An Analysis of US-European Strategic Collaboration in Economic Competition Against China

Xin Hua

Europe as an important part of the US-led global strategic alliance has been a target for US attempt to include in its strategy as a counterweight against China in the context of intensifying China-US competition and the prolonged Russia-Ukraine conflict， so as to form the US global strategic collaboration architecture to contain China through the echoing of the US-European strategic collaboration with the QUAD and the AUKUS painstakingly managed by the US. Meanwhile， the changing situation has forced the EU to reflect on its vision of strategic autonomy and to see the US as Europes most powerful and most important strategic partner. Although there is no fundamental strategic security conflict between the two sides， China and Europe witness an increasing evident competition in the economic sphere. In that context， Europe is gradually moving closer to the US and their strategic collaboration against China is becoming increasingly institutionalised. However， theres still a lack of trust between the US and Europe. Since mid-September 2022， the European energy crisis and the US Inflation Reduction Act have resulted in a deepening of existed conflicts between the two sides， and the uncertainty of US-European strategic collaboration against China has become more pronounced.

US-European Consensus on China Spurred by Russia-Ukraine Conflict

As Chinas technological level， economic size and international influence all continue to grow， the US and Europe gradually see China as an important rival in international economic and strategic competition. The Biden administration views China as the biggest geopolitical threat faced by the US in this century， while the EU has defined China as an economic competitor and institutional adversary since 2019. After the outbreak of the Russia-Ukraine conflict in February 2022， US Treasury Secretary Yellen， Secretary of State Blinken and others have repeatedly signalled to Europe that they want both sides to take concerted action to deal with the challenge from China， which has been well understood and followed closely by the European political elites.

From February to the end of 2022， the US and European policy makers met frequently， with at least one bilateral dialogue at deputy ministerial level or higher per month. Through these bilateral meetings and communications， the US and Europe have intensified their consultations and exchanges of views， so as to form a strategic consensus on economic competition against China. The US and Europe believe that， on the one hand， economic globalisation and global governance through universal multilateralism are no longer sustainable and must be replaced by small-group multilateralism; on the other hand， it is preferable to sacrifice economic efficiency in order to significantly reduce dependence on China and to increase supply chain resilience in order to ensure their own economic security. In other words， the US and Europe see each other as partners with similar ideology and as actors that can be trusted geopolitically. Therefore， its necessary for both sides to work together to build an exclusive clique or club in technological research and development， industrial upgrading， trade and investment， foreign development assistance， among other areas. Within the clique or club， they have formed a structure without tariff barriers for close cooperation， while outside the clique or club， they jointly adopt coercive or confrontational and forceful means to restrict or even undermine Chinas economic development， thus building their own geostrategic advantage.

US-European Collaboration against China in Technological and Industrial Spheres

The emerging technologies and frontier industries represented by artificial intelligence are drastically changing the face of economic operation， with semiconductor chips being an important carrier of artificial intelligence technology. Therefore， the US and Europe are currently both focusing on the semiconductor industry and attempting to build a bilateral collaboration structure against China. The 2022 chip bills introduced in the US and Europe both target at China. The European Parliament released a study report on the European Chip Act on July 7， 2022， pointing out the necessity to properly address the “new geopolitics of the supply chain” in order to reduce dependence on China. The Biden administration， for its part， has made clear that one of the purposes of the Chips and Science Act is to “strengthen the supply chains and counter China”. In October the same year， the Biden administration issued programmatic documents including the National Strategy for Advanced Manufacturing and the National Security Strategy， arguing that the semiconductor industry determines the international competitiveness of the US economy and listing it as one of the main points of focus for carrying out strategic competition against China.

In this context， the EU in hope of obtaining the US assistance and support in the semiconductor industry has clearly put forward the concept of a semiconductor partnership， which envisages collaboration with like-minded partners such as the US， Japan， ROK and Taiwan of China， in order to build a resilient semiconductor supply chain， which has gained the US approval. At the second and third meetings of the US-EU Trade and Technology Council in May and December 2022 respectively， both sides made clear their intention to increase the transparency and resilience of their respective semiconductor value chains， to set up an early warning mechanism for changes in semiconductor production， and to develop production collaboration systems. In August， the Biden administration put forward the concept of the “chip 4 alliance” to collaborate with Japan， ROK and Taiwan of China on chip development and production. Europe followed suit， introducing the EU-ROK Digital Partnership in November. The US and Europe are currently discussing on the vision of an “international partnership on semiconductors” to accelerate the formulation of a new policy structure.

At the same time， the US and Europe are also attaching increasing importance to struggling for dominance of ICT standards and related industry norms. In 2022， US think tanks including the German Marshall Funds， the Center for Strategic and International Studies （CSIS）， the Center for a New American Security （CNAS） and the Manufacturing Institute （MI）， European think tanks including the European Parliament Research Department and the European Council on Foreign Relations （ECFR） as well as major corporations and interest groups have all released reports on institutionalising US-European collaboration to counteract Chinas influence. In the Declaration on the Future of the Internet released jointly by the US and Europe on April 28， 2022 as well as at the second and third meetings of the US-European Trade and Technology Council， it has been all mentioned to hold regular consultations in areas of artificial intelligence， quantum computing and information and communications， with a view to jointly building a system of internationally accepted standards.

US-European Collaboration against China in Trade and Investment Spheres

The US-EU trade and investment collaboration against China involves supply chain re-routing， export controls and investment reviews， etc. The US and Europe have been discussing ways to reduce their “supply chain dependence on China” as economic competition against China has continued to intensify. With the repeated outbreaks of COVID-19， the topic has been elevated to the level of maintaining economic security. Enhancing supply chain resilience has become a primary objective for US and European policy makers. The supply chain strategy re-designed has evolved from “Re-shoring” to “Near-shoring” and then to “Friend-shoring”.

The Trump administration has been enthusiastically discussing the idea of “Re-shoring” （back-to-shore production） since 2018. At the end of 2020， a number of think tanks in the US and Europe focused on the concept of “Near-shoring”， advocating to relocate the supply chains of “strategic industries” to small and medium-sized economies in Latin America and Eastern Europe that are closer to the US and Western Europe， which was approved by Biden. Since April 2022， the US and European economic policy makers， represented by US Treasury Secretary Yellen and European Central Bank President Lagarde， have frequently discussed the so-called “Friend-shoring”， advocating the transfer of key production links in emerging technologies and industries such as healthcare to “countries with similar values” as well as the restructuring of the division of production systems in the US， Europe and the world at large based on political relations. As a result， Taiwan semiconductor maker TSMC Group decided in December to launch a new investment project in Phoenix， USA， investing US$28 billion in building a new plant.

Meanwhile， the US and Europe have continuously tightened export controls against China， with the intention to prevent China from acquiring high-tech products and production equipment， technology and information related to emerging industries such as artificial intelligence， quantum computing， information and communications and new-energy vehicles. In 2022， the US took further actions to put a large number of Chinese high-tech enterprises in three blacklists for embargoes and surveillance imposed by the US government， namely the “Entity List” of the US Department of Commerce， the “List of Non-Specifically Designated Chinese Military-Industrial Complex Companies” of the Department of Treasurys Office of Foreign Assets Control and the “List of Chinese Military Companies Operating Directly or Indirectly in the US” of the Department of Defence. On October 7， 2022 the US Department of Commerce announced an unprecedentedly strict ban on the export to China of three types of chips that can be used in current supercomputers， as well as on the export of production equipment and technology to China and on technicians working for China. Moreover， the US Federal Communications Commission imposed a blanket ban on the use of equipment from Chinese companies Huawei and ZTE by US organisations on November 25. The EU has gathered up part of the export jurisdiction once under the control of individual member states on to the EU level.

The US and European policy makers are also accelerating consultations in the hope to form a coordination mechanism against China. The US-European Trade and Technology Council discussed in detail its plan for cooperation on export controls at its second and third meetings in May and December 2022 respectively. In the meantime， the US and Europe are gradually strengthening the bilateral collaboration on the management of cross-border data flows. Moreover， the US and Europe are copying each others practice in gradually strengthening and specifying their investment reviews in order to prevent Chinese companies from acquiring their “strategic assets”. The US issued the Foreign Investment Risk Review Modernization Act in 2018 and Executive Order 14083 on September 15， 2022 to further strengthen the “national security risk” review of foreign investment. The EU has introduced a framework regulation on investment reviews in as early as 2019 and a document in March 2020 to prevent the so-called “third-country capital” from taking advantage of COVID-19 to acquire “strategic assets”. The EU launched its annual report on investment reviews in September 2022， re-emphasising the need to cooperate with the US.

Nowadays， the US and Europe are pursuing a model of small-group multilateralism， intending to unite countries with similar values to form exclusive economic cooperation blocs， with the intention of creating an alternative to the existing global multilateral system and inter-regional cooperation structures in order to exclude non-Western powers like China. The two rounds of G7 and NATO summits in 2021 and 2022 proposed the scheme of Build Back Better World （B3W） and the Partnership for Global Infrastructure and Investment （PGII） initiatives with the clear intention of side-lining China. Meanwhile， the Biden administration has taken further actions to build a US-led Indo-Pacific cooperation structure， side-lining China in a progressive “sausage slicing” manner， while Europe follows suit and works closely with it. In May 2022， the US announced the launch of the Indo-Pacific Economic Framework， which it claims will set new rules for the world economy in the 21st century and which it hopes will achieve goals such as infrastructure cooperation and supply chain resilience. The European Parliament then adopted a Resolution on the EU and the security challenges in the Indo-Pacific on June 7， claiming that “China poses a threat to EU interests in the Indo-Pacific region”， followed by an European Parliament Resolution on the Indo-Pacific Strategy in the Area of Trade and Investment on 5 July， echoing the US.

US-European Strategic Collaboration to Contain China Has Its Limits

Currently the US and Europe are containing China through three mechanisms for strategic collaboration： firstly， the Trade and Technology Council with ten bilateral working groups for regular communication and consultation; secondly， the bilateral dialogue on China and the US-Japan-EU trilateral trade ministers talks， discussing and coordinating their positions toward China on an irregular basis; thirdly， G7 and NATO， which mainly focus on major strategic matters. Although the frequency of the collaboration between the US and Europe against China has been increasing in recent years， their strategic cooperation against China has seen some restrictions.

Firstly， there are implicit conflicts and rivalries between the US and Europe. On the one hand， a classic “alliance dilemma” exists between the US and Europe， in which the US spares no efforts to involve Europe in the military and defence matters in the Indo-Pacific region， while Europe is reluctant to expend its resources. On the other hand， it is fair to say that the US and Europe have been engaged in constant secret wars in the economic field， with more competition than cooperation. Europe has always wanted the US to support its own development of semiconductor industry since the beginning of 2022， yet the US response has been lukewarm， to the strong dissatisfaction of Europe. The European energy crisis triggered by Russia-Ukraine conflict has been dragging the European economy into a quagmire of stagflation since September 2022， and instead of offering help， the US has sharply increased the price of energy delivered to Europe. Whats more， the US is accelerating the implementation of the Inflation Reduction Act at this time， subsidising US electric vehicle manufacturers by a big margin to attract the flow of European manufacturing capital to the US， leading to the danger of “industrial hollowing out” in Europe， which has aroused anger among European policy makers. Therefore， the US and Europe can share mutual trust when faced with more intense external geopolitical conflicts. Once the interests of both sides are uneven， hidden suspicion will be inevitable.

Secondly， there has been a tug-of-war and a game between the business community that relies on the Chinese market and the political elite that advocates being tough on China. Chinas mature infrastructure， convenient logistics system， complete manufacturing sector， stable workforce and huge market volume are highly attractive to the US and European business community. Both China-US and China-EU trade in goods reached record highs in 2021， while EU investment in China increased by 123.7% year-on-year from January to September 2022. The bilateral trade between China and the EU as well as total EU investment in China are likely to achieve a new record in 2022， which shows that the so-called “decoupling” and “supply chain resilience” of the US and Europe towards China have not been positively received by the business community.

With the Russia-Ukraine conflict still in flux， Europe faces the risk of “industrial hollowing out” and economic stagnation internally and a trend towards fragmentation of the geostrategic environment externally， and thus remains dependent on the US in defence and strategic areas. With the intensification of the strategic game between the US and China， the US will continue to rely on Europe， which Biden sees as “Americas most valuable strategic asset”. As a result， the US-EU strategic collaboration against China will continue to move forward， but the US-EU collaboration against China is also subject to great uncertainty. In view of that， China should persistently carry out public and commercial diplomacy with the US and Europe， so as to strengthen the economic and social basis for the development of relations with the US and Europe. In the face of the treacherous geo-strategic game and international economic competition， China can remain invincible as long as it maintains sufficient strategic determination and adopts active and effective countermeasures.

Xin Hua is Director of Center for European Union Studies， Shanghai International Studies University