What the end of Chimerica means for Europe
27 Jun 2019|

The escalating rivalry between China and the United States is ushering in a bipolar world. While the past few decades have been defined mostly by cooperation among the world’s leading powers, the next few will be marked by zero-sum competition. Already, globalisation and the deepening of ties between countries are giving way to what has euphemistically been called ‘decoupling’. Countries and regions are sorting themselves into smaller economic and geopolitical units under the guise of ‘taking back control’.

All of these trends are on display in the fight over the Chinese technology giant Huawei, a multinational company that purchases components from the US, Europe, Brazil and elsewhere, sells its products in 170 countries, and is leading the expansion of 5G networks in many parts of the world. Until recently, Western businesses welcomed Huawei’s low-cost, high-quality products; its presence kept US and European technology firms on their toes.

But now, the Trump administration’s ban on sales of key components to Huawei by US firms, and its pressure on US allies to do the same, seems to have triggered a full-scale reversal of globalisation. If Huawei and other Chinese ‘champions’ are to survive, they must end their supply-chain dependency on the US.

Moreover, the Trump administration’s warnings about potential Chinese espionage have prompted many American universities to break ties with Chinese companies and educational institutions. US start-ups are refusing, or being blocked from accepting, Chinese investment. Not surprisingly, Huawei reports that its overseas smartphone sales have fallen by 40%. It now expects to lose US$30 billion in revenue over the next two years.

Behind the Sino-American conflict are two aspiring strongmen competing for primacy: US President Donald Trump and Chinese President Xi Jinping. Each has pursued an agenda of national rejuvenation and fundamentally changed his country’s standing in the world.

Trump believes that the US is suffering relative decline because it benefits less than others from the current global order. Convinced that as China grows stronger, the US necessarily becomes weaker, he has launched a campaign of ‘creative destruction’, undermining institutions such as the World Trade Organization and NATO, and scrapping trade deals like the Trans-Pacific Partnership. The idea is to force individual countries into bilateral renegotiations with the US while it is still in a position to set the terms.

For his part, Xi has radically recast the Chinese political system and put his stamp on economic and foreign policy. Through his ‘Made in China 2025’ policy, he hopes to elevate China from a low-tech manufacturing economy to a global leader in cutting-edge technologies such as artificial intelligence. His plan seems to involve acquiring Western technology and knowhow, and then driving Western companies out of the Chinese market.

The technological revolution Xi envisions would consummate China’s transformation into a big-data dictatorship. The Chinese Communist Party’s power will be secured by a 21st-century surveillance state, currently being tested in Xinjiang Province, where at least one million Chinese Uyghur Muslims are being held in concentration camps. And, beyond China’s borders, Xi hopes to use US$1 trillion in transnational infrastructure investment—his signature Belt and Road Initiative—to establish a sphere of Chinese influence stretching across Eurasia, Africa and the Pacific Rim.

But while Trump and Xi have disrupted the domestic status quo in their respective countries, their geostrategic agendas have merely accelerated developments that were already underway. Economically, the global balance of power has long been shifting from Washington to Beijing, making competition inevitable. What has changed is that the US–China relationship is no longer a complementary arrangement between developed and developing economies. Now that China and the US are increasingly vying for the same prize, a zero-sum logic of competition has set in—Chimerica is no more.

This change has come as a shock to Europeans, who now must worry about becoming roadkill in a Sino-American game of chicken. Recent polling by the European Council on Foreign Relations suggests that most Europeans—including 74% of Germans, 70% of Swedes, and 64% of French—would prefer to remain neutral.

These findings will certainly suit the Chinese. Back in 2003, when the US invaded Iraq, China started looking for diplomatic inroads into Europe. The reason, the influential Chinese academic Yan Xuetong told me, was that, ‘When we go to war with the USA, we hope Europe will at least stay neutral.’ It is thus little wonder that Xi and Chinese Premier Li Keqiang have been making the rounds in Davos and at the Munich Security Conference, pressing for multilateralism. The hope, clearly, is to drive a wedge between Europe and a US governed by Trump’s ‘America first’ administration.

But neutrality is not really an option for Europeans. As the US and China decouple, both sides will ask Europe to pick a side. Moreover, Europeans have begun to take note of the threat posed to their own companies by China’s state-capitalist economic model and closed market. A recent European Commission paper refers to China as a ‘systemic rival’ and proposes a new mechanism for screening Chinese investment.

The problem is that while Europe’s relations with China are cooling, so, too, have its ties to the US. Europeans want to live in a multilateral world where decisions are guided by rules and traditional alliances are observed. Trump and Xi want something else entirely.

Fortunately, although European voters have remained passive, the EU and key European governments have been thinking more about European sovereignty. There’s a growing realisation that if Europe doesn’t have its own competencies in AI and other technologies, European values will scarcely matter.

The question, then, is how to protect European sovereignty in the face of US secondary sanctions, Chinese investments and other external sources of coercion. The answer isn’t obvious. But if Europe succeeds, it could become a coequal power in a tripolar world, rather than merely a pawn in a game played by Trump and Xi.