The U.S. president can rapidly utilize all the soft power reserves which the United States has at its disposal.
The trade duel between the United States and China creates a dilemma for the European Union: Does the largest trading bloc in the world have to take a side? And if so, which one?
In theory, the United States is a natural ally of Europe; the two cooperated closely following the end of World War II, creating the multinational institutions which are currently under threat. Nevertheless, Donald Trump’s casual approach to trade diplomacy risks pushing the EU into China’s hands. Brussels’s main strategic interest in this battle is to ensure that the multilateral trade framework, including the World Trade Organization, would survive. At the moment, this concern is shared more by Beijing, than Washington, according to Bloomberg.
In many respects, the United States and the EU are in a similar position with regard to China. The two economies are net importers, and their trade deficit represents respectively $351 billion and $178 billion, according to Bloomberg’s data. Of course, to some extent, the trade gap reflects the different development stages of the countries. A large share of production has relocated to China in order to take advantage of the lower salaries, while local consumption has only now begun to rise.
For a long time now, Western countries have complained that Beijing unfairly subsidizes its industries. With regard to steel, the subject of some of Trump’s tariffs, the U.S and the EU are in agreement that China must do more to restrict overproduction.
Washington and Brussels also share the same concerns with respect to the Chinese policy of technology transfer. They accuse Beijing of insider trading related to intellectual property rights, thus infringing on the business of Western high-tech companies. This was Trump’s excuse last week when he announced tariffs on Chinese imports worth $50 billion. The United States also filed a lawsuit before the WTO, which was later joined by the EU and Japan.
Even though the EU and the U.S. are natural partners in rewriting world trade rules with China, Trump’s strategy risks depriving Washington of a strategic ally. The president has repeatedly criticized the bloc for its trade policy, which, according to him, is “very unfair” in relation to the United States. At the last minute, Trump also exempted the EU bloc from steel and aluminum tariffs. Moreover, the exemption is temporary, while Trump tries to influence European countries in an effort to win concessions from other trade sectors. This is not exactly the attitude that the EU expects from a friend.
It is also essential that the U.S administration shows contempt for the multilateral trading system, a system which the U.S. helped establish. In contrast, China is trying to adhere to the rules of this kind of trading. President Xi Jinping repeatedly presented China as a firm defender of globalization, including a presentation as part of his historic speech at the World Economic Forum in Davos last year. Now Beijing is contesting the U.S tariffs before the WTO – a signal that the country wants to retain the existing mechanism for settling disputes. This position suits the European opposition to countries which deal with trade disputes single-handedly. Last year, Cecilia Malmstrom, a European commissioner for trade, compared a world without the WTO to the “Wild West.”
Beijing’s courtship of the EU has increased lately. Zhang Ming, head of the Chinese Mission to the EU, pointed out last week that “China and the EU, as key WTO members and extensive strategic partners, should take a clear stance against protectionism.” This sounds a bit hypocritical, but it may turn out that this is all the EU can rely on at this stage. There are many areas in which an alliance between the EU and China is possible as Beijing is seeking strategic partners for the New Silk Road initiative. Several countries, including France and Germany, have expressed initial interest in the project, interest which could increase.
Similarly, European countries could take a more active role in the Asian Infrastructure Investment Bank, a Chinese development bank whose purpose is to support the implementation of infrastructure projects in the Asia-Pacific Region. The United States didn’t join this initiative, as it perceives the bank as a rival to the International Monetary Fund and the World Bank. Most European countries are already participating, and it is possible they will increase their investment.
Of course, we are still far from seeing how the EU would turn down the United States and turn to China. Brussels still has many reservations with respect to Beijing’s trade policies, and there are few signs that they will disappear. However, Trump is taking a risk by quickly spending the large reserves of soft power that the U.S. has maintained with respect to Europe since World War II. This may be as harmful as the economic effects of Trump’s tariffs on the U.S. and world economy.