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08th
May 2017

How Trump is reconnecting Europe with China

China is on a charm offensive in Europe, a move facilitated by U.S. President Donald Trump’s policies and his declarations since taking office. Beijing is eager to find allies willing to stand up for open trade amid fears Trump could undermine it with his protectionist, so-called America First measures. Sensing a low tide in Transatlantic relations, Chinese leaders are reaching out to the European Union — China’s leading trading partner and an important source of investment and technology. Beijing seems willing to set aside differences over bilateral trade and investment in order to draw the Europeans to its side.

In recent months, Beijing has toned down its public campaign to obtain EU recognition of market economy status for China. The case is now being dealt with at the World Trade Organization in Geneva, a move that allows the European Union and China to avoid giving the question too much publicity. If China obtains its coveted prize, it will be more difficult to adopt anti-dumping measures against Chinese companies. Neither the European Union nor the United States has yet recognized China as a market economy, and Western unity on this issue has so far prevailed.

The issue of market economy status marred Sino-European relations throughout 2016 and could have tainted relations this year too, had the election of Trump not changed priorities for Brussels and Beijing. Both stand united against protectionism, and on March 10, the European Council issued a conclusion document underlining that “trade relations with China should be strengthened.”

China-EU-US trade

EU policymakers have accepted Beijing’s request to bump up the annual China-EU summit from its usual July date to June. This is intended to send a unified message President Trump. Brussels and Beijing want to press ahead with economic globalization and free and fair trade in order to better tackle domestic problems. China is rebalancing its economy from one based on exports to one focused on domestic consumption, while the European Union is trying to recover from a long recession. However, it is not only the economic dimension that is bringing China and the European Union closer, but also their support for multilateralism and international organizations — in contrast with Trump’s preference for power-based bilateral relations.

China stands to gain from divisions among Western allies — even at a moment such as this, when there are a number of frictions in Sino-European relations, including the question of growing Chinese investments in the old Continent. A report by the Rhodium Group, a research firm, and the Mercator Institute for China Studies, a think tank in Berlin, found that Chinese direct investment in the European Union surged 76 percent to around €35 billion in 2016. Chinese purchases are growing rapidly in sectors that remain restricted to foreign investors in China, and this inflames debate about growing imbalances between the two sides. Those imbalances draw particular concern from Germany, where Chinese acquisitions soared to 11 billion euros in 2016, surpassing for the first time German mergers and acquisitions in China.

In February, France, Germany, and Italy asked the European Commission to rethink rules on foreign investment in the European Union. This was a message to Beijing to enforce reciprocity in market access, and at a time when the two sides are negotiating a bilateral investment treaty. It is unlikely, however, that a pan-European screening mechanism similar to the Committee on Foreign Investment in the United States will see light in the near future. Europe is now the top destination of Chinese investments abroad, surpassing the United States. According to the China Global Investment Tracker, a joint project of the American Enterprise Institute and the Heritage Foundation, between 2005 and 2016 China invested nearly $164 billion in Europe. During that same period, it invested $103 billion in the United States.

With negotiations on the Transatlantic Trade and Investment Partnership in limbo, and the Trump administration’s focus on America First, Europeans feel they have been left alone to deal with an increasingly powerful China. The latter is luring EU members with the prospect of increased investments in their countries. Should President Trump not change course, the European Union and China are bound to get closer, despite their differences.

An earlier and expanded version of this article was published in RealClearWorld