US and China face off with Brussels as ref

As the United States and China clash, both want Europe on their side. Will the EU pick one or mediate?

One gets the impression that the verses Rudyard Kipling wrote to his son in 1895 in his celebrated poem If are addressed to the Old Continent: “If you can keep your head when all about you/are losing theirs and blaming it on you,/ if you can trust yourself when all men doubt you“. All negotiating tables are cluttered with conditional prepositions: if Brexit, the Euro, Juncker… The grammar of doubt forces Brussels not to lose its mind, even though the attacks it has to ward off come thick and fast and from every direction.

Even a very succinct analysis of the three players involved leaves no doubt about whether a mediations is on the cards. China, the United States and Europe vie – without any other significant competition – for first place in the economic stakes: GDP, import-export, investment origin and destination, financial supremacy. In a globalised economy its difficult to imagine how one country’s decline can avoid having repercussions on the others. Among the most eminent voices, the latest address by Mario Draghi to the European Parliament left little room for doubt: China can be of assistance for Europe’s revival and its growth stimuli are going in the right direction to support internal demand. Clearly Germany’s exporters felt reassured. As predicted, China has reduced its growth rate, which last year stood at 6.6%, the lowest it’s been since 1990, right after the Tien An Men repression and the brief period of international isolation that followed. Backed by conspicuous reserves, since last summer Beijing has launched a series of expansive tax and monetary measures. The latest, at the start of 2019, has reduced the size of compulsory reserves for commercial banks, freeing up 117 billion dollars that have been injected into the economic system.

Although hard to assess, the tariffs imposed on China by the Trump administration have depressed growth and forced Beijing to engage in a thorny negotiation where the countermeasures will be offset by concessions. In actual fact, according to traditional analyses of internationalisation, the imbalance appears to be unmanageable: the United States imports goods worth as much as 506 billion dollars (2017) from China, while the flow in the other direction amounts to 130 billion. In all likelihood the imposition of tariffs on Chinese goods is a short term measure imbued with propaganda: but that doesn’t mean it doesn’t harm who has to endure it. It will certainly not revive the factories in the States because there will always be another country besides China where multinationals can relocate. Yet the problem of the commercial imbalance remains. The tariff measures seem to be a wrong answer to a real problem. In this context, a European mediation would seem to be both possible and advisable. Détente would win out, trade would increase as would collective wealth. Brussels has the right prerogatives to get involved: it has been dealing with Washington for centuries and is on pretty good terms with Beijing. It would be called on to manage a fairly complex situation: “And yet don’t look too good, nor talk too wise“, to quote Kipling’s words once more.

However, the negotiation process would seem very difficult and the path towards mediation perhaps impractical. There are two main obstacles: the state of the European Union and the willingness of China and US to assign it such a role.

The ideological basis for the negotiations can be traced back to shared values such as free market and the absence of restrictive measures. Funnily enough Xi Jinping is more of a proponent that Trump, but the United States’ social set up can’t be denied. Furthermore China stands as the main destination of productive investments, therefore an unquestionable magnet for American multinationals. Today, in the value chain, all economies are increasingly interconnected and it would be difficult for a win-win situation to prevail.

The alternative would be a constant tension and the defeat of one of the contestants – a classic zero-sum game – as it could mean losses for both parties. The pre-requisites to act theoretically are in the hands of Brussels: prestige, unity, complexity management, strength and size.

But can these attributes be found within the Commission’s chambers, or in the intergovernmental summits, or on the benches of its parliament? The answer is disappointing. Never before has Europe’s prestige suffered such a marked decline. The European construct, which had raised hopes of a vast, free and democratic society, is now divided, devoid of a plan and wrapped around itself. Many criticisms vented against it – “Twisted by knaves to make a trap for fools” – are uttered by festering nationalisms, the enemies of Europe and integration. Other are permeated with a rational yet bitter scepticism. What authority can be claimed when unemployment is high, inequality on the rise, immigration an irreconcilable problem and human rights are maintained but no longer considered a universal value? What unity can be fielded when on every international issues divisions prevail?

The image proffered of China offers a range of different positions held by governments and public opinions: the United Kingdom and Scandinavia are critical of its politics while attracting its capital, Germany relies on economic relations, France waves Tibet’s banner and in the meantime sells arms, Eastern Europe refrains from criticism and tries to secure the terminals for the New Silk Road. Italy’s citizens are still very disrespectful of all that’s Made in China, while the government seeks to make economic deals. This kind of division would seem to be clearly fatal for any attempt at mediation. The military might is concentrated in London and Paris: the idea of it being shared is inconceivable. Economic solidity lies with Berlin, where the aim is record trade surpluses with everyone, from Beijing to Washington and even within Europe. “If you can make one heap of all your winnings“: when directed to Brussels, the poet’s appeal falls on deaf ears. Europe has achieved an amazing, momentous, admirable compromise between capitalism and democracy. It is now powerless to launch a new one between China and the United States, partly because the two subjects are much more resistant.

The two powers are not ostensibly interested in any form of mediation, if anything they each want Europe to be on their side. They represent states imbued with nationalism, though each in their own way, and show little readiness to delegate any competence outside its own borders, whether federal or centred around Beijing. They don’t understand the Schengen treaty, the challenge of the single currency or the Greek tragedy. What’s even more baffling for them is how economic integration has won out over a political one. The real nature of the controversy between China and the United States is after rooted in politics and strategies. The tariffs, the press conferences, the tweets belong to the required arsenal; effective perhaps, but of secondary importance. What is really at stake here is the balance of power now that China has taken its place on the global stage.

After years of silent growth, which has benefitted many, the Dragon is now strong enough to collect its dividends. It’s these ambitions that have the White House concerned. Internally, China has launched its strategic plan – Made in China 2025 – which will restructure its industrial system, consigning the “world’s factory” to history and steering it towards more sophisticated and profitable goals. On the international front it is showing its muscle and raising an olive branch in the South China Sea and along the titanic New Silk Road. How these projects pan out will decide how power is shared in the future. A mediation may be possible, but it would require unity and political potency, two assets that Brussels can’t bring to the table. Kissinger claimed that when he wished to speak with Europe, he didn’t know which number to call. Beijing flies directly to Berlin. Without a resolute push forward, it may be that our dear old continent is granted a role on the sidelines, where, ironically enough, even Kipling will no longer be a European poet.

This article is also published in the March/April issue of eastwest.

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