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The old relationship between China and Europe is over: Exports of Dutch-made chipmaking machines to Beijing are being blocked, Italy is set to exit the Belt and Road Initiative (BRI) investment pact, and the U.K. is caught in an escalating espionage dispute as it unplugs Huawei Technologies from its 5G networks. And the inability of policymakers to define new terms of engagement is clear by just listening to them talk.
After the semantic splits of the European Union's labeling of China as a simultaneous "partner," "competitor" and "systemic rival" - and the more recent call for "de-risking" rather than costly "decoupling" - this week saw the U.K. define China as a "challenge" rather than a "foe." Meanwhile, Rome called for "mutually beneficial" ties with Beijing after trashing the BRI's 2019 memorandum of understanding as a "villainous" deal, following the late Silvio Berlusconi's call for Italy to move away from a relationship of "structural subordination."
These tongue-twisters capture the continent's fraught relations with China, marked by a widening geopolitical divide after the pandemic and Russia's invasion of Ukraine, but an economic relationship that still looks very intertwined.
European countries are trading more with China relative to the rest of the world since 2017 but in a more lopsided way as deficits increase, as the chart below shows. At the same time, the days of "business as usual" are over: Chinese direct investment in Europe has slumped as governments put up guardrails against technology transfers, anti-competitive practices and economic bullying.
Italy's Giorgia Meloni and the U.K.'s Rishi Sunak are especially important test cases on China. Neither has as big a trading relationship as Germany, but Italy is the only G-7 country to have joined China's BRI - a symbolic coup for Xi - while the U.K. was the first major Western state to become deeply enmeshed with Huawei, according to Andrew Small's book No Limits. Reversing these moves while trying to limit the commercial damage has become a political priority. De-risking, not decoupling, you might say.
Italy's 2019 pact with China was fueled by populist hopes of a powerful deep-pocketed counterweight to Brussels' strictures, but ended up a "fiasco," as analyst Philippe Le Corre tells me. Not much came of the infrastructure ambitions of turning Italian ports into a new Silk Road worthy of Marco Polo, aside from shipments of blood oranges. China's priorities shifted, Italian public opinion soured and E.U. officials were galvanized into continentwide action to screen Chinese cash.
Likewise, in 2019 and early 2020, the U.K. resisted U.S. pressure to block Huawei from accessing UK 5G network infrastructure. In the eyes of the U.S., this stemmed from mistaken post-Brexit overconfidence from British intelligence and telecom operators over their ability to handle the risk of Chinese access to sensitive networks. It took the tectonic political shifts of Covid-19 to trigger a U-turn from Boris Johnson, humbling Britain's spooks and propelling a messy rethink on China.
For all the political capital lost, though, neither Italy nor the U.K. has turned full hawk. Meloni's government fears retaliation from Beijing, which has made some veiled threats recently regarding access to critical raw materials - China still accounts for about 70% of global mining output. The Italian government still hopes it can find ways to show a fairer trade relationship to voters and businesses. London has similar thoughts judging by Foreign Secretary James Cleverly's recent visit to Beijing; he made a point of saying "the U.K. is open for business," according to the Spectator.
Despite the lack of obvious successes from Emmanuel Macron's red-carpet trip to China earlier this year, and indeed China's own slowing growth, no leader wants to unpick the thread of trade too quickly. There is obviously economic interest at work. "China is the first consumer market in the world - no country can ignore that," says Lorenzo Codogno, former chief economist at the Italian Treasury.
But the wild card of the U.S. presidential election is also pushing European politicians to hedge their bets. A year or two from now, will the White House be back to the Trumpian days of "America First," threatening to disengage from Europe? Even a leader like Macron, who prides himself on sweeping analyses of world events, seemed to have few answers last month in an interview with Le Point. The world was in a "multi-crisis," he said: "We're seeing the return of great-power ambitions, a decline in attractiveness of democracies, and a global alignment along U.S.-China divides that put in doubt international law."
A more encouraging response to the uncertain outlook and fuzzy language concerning China might be solidarity: The E.U. has done a good job in crafting common trade tools and common initiatives like the Global Gateway to boost infrastructure investment in emerging markets and counter Chinese influence. Still, this hasn't so far stopped individual leaders from carving a path to Beijing's door, perhaps conscious of Xi's ability to play divide and rule.
Cracks are appearing between Paris, which is keen to take trade action against subsidized Chinese electric vehicle exports, and Berlin, which fears retaliation. Brussels appears to be leaning France's way, after the E.U. said on Wednesday it would launch an investigation into China's EV subsidies.
Nobody wants to hurtle toward a conflict or decoupling with China - there is something of the Cold War's "mutually assured destruction" to this. And yet, nobody sees coexistence with China as enough. When considering the semantic struggle, maybe French philosopher Raymond Aron's four-word maxim from 1948 for the postwar order applies to the current situation for Europe and China: "Improbable war, impossible peace."
Lionel Laurent is a Bloomberg Opinion columnist covering London/Paris/Brussels. He previously worked at Reuters and Forbes.
Previously:
• 05/03/23: France's economy is doing well. Macron is doomed
• 03/02/23: Sweden is ditching cash. Just wait for the fallout
• 01/19/23: A new U.S. law to catch up in EVs raises the stakes for a European response
• 06/29/22: The lights are going out for crypto's laser — eyed grifters
• 12/31/22: Spotify's Joe Rogan drama feels like a Facebook moment
• 12/01/21: Macron is done being the U.K.'s border guard
• 05/20/20: When even small errors can have huge consequences, the Wild West of covid — 19 antibody tests needs a sheriff
