China Challenge: Transatlantic Divergence

It is a truism that the rise of China poses a serious challenge to the US and Europe. However, there are differences in terms of their understanding of the nature of the challenge. For instance, there has long been a debate among them – the US and Europe, that is – whether China poses a strategic challenge, or is an indispensable partner in dealing with global challenges, or whether it is an economic threat or opportunity.

A case in point is the strong communique issued following the NATO summit in Vilnius on 11 July, which stated that NATO members are concerned by China’s ambitions and coercive politics that challenge the rules-based international order, including in maritime domains and cyberspace. The statement also raised concerns about systemic challenges posed by China to the Euro-Atlantic security, and, at the same time, wanting to maintain constructive and stable relations with China.

This highlights the ambiguity of the transatlantic alliance’s stance on China despite growing concerns about its aggressive and coercive postures. China remains an indispensable trading partner.

Rising Coercion

The transformation of China under Xi Jinping as a revisionist state dashed the hope that deeper economic integration will make China economically liberal and a responsible stakeholder that will uphold the open, rules-based international order under which its economy grew and prospered.

Under Xi, however, the focus is on becoming the dominant power. In his recent book No Limits, Andrew Small notes, “The Party was now decisively under Xi Jinping’s grip, and much of the country’s commercial life was under the grip of the Party. Once potent private sector actors were cut down to size, as Xi moved to neutralize any independent sources of power, and economic goals were subordinated to political and military objectives.”

China has a nominal GDP of $18.1 trillion making it the second-largest economy in the world. It accounts for 18.6 percent of global trade. Its economic power has created asymmetries with other countries in its favour. This has allowed China to increasingly use economic tools for coercion in pursuance of its national objectives abroad.

In 2021, when Taiwan opened a Taiwan Representative Office in Vilnius, Lithuania, it drew Beijing’s ire as the choice of using “Taiwan” rather than “Taipei” was regarded as a violation of its One China principle. It drew swift economic retaliation, with Lithuania not appearing in the Chinese customs system, effectively blocking all bilateral trade.

In 2023, it sanctioned US defence companies Lockheed Martin and Raytheon Technologies for selling arms to Taiwan. The companies are banned from moving any goods or making any investments in China. The sanctions were imposed after the January 2023 spy balloon incident.

Divided Allies

While there is a greater appreciation among the transatlantic allies about the strategic challenge posed by an assertive and coercive China, there are fundamental differences among them on economic and strategic issues to formulate a coherent policy and take a united stand against China.

In 2015, despite strong US objections, European countries led by the UK, Germany, France, and Italy joined the Beijing-based Asian Infrastructure Investment Bank (AIIB). China is a key stakeholder in the AIIB. This decision highlighted early divergences among the transatlantic allies.

The relationship between the US and Europe further deteriorated during Trump's presidency. Trump’s mercurial style, American policy ambiguity under him and China being the EU’s largest trading partner hampered effective cooperation among them.

The EU wants to maintain its strategic autonomy and not get caught in the US-China rivalry. In 2021, at the World Economic Forum summit in Davos, the then-German Chancellor Angela Merkel said, “I would very much wish to avoid the building of blocs. I don’t think it would do justice to many societies if we were to say this is the United States and over there is China and we are grouping around either the one or the other. This is not my understanding of how things ought to be.”

China has been active in exploiting the differences between the transatlantic allies, as it considers the US as its main adversary, and has been working to lure individual European countries from the transatlantic alignment to undermine the relationship. China is Portugal’s fourth largest foreign investor and has invested in key sectors like banking, healthcare, and energy utilities.

During his state visit to China earlier this year, French President Emmanuel Macron was accorded a red-carpet welcome. China provides France with a lucrative market and the trade between the two countries is over $109.17 billion. Macron said Europe should not become a “vassal” and maintain its “strategic autonomy” by not becoming a party in the conflict between China and America over Taiwan.

Unified Stand

It is widely accepted that the rise of a belligerent China under Xi needs to be addressed. Decoupling or conflict with China is not an option as it will lead to a global crisis and will be ruinous. The transatlantic partners need to take a unified, sustained, and firm approach in their interaction with China. This requires greater cooperation and compromises between the Americans and the Europeans.

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