The US, Europe still don’t know how to tackle China
Contrary to Soviet Union earlier, the eastern giant is now both an economic and a military challenge
Two recent investment and technology related developments revealed the current dilemma and contradictory impulses of the US and Europe in dealing with the economic, technological, political and security challenges from an increasingly assertive China. Financial Times reported on February 24/25 that US regulators “blocked the $580 million acquisition of a semiconductor testing company by a Chinese state-backed fund”. Another report, the same day, referred to Chinese carmaker Geely acquiring around 10% of “Mercedes- Benz owner Daimler for about $9 billion, becoming its largest shareholder”. On March 12, US blocked the $117 billion acquisition of chip maker Qualcomm by Singapore based Broadcom, citing national security concerns.
Several recent commentaries talk of how the West got China wrong. Western engagement with China, initiated by Richard Nixon and Henry Kissinger in 1971 to gain geopolitical advantage against the Soviet Union, was subsequently justified on the expectation that an economic rise would lead to political reforms and adherence to a “rulesbased international order”. Deng Xiaoping’s “hide and bide” strategy enabled China to lull western concerns till it was strong enough to assert its own interpretations, in the South China Sea, in the Nuclear Suppliers Group on India’s membership, and in forcing MNCS to part with technology for limited market access.
Contrary to the Soviet Union earlier, China is now both an economic and a military challenge. Soon it will also be a technological rival: “in personal computers China had entered the game after it was over, in mobile and internet it entered halfway through, in artificial intelligence it is only 1-2 years behind the US, and far advanced in facial recognition”. The manner in which China penalised South Korean companies for their government’s decision on basing THAAD missiles, and compelled the CEO of Daimler Benz to apologise for an Instagram post carrying a quote from the Dalai Lama was a signal that companies took as requiring a lessening of their dependence on Chinese market, which for many today was in the range of 10-20%. China is also now enhancing its influence and operations overseas. There were 110 Confucius institutes in the US, and it was funding political leaders and groups more and more, as was revealed recently in Australia While the recognition of the challenge is now starker, there is still no clarity or agreement on a counter strategy. So far, China has exploited the competition among the US, the UK, France and Germany for Chinese trade, investment and finance. The West still has to come up with a response to the Chinese strategic thrust through the Belt and Road Initiative.
On Thursday, Trump ordered that tariffs worth $50 billion be levelled on Chinese imports into the US. China has the power to retaliate, and is expected to raise tariffs on agricultural imports from the US following measures against Chinese steel and aluminium, which would also impact many US allies. Established global supply chains could be affected. Several US trade associations have opposed these measures.
One area where there is some convergence is on restricting Chinese strategic and high-technology acquisitions. This is facilitated by Chinese restrictions on western acquisitions and market access. But even here there is divided opinion. The European Union has found it difficult to arrive at a consensus among its members on assessing human rights in China or its actions in the South China Sea. There is no common EU investment screening mechanism, only half its members have any policy in place, and there is concern that a EU screening mechanism could disproportionately benefit some member states. Western response to the Chinese challenge is still evolving. It will weave its way through competing business and national interests, and differing political approaches to reciprocity versus preserving values and norms despite asymmetric competition. India, in the meantime, will have to brace itself to deal with growing Chinese economic and military footprint in the Indopacific. It will require fresh efforts in our immediate neighbourhood, participating actively in new security architectures in the Indian Ocean and Pacific Ocean, focusing on enhancing our economic and military strength, and working out a new framework for relations with China.