EU’s Vestager: Brussels Is Shedding Its Friendly Stance on Beijing

Margrethe Vestager speaks on Europe waking up to a systemic rivalry with China and how to avert a trade war with Washington.

By , a diplomacy and national security reporter at Foreign Policy.
Margrethe Vestager, the EU competition commissioner, speaks at a press conference in Brussels, Belgium.
Margrethe Vestager, the EU competition commissioner, speaks at a press conference in Brussels, Belgium.
Margrethe Vestager, the EU competition commissioner, speaks at a press conference in Brussels, Belgium, on Dec. 15, 2020. Olivier Matthys/Pool/AFP via Getty Images

Margrethe Vestager, the European Commission’s competition chief, has spent years battling powerful corporations and U.S. tech giants in high-profile antitrust cases with billions of dollars of trade on the line. Now, she’s on the front lines of a new battle in West-China competition, as the Biden administration and European Union work to use their massive regulatory power to counter Chinese influence and revive their own cutting-edge and green technology industries.

Yet despite the common rival, all is not well in U.S.-EU relations. Vestager this week traveled to Washington to avert a brewing trade war with the United States after sharp disputes over U.S. subsidies and tax credits in a massive new spending bill that could harm European industries.

Vestager met with top Biden administration officials, including Secretary of State Antony Blinken, at a joint U.S.-EU Trade and Technology Council meeting to discuss the fallout from the provisions in a major piece of legislation for the Biden administration, the Inflation Reduction Act (IRA). The bill affects U.S. policies and funding on critical minerals, supply chains, electric vehicles, and other industries that, in the EU’s eyes, amount to unfair and protectionist trade practices, all against the backdrop of how the West can take back control of critical industries it has for decades farmed out to China.

Margrethe Vestager, the European Commission’s competition chief, has spent years battling powerful corporations and U.S. tech giants in high-profile antitrust cases with billions of dollars of trade on the line. Now, she’s on the front lines of a new battle in West-China competition, as the Biden administration and European Union work to use their massive regulatory power to counter Chinese influence and revive their own cutting-edge and green technology industries.

Yet despite the common rival, all is not well in U.S.-EU relations. Vestager this week traveled to Washington to avert a brewing trade war with the United States after sharp disputes over U.S. subsidies and tax credits in a massive new spending bill that could harm European industries.

Vestager met with top Biden administration officials, including Secretary of State Antony Blinken, at a joint U.S.-EU Trade and Technology Council meeting to discuss the fallout from the provisions in a major piece of legislation for the Biden administration, the Inflation Reduction Act (IRA). The bill affects U.S. policies and funding on critical minerals, supply chains, electric vehicles, and other industries that, in the EU’s eyes, amount to unfair and protectionist trade practices, all against the backdrop of how the West can take back control of critical industries it has for decades farmed out to China.

Foreign Policy spoke with Vestager about the prospects of Washington and Brussels burying the hatchet over the IRA dispute, the future of trade with Beijing, and how Russia’s invasion of Ukraine served as a wake-up call for Europe on China.

The interview has been edited for length and clarity.

Foreign Policy: Do the United States and EU actually see eye to eye on reducing trade dependency with China?

Vestager: I think we have different takes on it, but we have the same aim. A good example of this is how we approached secure vendors when it comes to deployment of 5G because the U.S. had one approach, which is very direct, to watch Chinese interests. Whereas in Europe, first we did a risk assessment with member states and then, on the basis of that, we made a toolbox for member states to use to make sure that they dealt with trusted vendors when their network was established. Also, you find member states with different legacy systems. Some were newer in deploying them, some had to change many more things, but eventually the result will be the same.

FP: You say there’s been a lot of progress on strengthening semiconductor cooperation and partnership with the United States to reduce overall dependency on China. Are there still areas of disagreement with Washington?

MV: I wouldn’t say so, no. What we need to do is to be much more specific. We have now agreed on principles of transparency for subsidies when it comes to establishing manufacturing capacity. We have the analytical framework set to prevent new shortages from arising, and the idea is that the EU and U.S. will create a strong part of the global ecosystem on semiconductors. So we are entering a more “implementing” phase after the “discussing principles” phase.

FP: Are you concerned that trying to reshore these critical industries could, in fact, down the road, empower China to create its own semiconductor supply chain that will be more immune from Western leverage?

MV: That’s a scenario that one cannot dismiss. So far the strategy has been to make sure that the newest technology is not exported to China so that Chinese production would be one or two generations behind. If you are much more restrictive as to what you want to export, then I take it as a granted that the Chinese will push on with their own development.

FP: Did you make any tangible breakthroughs with the U.S. side over the IRA?

MV: The first important thing was what [U.S. President Joe] Biden said last week, recognizing the concerns on the European side that [the IRA] was never meant to hurt the allies and partners. And then what Blinken said, being more specific on the different areas where the implementation of the IRA can be done in a way so that European businesses are not being discriminated against, I think that is a really good sign.

We will do our homework as well, because there are two effects of the IRA on Europe’s energy crisis. There has always been a difference in how the energy crisis [affects] Europe and the U.S. When you have subsidies for productive investment in the U.S., that becomes really tempting for businesses to increase their presence here, and invest here, instead of in Europe. And then the second concern, if that happens, is that smaller businesses in Europe would find it really, really challenging to move to the U.S.

For them, things are drying out because they can no longer supply businesses who have moved the main part of their business to the U.S. And that cannot be solved within the logic of the Inflation Reduction Act.

We are in the process of looking at the rulebook that we have, which is called the Temporary Crisis Framework, to attract the entire green value chain to invest in Europe. Because the European “Green Deal” is seen as our growth plan, and this is why this is important as well.

And then the third element is the acceleration of the rollout of renewable resources. We have legislation in parliament called Repower EU, which is a lot of financing. And then we have proposals on permitting, which is one of the things that is really delaying rollout.

FP: It sounds like there has been progress with the U.S. but no breakthrough.

MV: I think the first thing was for partners here to realize why we are so excited about the IRA. There was a positive and a negative excitement. We’re very excited about the U.S. joining the fight against climate change. That is a good thing, full stop. The negative excitement comes from the fact that instead of fighting climate change together, increasing our respective industrial bases, there is a very high risk that Europe’s industrial bases will thin out. And that comes from some of the [IRA] provisions on electric vehicles. It comes from the approach to raw materials. It comes from some of the ways that subsidies are given.

And so we pushed on areas where progress needs to be made. The task force that we have set up, they will have to then hammer out the details. They will do that in the next week to 10 days because the guidance on the implementation will have to be, I think, available by the new year.

FP: So you see a clear path to where the U.S. and EU can bury the hatchet on the IRA dispute in the coming weeks?

MV: I definitely do think so. Of course, it would’ve been better had we not been in this situation, but we know each other well. That enables a good working relationship.

FP: In Washington, some lawmakers advocate a full decoupling from China; meanwhile, German Chancellor Olaf Scholz just took a trade delegation to Beijing. Why are the U.S. and EU diverging on their approach to China?

MV: Actually, I think we are converging. Europe has been much more China-friendly if you look back five years. Where already [in Washington] you would see a quite hawkish approach to China, Europe was really China-friendly. That has changed a lot and it’s accelerating right now because I think a lot of people realize that the dependency on Russia for energy has made us very vulnerable and is an integral part of why [Russian President Vladimir] Putin invaded Ukraine. And that also accelerates what is seen as a very strong dependency on China when it comes to raw materials. We’ve been working on that for quite some time.

I think you’ll still see an EU relationship with China, but it has become much more complex over the last five years. We see China as a systemic rival. We are economic competitors with China. And that, of course, is something that we will insist is more fair. We have developed both the foreign subsidy tool and the carbon border adjustment mechanism in order to create more fairness in the trade between EU and China because we see them as competitors.

And last but not least, we are partners in fighting climate change. We need China to come on board because we can negotiate with each other, but we cannot negotiate with the planet.

At the [U.N. climate change conference] COP27, our proposal was to establish a fund to pay for loss and damage [for countries that are the most vulnerable to the climate crisis]. But we want China to pay into that and not have China be a recipient. China today is not the developing country it was allowed to be labeled as when COP meetings first started.

It’s a quite complex relationship, where Europe is getting more and more assertive in saying, “We will not have these single-supplier dependencies or simple choke points because this is not the world we live in today.” You need to be much more concerned and have many more suppliers to choose from for Europe’s security, economic development, and societal cohesion to actually match each other.

FP: So in other words, the war in Ukraine and Europe’s dependency on Russia for energy catalyzed this wake-up call on China?

MV: No, it has been on its way for a very long time. Over the last five years the relationship toward China has changed dramatically, really dramatically.

Robbie Gramer is a diplomacy and national security reporter at Foreign Policy. Twitter: @RobbieGramer

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