric vehicle duties, while inevitable, was also measured. China has learnt that disproportionate retaliation backfires.

So to the US; how should Europe and China position themselves in a trade war triggered, for example, by 60-100% US tariffs on Chinese imports, more possible now with Robert Lighthizer strongly influencing future US trade policy? With its internal market in the doldrums, last week’s provincial fiscal stimulus will not remove debt and with consumer confidence low, China cannot afford a trade war on two fronts. It will wish to maintain even trade relations with Europe, even launch a charm offensive mindful of next year’s 50th anniversary of diplomatic relations. The recent visit of a delegation from the National People’s Congress to the European Parliament is a first sign, as are Chinese overtures to some EU member states promising tariff cuts or investment possibilities. Can the EU leverage this anxiety by allying with US? Or, if both face Trumpian tariff barriers, would the EU and China isolate the US?

Where’s Blondin?

EU positioning depends on several factors. If the US places massive high tariffs on Chinese goods this will divert exports to Europe (and Asia and South America), and undercut European industry, It will trigger anti-dumping and anti-subsidy actions to stem the flood of cut price goods.

But the EU could be squeezed from the other direction. The US might pressure to decouple from China, threatening tariffs, or link tariffs to European defence spending or Ukraine. Trump has already labelled Germany a “mini-China”. Outfoxed seven years ago by the wily Jean-Claude Juncker, he doesn’t forget. Tariffs on the EU may, like the iceman, cometh.

The direction Europe takes will depend also on China. If it continues to bankroll Russia and undermine sanctions, steps up cyber-attacks and divide et impere policies on this continent, the EU will have to toughen.

So the EU may face a difficult balancing act in which relations with China, the US, Ukraine, Gaza and a buoyant Global South, and NATO financing will be in play. The great highwire artist Charles Blondin could helpfully advise!

But I’m not pessimistic. The European Union houses some of the smartest trade negotiators who may be able to play both ends, to be wooed by both China and the US, each offering market access bribes or benefits not to go into the other’s camp.

China faces an equal balancing act. As a recent essay for the Bruegel institute argued, President Xi wishes to weaken US domination and model (in the long term), while maintaining sufficient global stability (in the medium term) to support China’s faltering economy.  A too abrupt upending of the World Order will damage the global economy and China’s growth.

Which smartphone number to call Europe?

The European Union’s capacity to manage China depends too on a more coherent foreign economic policy. Unlike trade, political relations and even parts of investment are a national competence.  This explains divergences between member states on how to engage with China- hawks and doves; from sharply anti-Chinese states to state such as Germany which nurtures the Chinese market where they have invested; those who see themselves as a bridgehead for Chinese investors (FDI, belt and road); some who are pro-China and Russia-neutral (Slovakia and Hungary are in the Chinese-led Friends for Peace Group pushing Ukraine to compromise on land);and of course EU member states compete for access to the Chinese market and FDI.

My last question to discussants was: can there be a common EU-27 policy towards China in order to have leverage? These divergences weaken the Union. China plays member states against each other, from pigmeat to FDI in robotics. Member states obtain short-term advantages but weaken the Union. The EU cannot- especially with an impending Trump administration- depend on or hide behind the US. Can the EU establish a Europe-wide foreign economic and security policy?  This is the most pressing question facing the EU if is to become a political force. Alas, I do not see the leadership needed. China, like Kissinger, will still have three telephone numbers- via iPhones made in Zhenghou by the way- to call Europe.

Talleyrand’s staircase

I belong to the Travellers’ Club in London, founded in 1819 after the Congress of Vienna as a place for Europe’s diplomats to reconstruct the world after the Napoleonic wars. The Club staircase is graced by a polished banister fitted to aid the elderly Prince Talleyrand to climb the stairs. Historian Adam Zomoyski, in his great book Rites of Peace describes the Congress of Vienna and the difficult path to peace that it secured against the odds.

Surely today’s troubled environment calls for a new Congress of Vienna? Bringing together the US, the EU, China, India, Japan and the Global South to pilot a new course for the global economy, and through that peace based on a balance of power reflecting a multipolar world? The G20 has not fulfilled this role. Must we accept that only an exogenous crisis such as climate-related collapse, or a bitter expansion of the Ukraine war, or a war between citizens and Big Tech will push today’s political leaders to look beyond the immediate horizon towards a peaceful coexistence?

The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.