Caught in the middle
Terry Su says Europe urgently needs to find its way through the growing US-China tensions
US Treasury Secretary Janet Yellen recently visited China, her second trip in less than a year, amid US complaints about China’s overcapacity. This latest narrative is neither unusual nor surprising given the gathering pace of Washington’s bipartisan China bashing, which began under the previous Trump administration.
Yellen, a long-time advocate of free and open trade, has changed her mind about Chinese exports, according to a Wall Street Journal article published on the same day she arrived in Guangzhou to kick off her China visit.
She is quoted as saying she “grew up with the view: If people send you cheap goods, you should send a thank-you note” and “that’s what standard economics basically says”. But now, she says, “I would never ever again say, ‘Send a thank-you note’”. She sees in China’s “cheap goods” as “a problem we have to remedy” and, in an earlier interview, warned that “China’s overcapacity distorts global prices and production”.
Beijing begs to differ, viewing this as yet another demonstration of America’s determination to keep China down when the country is making breakthroughs in chip-making – despite a US embargo on national security grounds – and solidifying its dominance in the production and export of solar panels, lithium batteries and electric vehicles.
At the Guangzhou meeting, the Chinese team led by Vice-Premier He Lifeng “responded fully” to Yellen’s overcapacity concern and expressed “serious concerns” about America’s restrictive economic and trade measures against China. This was in the spirit of the phone call last week between US President Joe Biden and President Xi Jinping, where both leaders showed signs of continuing to responsibly manage the disagreements in their relationship.
Such disagreements, in themselves, should not be a big deal. This kind of economic warfare is now a matter of course in the US-China relationship and new narratives will continue to emerge, given Washington’s “compete, confront, cooperate” dictum regarding China and Beijing’s reciprocal tactics.
But while the US and China are settled in and braced for economic warfare that is likely to be long and drawn out, the situation is different for Europe.
Europe finds its welfare at stake but does not necessarily have the luxury of toughing it out like the US or China. The US-China economic warfare has grave ramifications for the future of European industry.
Last month, Dutch Prime Minister Mark Rutte and Trade Minister Geoffrey van Leeuwen visited China amid growing semiconductor tensions. The Netherlandsbased ASML, the world’s biggest developer of advanced semiconductor equipment for chip makers, is caught between the US hi-tech embargo and its biggest market, China.
The impotence is real: the US shows no signs of letting up on sanctions while China is making headway in chip-making that would reduce its reliance on ASML’s machines.
European carmakers are also wrestling with stiff competition from Chinese electric vehicle makers. In late February, a major shipment of BYD cars arrived in Germany in response to robust demand. The crisis has prompted European Commission President Ursula von der Leyen to open an anti-subsidy investigation against Chinese carmakers that could mean retroactive duties on Chinese imports.
I recall my experience of a 2019 seminar in Brussels organised by Bruegel, a European economic think-tank, which discussed the European Union’s strategy in a challenging world. My takeaway was that the EU elite had on their minds, chiefly, three perceived external challenges: the United States, China and the internet juggernauts that largely originated from these two countries.
And this was when the EU could still take for granted the energy supply from Russia as well as the Russian market.
The situation is worse now. The EU is bogged down by a draining war in Ukraine, tied to a US-led Nato response and so-called shared values, increasingly seeing its margin for political autonomy squeezed – one recalls French President Emmanuel Macron’s warning against being America’s “vassal” – and its economic prowess is being hollowed out by both America and China.
In the future-defining arena of artificial intelligence, it is clear that the tussle at the top is largely a game being played out between the US and China.
Unless the EU is resigned to being America’s follower, pitting itself against China at all costs, and at its own cost, the Europeans need to act quickly to put Europe back in one piece.
The EU needs to start by ending the bloodletting in Ukraine, and not only find a way to return to the days of Russian gasand-oil-based manufacturing prosperity but also take significant steps to integrate itself back into the Russian consumer and talent market.
In the US-China tug of war for supremacy, Washington can, at times, boast of victories such as by claiming credit for Chinese cooperation over fentanyl – the narrative of Chinese responsibility in creating the drug scourge being another one of Washington’s making. But one will be hardpressed to see any real possibility of Beijing giving in to Washington’s pressure over alleged Chinese manufacturing overcapacity.
This is OK – as said earlier, the battle over Chinese overcapacity is merely the latest round in a drawn-out wrestling match between two economic giants that are well provided for. Europe, however, can hardly afford not to act with haste. Simply put, China makes the goods and America makes the dollars – where does that leave Europe?
Simply put, China makes the goods and America makes the dollars – where does that leave Europe?