Double Down on Liberalism: A Transatlantic Response to Chinese Economic Coercion

10.12.2020

Essay by Maximilan Ernst written for the American Institute for Contemporary German Studies (AICGS) at Johns Hopkins University.

China is increasingly resorting to economic coercion to advance political objectives. In the Asia-Pacific regional context, Beijing has repeatedly leveraged economic interdependence to subject regional states to its political and security interests. In Europe, on the other hand, China has thus far relied on subliminal measures to compel individual actors to its will. But as China’s global ambitions and stakes in Europe rise, heavy-handed coercion of the kind that South Korea, Japan, Taiwan, or the Philippines have experienced could soon become a reality in Europe. A case in point is Beijing’s threats to reduce German car sales in China should Huawei be excluded from the German 5G market. In consequence, European policymakers have come to appreciate that China’s rise implicates European security and that economics and politics cannot be separated in diplomatic relations with China. The European Commission’s designation of China as a ‘systemic rival’ and NATO’s acknowledgment that China’s rise implicates European security, both in 2019, are testimony to Europe’s strategic reorientation vis-à-vis China.

In the past, China was able to leverage its economic muscle against targets that were small and lacked a defensive mechanism against economic coercion. However, interdependence goes both ways, and China is as vulnerable to economic pressure as its trading partners. Thus far, Europe and the United States have pursued individual approaches to manage their economic and security relationship with China. But cooperation on the transatlantic level bears much potential to shield individual economies and corporations against Chinese economic statecraft. A new EU-U.S. trade deal that goes beyond the reduction of tariffs and trade barriers would enable both sides to settle the ongoing aircraft-subsidy dispute. Taking existing investment screening mechanisms as a blueprint, the transatlantic trade community could designate critical industries and technologies in which third-party domination of value chains is reduced—the larger the community, the smaller the adverse economic effects.

Additionally, proposed transatlantic trade remedies in combination with a blocking statute are geared to alleviate economic damage and to deter coercion from third parties in the first place. Combined with overall strong economic engagement with China in all non-critical industries, such measures are projected to result in close and stable economic and political relations with China for both Europeans and Americans.

https://www.aicgs.org/publication/double-down-on-liberalism-a-transatlantic-response-to-chinese-economic-coercion/