Watching China in Europe—January 2025
Transatlantic Convergence
Whether you believe that transatlantic cooperation on China has been a glass half-full or half-empty exercise under the Biden administration, there is no question that Brussels and Washington have moved closer to each other in recent years. A common transatlantic language on China has emerged, with the EU and the United States embracing the concept of “de-risking”. New transatlantic forums for discussing challenges related to China, such as the Trade and Technology Council (TTC), have been created, and existing multilateral groupings, such as the G7 and NATO, have become places where Europe and the United States discuss everything from economic coercion and supply chain resilience to protecting critical infrastructure. Transatlantic trade disputes have been shelved (if not fully resolved), providing the space for Brussels and Washington to focus on the bigger challenge posed by Chinese overcapacities.
Most importantly, from Europe’s perspective, the Biden administration has been a predictable actor on China. After shocking France with the AUKUS nuclear submarine deal in 2021 and all of Europe with the Inflation Reduction Act (IRA) in 2022, the Biden team ramped up efforts to engage and consult with European capitals on issues such as sanctions, export controls, outbound investment screening, rules for connected vehicles, and transits through the Taiwan Strait. Europe’s response has been infuriatingly slow at times. But European Commission President Ursula von der Leyen was able to make the case for closer cooperation on China-related challenges because she knew, broadly speaking, where the United States was headed.
Cronyism and Conflicts
Under Donald Trump, these drivers of transatlantic alignment will fall away. De-risking, a term von der Leyen coined in March 2023 and the Biden administration subsequently adopted, is likely to vanish from Washington’s vernacular as soon as Trump returns to the White House. The TTC may not survive. And it is unclear whether the G7 and NATO can continue to play the same role on China policy under a US president who prefers the simplicity of unilateral measures and bilateral deals to the complexity of multilateral coordination. The United States will also become less predictable on China under Trump. Policy will be shaped by a set of individuals with vastly divergent interests (and in some cases personal financial stakes), rather than by a broad, shared view of the threat China poses.
Trump’s mercurial patron, Elon Musk, had a hand in killing a Congressional spending bill in December that would have imposed unwelcome outbound investment restrictions on Tesla in China. Trump himself has made a U-turn on TikTok, coming out against a ban that he once championed after lobbying from Republican megadonor Jeff Yass, an early investor in TikTok’s parent, ByteDance. It is easy to dismiss Trump’s decision to extend an invitation to China’s President Xi Jinping to attend his inauguration as a stunt. But it does suggest that he is inclined to pursue a deal with Xi, despite the resistance such a push would engender from administration China hawks and the failure of his first-term “phase one” trade agreement with Beijing. Even if you believe that the long-term trajectory of US-China relations is one of intensifying competition and rivalry, the next four years are likely to be a rollercoaster. It will be a massive challenge for Europe to keep its bearings on China—let alone work hand in hand with Washington—if cronyism, conflicts of interest, and cold “America First” commercial calculations are permeating US policy.
If members of the Trump team go a step further, as Musk did in the final weeks of 2024, and throw their support behind far-right fringe parties in Europe, then the challenge becomes exponentially larger. This is an extremist fringe, let’s not forget, that favors a policy of appeasement toward Moscow and Beijing. If instability, unreliability, and unchecked Muskian lunacy replaces US predictability, the foundations for transatlantic cooperation can quickly crumble.
Taking Solace
Where does this leave Europe? In an uncomfortable place. Expectations have sunk so low that EU officials took solace in a pre-Christmas social media post from Trump that read: “I told the European Union that they must make up their tremendous deficit with the United States by the large scale purchase of our oil and gas. Otherwise, it is TARIFFS all the way!!!” The message was seen by people in Brussels as a sign that Trump may be willing to negotiate on tariffs after all, and that US energy and defense purchases that the EU had already been planning to offer him might be enough to prevent a trade conflict. But in the end, everyone is left guessing and grasping at Truth Social straws. I understand that von der Leyen is still hoping to meet with Trump to discuss tariffs before he enters the White House on January 20. But there is no firm date for a get-together at Trump’s Mar-a-Lago lair.
And so, the new Commission has no choice but to press ahead with its own China agenda, without much clarity about what its future relationship with Washington will be. In the Charlemagne building in Brussels, trade officials are drafting an economic security doctrine that aims to reshape the EU’s approach to trade and technology ties with China. Risk assessements on wind power and connected vehicles are underway, as is preparatory work for the possible use of the EU’s anti-coercion instrument. There is talk of creating a new “overcapacity instrument” that would serve as a bulwark against the tsunami of cheap Chinese goods that could flood into Europe as soon as Trump jacks up US tariffs on China. The Commission launched a record 33 trade defense cases in 2024, the majority of which were aimed at China. But all this work has stretched resources thin, while covering just a tiny fraction of EU imports from China. As a result, some officials are pushing for a more systemic instrument that would mimic the US’s sweeping trade powers. At the same time, a debate is simmering on whether the EU should abandon its insistence on “country agnostic” tools and call a spade a spade.
Security First
My sense is that 2025 will be the year in which the EU begins bending or reinterpreting international trade rules in pursuit of greater economic security. This will also be a year in which tensions between a Commission determined to play a bigger role in security policy and European capitals keen to safeguard their autonomy in this area come to a head. Many of the biggest challenges that Europe now faces can be addressed only through strong direction and coordination from the center. This is slowly dawning on member states, but the reluctance to share the reins with (let alone hand them over to) Brussels runs deep. “The Commission is the de facto government of Europe right now,” a Dutch diplomat told me. “But it can’t get so far ahead of the member states that the whole thing starts to creak.”
An early test of this power dynamic will come in the first months of 2025, when EU institutions and member states face off over a new inbound investment screening proposal from the Commission. Members of the European Parliament who are preparing their response to the proposal told me they want to give the Commission new powers to veto transactions that are deemed a threat to European economic security. They also want language that would open the door to the EU’s imposing conditions on greenfield investments from countries such as China. The aim is to ensure that such investments bring know-how and jobs to Europe rather than final assembly sites that add little value, are staffed by Chinese workers, and serve mainly to sidestep tariffs. The investment by Chinese carmaker BYD in Hungary is seen in Brussels and other capitals as a poster child for the kind of foreign direct investment (FDI) that Europe does not want and must find a way to counter.
New Thinking
Member states will oppose any push to give the Commission the final word over investment decisions. But the debate over FDI conditioning is overdue. As Mario Draghi’s competitiveness report last year made clear, the EU has a problem if Chinese firms are channeling investments only to those countries that cozy up to Beijing or welcome FDI without conditions. On other issues, such as connected vehicles, it is clear that Europe will only be able to tackle cyber and data security risks if member states embrace an EU-wide approach. The Commission’s 5G toolbox from 2020 showed that nonbinding guidelines issued by Brussels are all too easily ignored.
In capitals such as Paris and The Hague, there is a creeping recognition that the interconnected economic and security challenges that China presents will require new thinking. In mid-December, the Dutch foreign, trade, economy, and defense ministers sent an 11-page memo to members of parliament to update them on the government’s thinking on China. It is an interesting read. The memo touches on a wide range of areas, from cyber and Ukraine to the South China Sea, concluding that China (alongside Russia) represents “the greatest state threat to the security of the Netherlands”. During a recent visit to Paris, I heard similar messages regarding the economic threat that China poses. There is support in the French government for bolder EU measures to tackle the risks from Chinese overcapacities. During a mid-December trip to Beijing, President Emmanuel Macron’s top diplomatic adviser, I was told, informed his Chinese hosts that any diversion of Chinese exports from the United States to Europe would be met with a forceful response. “We need some out-of-the-box thinking at the margins of WTO rules. Everything needs to be on the table,” one senior French official told me.
Biggest Question Mark
Against this backdrop, Germany remains the biggest question mark. The hope is that a change of government there will bring more coherence to Berlin’s positions after three years of foreign policy infighting under Chancellor Olaf Scholz. There are positive signs in the election program of the German conservatives, whose leader, Friedrich Merz, is in pole position to replace Scholz. His Christian Democratic Union (CDU) and its sister party, the Christian Social Union (CSU), for example, are promising to create a national security council to coordinate policy among ministries. It will be important for such a council, if created, to tackle questions of economic security as well, as a forthcoming paper from the Federation of German Industries (BDI) argues. This body could feed into an economic security coordination unit that is being created under the Secretary General of the European Commission. If the Germans, French, and Dutch pull in the same direction, coordinating closely with the Commission, Europe would be in a far better place.
But new structures will achieve little without clear direction from the top. And this is not always evident in the CDU/CSU party program, which makes no mention of the economic security challenge, Taiwan, or China’s support for Russia’s war in Ukraine. Neither does it provide much assurance that the CDU has understood the need for the kind of security-first thinking that is taking place in some other European capitals. The following line from the program worries me because it suggests people in the conservative camp still believe a level playing field with China exists: “We want to preserve our close economic ties to China, so long as they are based on the principle of reciprocity.” More concerning was another message, conveyed to me by someone in Merz’s entourage: “It is overly simplistic to say that because we were too dependent on Russia, that we now need to reduce our dependencies on China.” This, one must hope, is a minority view.