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Will Europe and the United States Gang Up on China?

The test of whether to grant Beijing market-economy status may be an interesting clue as to the future of transatlantic relations.

Chinese President Xi Jinping tours a 737-800 at the Boeing assembly line in Everett, Washington. Boeing has reached deals with Chinese firms to sell 300 aircraft and set up a completion center in China, state media and its local partner said Wednesday, as President Xi Jinping began a visit to the United States.          AFP PHOTO / POOL / MARK RALSTON
Chinese President Xi Jinping tours a 737-800 at the Boeing assembly line in Everett, Washington. Boeing has reached deals with Chinese firms to sell 300 aircraft and set up a completion center in China, state media and its local partner said Wednesday, as President Xi Jinping began a visit to the United States. AFP PHOTO / POOL / MARK RALSTON

In 2014, the German Marshall Fund of the United States, a Washington, D.C.-based think tank, asked Europeans how they wanted to manage their country’s relationship with China. At the time, there was little inclination toward transatlantic cooperation: Just 9 percent of the publics in the 10 European Union nations surveyed wanted to work closely with the United States on China. Roughly four in 10 favored working closely with other members of the EU, and 44 percent expressed a desire to act independently of both Brussels and Washington in dealing with Beijing. (Americans were more supportive of transatlantic cooperation in handling China: 42 percent wanted to work closely with the EU, while 53 percent favored an independent approach.)

But what a difference two years make. Now, China is moving to the center of the transatlantic discourse. The alliance built to confront the Soviet Union during the Cold War finds itself wrestling with problems generated by China, and publics on both sides of the Atlantic are beginning to view China negatively: 54 percent of Americans voice an unfavorable opinion of China, according to a June 2015 survey by the Pew Research Center, a view shared by fully 50 percent of the people in the six most populous countries in the EU. This is a significant change from 2006, when 52 percent of Americans had a favorable opinion of China, as did 65 percent of British respondents, 60 percent of French, and 57 percent of German.

These converging views matter. Consider trade, for example. Later this year, Washington and Brussels must decide whether to grant Beijing market-economy status under the rules of the World Trade Organization. This arcane and legalistic determination could make it harder to bring trade actions against China. If the EU grants China such status and the United States denies it, Beijing could find it easier to dump products in one or the other market to ease its manufacturing overcapacity problems. Moreover, the United States and the EU are negotiating a free-trade agreement — the Transatlantic Trade and Investment Partnership — which would set the technical and regulatory norms for deeper global economic integration worldwide. President Barack Obama has long argued that the United States and its allies need to agree to these rules before Beijing sets them.

Meanwhile, slowing Chinese economic growth is also rippling through the transatlantic economy thanks to the dramatic decline in the Chinese stock market. And Beijing’s territorial ambitions in the South China Sea challenge U.S. naval interests in the region and worry European elites committed to freedom of navigation. Cooperation between the EU and the United States would help both sides work constructively on these issues.

In the United States, much of this negative sentiment comes from public concerns about the economic challenge that China poses. Two-thirds of Americans consider the large amount of U.S. debt held by Beijing to be a very serious problem for the country, according to a September 2015 Pew survey. Six in 10 Americans think the loss of U.S. jobs to China is a very serious problem. And 52 percent considers the U.S. trade deficit with China — which is why Beijing holds so much U.S. debt — a very serious concern. Indeed, the trade deficit reached $338 billion in the first 11 months of 2015, an increase of 7.2 percent over the same period in 2014.

Europeans may have less reason for concern. The EU trade deficit with China grew by just 4 percent between 2013 and 2014, from $181 billion to $189 billion (2015 data is not yet available), and is down 19.5 percent since 2010, when it was $223 billion — while the U.S. trade deficit with China is up 25.7 percent over the same period.

Meanwhile, both Europe and the United States are growing recipients of Chinese foreign direct investment. Chinese investment in the United States rose to a record $15.7 billion in 2015, up 30 percent from 2014, with mergers and acquisitions (M&A) accounting for $14 billion. More than $22 billion of acquisitions are already in the pipeline for 2016. But both the U.S. and European publics are leery of foreign M&A: a median of only 36 percent of Europeans and 28 percent of Americans believe that foreign-led mergers and acquisitions from any nation are good for their country. With growing negative sentiment toward China among both American and European publics, this may bode ill for public receptivity to future Chinese M&A, especially if it leads to consolidation, job losses, and technology transfer back to China.

Finally, both Europeans and Americans are critical of China’s human rights record. A median of 86 percent of Europeans from the six most populous EU nations and 84 percent of Americans believe that the Chinese government does not respect the personal freedoms of its people. And such criticism is growing in parts of the transatlantic community. It is up 10 percentage points in the United States since 2008, 11 points in Spain, and 8 points in Germany.

That’s not to say that the EU has found a unified approach to dealing with China. A new report by the European Council on Foreign Relations is quite critical of European governments’ dealings with the Middle Kingdom. “Despite the widespread acceptance of the need for a common European approach to China and other Asian nations,” said François Godement, head of the council’s Asia and China program, “2015 saw open competition between Europe’s member states chasing bilateral economic benefits with Beijing.”

The looming decision that both Brussels and Washington has to make on granting China market-economy status may prove the first test of what cooperation is feasible. Other tests are sure to follow.

Image credit: Mark Ralston – Pool/Getty Images

Bruce Stokes is an associate fellow at Chatham House and a nonresident fellow at the German Marshall Fund of the United States. Twitter: @bruceestokes

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