Getting Europe’s help on China

It’s not the shortest route on a map, but President Biden has been pretty clear that he is plotting his approach to China by way of Europe.

He and Xi Jinping touched gloves in their Wednesday call, but the administration has avoided rolling out a full strategy so it can rally European support for a common approach notionally based on shared economic interests and political values. It sounds good, but it won’t be easy and may require American concessions long before Biden reaches Beijing.

Above all, the U.S. and Europe have been battling over a long list of contentious economic issues completely unrelated to Donald Trump’s gleeful tweaking of the European project. Chlorinated chickens, data privacy and tax avoidance are merely the most prominent of the prickly items that have blocked progress on greater economic coordination. These may be easier with an American president who has a deep commitment to trans-Atlantic relations, but only slightly easier. Moreover, Brexit adds an important, if slightly disoriented, participant to the conversations.

Meanwhile, for all their shared dedication to free markets and democracy, America and Europe never have been fully aligned on China policy. Where Washington thinks in terms of a strategic rivalry that spans everything from Taiwan and soybeans to public health and nuclear proliferation, Europe often strains to see past a large sack of money. Benefits of warm relations with Beijing have included renminbi trading in London, reliable markets for German industrial exports and rising flows of Chinese investment. 

Further complicating a joint strategy, Europe is hardly a coherent partner, even without the United Kingdom. China has skillfully cultivated friendships across the European periphery, taking stakes in Greek and Portuguese ports, signing Italy as the first G-7 partner for its Belt and Road Initiative and dangling incentives before Europe’s smallest economies in talks dubbed “17+1.”   

But as U.S. sentiment has been hardening across party lines in recent years, European views are shifting, too. A 2019 European Commission report politely branded China a “systemic rival” and last year the EU adopted tighter investment screening, with an eye to protecting homegrown technology from Chinese buyers.

This may be the moment to lock arms, if Team Biden plays it right.

First, the administration should clear away the static on trade. Easiest of all, the president can cancel the tariffs that were imposed on European steel and aluminum by his predecessor under dubious national security motives.

He can earn even more goodwill by settling the dispute over government subsidies to Boeing and Airbus, as French President Emmanuel Macron has proposed. After decades of litigation, the World Trade Organization has issued final rulings that found fault on both sides. The vexing challenges ahead concerning data protection and corporate taxes will prove challenging enough without the distractions of these relics.

Second, Biden should enhance America’s economic engagement with the European Union, which may be easier now that neither side actively aspires to a grand trade deal. Of course, key decisions still rest with the French president and German chancellor, but the European Council, Commission and Parliament are the key players on the global trade standards that are so central to improving the commercial relationship with China.

The China Comprehensive Agreement on Investment that Europe signed in December drew arched eyebrows from those who viewed it as essentially toothless and mistimed just as Washington was hoping to present a united front in Beijing. But EU leaders play up China’s commitment to end restrictions on foreign investment, set rules against forced technology transfer and enforce more transparency for state-owned enterprises. It’s a small step forward, but it’s forward.

Third, the new trans-Atlantic partners should start small. This is not the time for big trade breakthroughs amid so many difficult dossiers on the table. Climate policy, cybersecurity and human rights could easily overwhelm the economic issues that, until now, have been the centerpiece of the relationship.

But the Chinese have made significant commitments under the European investment deal that align with U.S. trade goals in the Trans-Pacific Partnership that Barack Obama negotiated and his successor abrogated. Moreover, Xi Jinping continues to hint China might eventually join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership of countries that went ahead without the United States. A narrow set of talks on tighter protections for intellectual property or better market access might deliver some progress that is just mundane enough to avoid the broader rhetorical escalation. Smaller goals will make it easier to secure — and keep — European backing, too. 

Trade progress with China may indeed benefit from Biden’s detour through Europe, but it’s about more than repairing hurt feelings and moving on. Like most of diplomacy, it will require compromise and realistic expectations.

Christopher Smart is managing director, chief global strategist and head of the Barings Investment Institute. Under President Obama, he spent four years as deputy assistant secretary of the Treasury and two years as special assistant to the president for international economics, trade and investment. Follow him on Twitter @csmart.