Closing the Deal or Closing the Door
Executive Summary
While Europe and the United States made considerable progress in improving their coordination on China policy during the Biden administration, “moving in the right direction” is no longer enough. The stakes for the transatlantic allies in the next few years are even higher, as they face deepening alignment among an axis of adversaries, heightened risk of conflict over Taiwan, and a second China shock that poses profound threats to their industries.
Many in Donald Trump’s second administration will take office with the view that the Biden team’s partner-friendly approach with Europe failed to deliver sufficient results, and that it is now time to get tougher. Some EU member states certainly treated the last few years as a holiday from difficult strategic choices on China rather than an optimal window in which to make them. Brussels’ efforts to build more effective approaches on economic security, trade defense, and cyber security were often slow-rolled or undercut by major member-state capitals.
On Russia, it was a source of ongoing frustration in the Biden administration and Congress that the United States consistently took stronger measures against the Chinese entities enabling a European war than did the Europeans themselves. There was also concern that Europe has been slower to adjust to the new paradigm for the global economic order, placing more emphasis on defending the old framework than on co-shaping the emerging one.
The risk now is less that there will be a transatlantic rift over China, given that both sides largely agree on their diagnosis of the problem, and more that we enter a period of either: a) drift, in which efforts at coordination between the two sides continue to fall short, without political priority given to closing the gaps given differences that emerge in other areas, whether a trade war, technology regulation, or Ukraine; or b) coerced alignment, which would entail more concerted US efforts to get the European side in line with its own approach, using tools that it has so far deployed sparingly, from sanctions to tariffs to the Foreign Direct Product Rule.
While a level of US pressure may be required to get the more recalcitrant European actors over the line, the likelihood is that either outcome would result in Beijing’s ability to exploit:
• gaps in approaches to and enforcement of technology controls
• competitive differences between European and US firms
• the emergence of separate “islands” of China-related standards
• a weakening of transatlantic trade and investment ties
• poorly coordinated messaging to deter any moves on Taiwan
• erosion of the Western economic and technological lead in critical sectors
There is the opportunity in the months ahead to establish instead a more dynamic form of alignment, in which deepened cooperation on China policy forms one of the pillars of a new, long-term transatlantic settlement, which would also likely include adjustments on bilateral trade, defense spending, and support to Ukraine.
- On China Shock 2.0. Picking a range of industries that are of greatest importance to Europe and the United States, where Beijing’s push to dominate the sector poses the greatest risks, and adopting an “all-of-the-above” approach to the instruments that the two sides deploy. Ideally, this would take the form of an “economic security” deal that allows for trade-offs that reflect differing transatlantic interests across sectors. These measures would range from traditional trade defense tools, “new" tools such as the EU’s potent foreign subsidies regulation (FSR) and international procurement instrument (IPI), more rigorous and complementary use of qualitative standards (cyber, data, labor, dependency-levels, transparency), the suite of economic security tools (export controls, inbound and outbound screening, research security), third-market-directed measures (to address circumvention and transnational subsidies), development financing tools (in areas such as critical minerals partnerships and telecoms), and measures to ensure that European and US firms have a level of mutual access to each other’s subsidies and procurement markets.
- On China-Russia. A joint squeeze on Beijing’s authoritarian partnerships, which would require a serious ramp-up of pressure on Chinese firms and the reintroduction of the unpredictability that constrained their interactions with Russia in the early months after the invasion. This holds whether the objective is to undercut Chinese support for Russian military industrial capabilities in the medium-term or to exert near-term pressure to help secure a more favorable settlement for Ukraine. It would go well beyond the existing European pinprick measures against small companies responsible for circumvention to instead threaten banks, large Chinese firms with interests in Europe and Russia, and entire jurisdictions such as Hong Kong.
- On Taiwan. Cooperation to strengthen deterrence against China’s use of force, identifying the levers they can pull in the event of an attack, along with areas where Beijing is likely to retaliate. This will require more detailed preparation work than has been possible to date, not only for the most extreme contingencies but for a range of other gray-zone scenarios, and scenarios that involve simultaneity, such as Russian military actions in Europe while the United States is absorbed in a conflict in East Asia.
The last few years have seen significant groundwork laid in each of these areas. The next few months will determine whether the incoming Trump administration can close the deal or if US adversaries prove better at coordinating to counterbalance Western power than the transatlantic allies at cooperating among themselves.