Europe, the China challenge and the strategic triangle with the US

 Europe seems to have become the battleground between the United States and China. The old Atlantic Alliance, whose 70th anniversary is due to be celebrated in Washington this week, is still holding out: containing Putin’s Russia remains a relevant mission. And yet the power that really needs containing in the 21st century is China. Xi Jinping, the de facto Confucian-cum-communist emperor who has just completed a pretty successful tour of Rome and Paris, sees penetration in Europe as a tool for undermining the Western system.

The case of Italy is indicative: Rome has signed up to China’s Belt and Road Initiative (BRI), like a dozen other European countries before it. The first countries that Beijing involved in its divide-and-rule strategy in Europe were those on the continent’s eastern fringe and the Balkans, in other words its soft underbelly to the east; then it moved on Greece and Portugal before targeting Italy on the Southern flank. In the latter three instances, the need for foreign assistance is a factor for strategic weakness, but Italy is a far more important case than the others because it is the only G-7 member to have signed up, the third largest economy in the euro area and a key country for NATO’s communication routes in the Mediterranean. In involving Italy in its geopolitical blueprint for penetrating the European Continent, China is starting to move from the outskirts of the EU toward its heart. Even if – we should add – Europe’s heart is being pared down to its Franco-German core and Italy is in danger of becoming its periphery.

In signing a Memorandum of Understanding with Beijing, an Italian Government that is somewhat naïve or inconsistent with regard to the country’s international positioning, has granted Beijing a political advantage of symbolic significance with not much in the way of an economic return.

Emmanuel Macron has handled Xi Jinping’s visit rather differently. He has signed economic agreements that are far more substantive in France’s favor (the Airbus accord), while joining with Angela Merkel and with Jean-Claude Juncker to champion the need for a coordinated European approach. This strategy – managing the EU’s external relations through an informal directorate – irritates the EU’s other member states and underscores the rift existing in Europe today, but in view of France’s clout (and even more of Germany’s) in bilateral ties with China, it has a considerable impact on Europe’s strategy.

The European Commission has put a policy document on the European governments’ table that marks a strategic turn: at this juncture, the EU should see China not just as a crucial economic partner but also as a “systemic rival.” The implication is that the EU must, in its turn, adopt a defensive strategy made of protective measures such as foreign investment screening, reciprocity in opening up markets, the defense of intellectual property, 5G security, and transparency in public procurement. We shall see at the upcoming US-China summit on 9 April whether the countries of Europe effectively succeed in better coordinating their approach to the rising global power.

The key issue here is that the China effect, combined with the impact of Brexit, may drive European policy’s center of gravity in the direction of a far more “protective” approach to the internal market. This may entail a change in EU rules governing internal competition, a change justified by the need to hold out in the face of the major global players: following Brussels’ rejection of the Alstom-Siemens merger, France and Germany are clearly bent on making it possible to create “continental champions.” Without the foil of Britain’s deregulatory ethos, the rationale behind the Franco-German core’s industrial policy will tend to dominate.

The commercial tension with Trump’s United States has helped to impart a fresh thrust to Europe’s industrial policy. And a protection-based Europe along Macron lines, driven by the Chinese challenge, will also end up deepening the gap between the two shores of the Atlantic unless the prospect of a trade and investment agreement is revived. Inadvertently, then, Washington – while calling on the Europeans to choose whom to side with in the growing bilateral competition between the incumbent and the rising power – may facilitate China’s geopolitical design on Europe. Simultaneously, lasting damage may be inflicted on transatlantic economic relations, which have been the key to the West’s success for over half a century.

Caught between Trump’s America First and Xi Jinping’s China First, Europe’s weaker countries are drifting, while its comparatively stronger countries (the Franco-German core) are going to try in their turn to build a Europe First policy, but they are unlikely to succeed without support from the their EU partners – as the EU remains a consensus-based organization.

The outcome on the global level could be a system of strong regionalization based on large blocs, but such a system could hardly be cooperative; on the contrary, it would be brutally competitive. Furthermore, the European bloc would be extremely fragile on the inside, for internal reasons even more than as a result of outside pressure. To contain China’s challenge to the West, the United States and Europe need to focus their thinking: economic nationalism is not an effective antidote to the (illiberal) rules on which China rests today, and it ends up splitting the Western partners in a zero-sum game.

Ultimately, the reality of global value chains is probably stronger than any clash on values between the West and a China-led “rest” – which creates the conditions for a mix of geopolitical competition and business cooperation. If this is the case, Europe will have to carefully walk a fine line: as the final statements of the Macron-Xi meeting show, there is a temptation to pursue a sort of multilateralism à la carte, as Washington remains temporarily on the sidelines. On its part, even the US badly needs a new framework to deal with China, as Trump’s recent moves demonstrate, despite the occasional rhetorical outburst. Washington is likely to rediscover, sooner or later, the importance of multilateral arrangements – and Europe will have to improve its aggregate game in the meantime. At that point, and under these conditions, the China challenge will become less divisive.