A Transatlantic China Policy Can Succeed Where the U.S. and Europe Would Fail Separately

Jeffrey Rathke

Jeff Rathke

President of AICGS

Jeffrey Rathke is the President of the American Institute for Contemporary German Studies at the Johns Hopkins University in Washington, DC.

Prior to joining AICGS, Jeff was a senior fellow and deputy director of the Europe Program at CSIS, where his work focused on transatlantic relations and U.S. security and defense policy. Jeff joined CSIS in 2015 from the State Department, after a 24-year career as a Foreign Service Officer, dedicated primarily to U.S. relations with Europe. He was director of the State Department Press Office from 2014 to 2015, briefing the State Department press corps and managing the Department's engagement with U.S. print and electronic media. Jeff led the political section of the U.S. Embassy in Kuala Lumpur from 2011 to 2014. Prior to that, he was deputy chief of staff to the NATO Secretary General in Brussels. He also served in Berlin as minister-counselor for political affairs (2006–2009), his second tour of duty in Germany. His Washington assignments have included deputy director of the Office of European Security and Political Affairs and duty officer in the White House Situation Room and State Department Operations Center.

Mr. Rathke was a Weinberg Fellow at Princeton University (2003–2004), winning the Master’s in Public Policy Prize. He also served at U.S. Embassies in Dublin, Moscow, and Riga, which he helped open after the collapse of the Soviet Union. Mr. Rathke has been awarded national honors by Estonia, Latvia, and Lithuania, as well as several State Department awards. He holds an M.P.P. degree from Princeton University and B.A. and B.S. degrees from Cornell University. He speaks German, Russian, and Latvian.

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jrathke@aicgs.org

Yixiang Xu

New Research Initiative Fellow

Yixiang Xu is the New Research Initiative Fellow at AICGS, leading the Institute’s work on U.S. and German relations with China. He has written extensively on Sino-EU and Sino-German relations, transatlantic cooperation on China policy, Sino-U.S. great power competition, China's Belt-and-Road Initiative and its implications for Germany and the U.S., Chinese engagement in Central and Eastern Europe, foreign investment screening, EU and U.S. strategies for global infrastructure investment, 5G supply chain and infrastructure security, and the future of Artificial Intelligence. His written contributions have been published by institutes including The Chinese Academy of Social Sciences, The United States Institute of Peace, and The Asia Society's Center for U.S.-China Relations. He has spoken on China's role in transatlantic relations at various seminars and international conferences in China, Germany, and the U.S.

Mr. Xu received his MA in International Political Economy from The Josef Korbel School of International Studies at The University of Denver and his BA in Linguistics and Classics from The University of Pittsburgh. He is an alumnus of the Bucerius Summer School on Global Governance and the Global Bridges European-American Young Leaders Conference. Mr. Xu also studied in China, Germany, Israel, Italy, and the UK and speaks Mandarin Chinese, German, and Russian.

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yxu@aicgs.org | 202-770-3262

China dominates American foreign policy discourse, driven by a broad bipartisan consensus that the United States has for too long turned a blind eye to China’s growing influence and global ambitions. In polarized times, this is one argument President Trump has won. Similar concerns are brewing in Europe, which recognizes China’s industrial policy as a threat to Europe’s economic model, increasingly grasps the security implications of Chinese aspirations for technology dominance, and observes with consternation the growing political influence that allows Beijing to thwart European Union consensus on issues like human rights in China or territorial claims in the South China Sea.

The United States and Europe cannot handle these challenges individually. The U.S.-China trade deal shows the inadequacy of Washington going it alone: it achieves a degree of managed trade to increase the sales of certain U.S. products, but Washington failed to make progress on the long-term issues at the heart of U.S. (and European) concerns, such as subsidies and the role of state-owned enterprises. This provides a foundation for a transatlantic China policy, if Washington and its European partners are prepared to pursue it. Representing nearly 50 percent of global economic output, the United States and Europe have vastly greater prospects for influencing China’s behavior if they act together. The transatlantic partners need a new model that strengthens executive branch collaboration, engages legislatures more deeply, and incorporates perspectives from key industries.

Representing nearly 50 percent of global economic output, the United States and Europe have vastly greater prospects for influencing China’s behavior if they act together.

A transatlantic approach cannot be a containment strategy—a Cold War 2.0 with China is as impracticable as it is inappropriate. It is essential to target the actual elements of competition where the transatlantic community has shared interests, instead of framing it as a civilizational confrontation that few U.S. allies accept and that would require European partners to stake their extensive economic engagement with China. This will require clarity about priorities and recognition of the very real constraints on U.S. policy. The focus should be threefold: modernizing rules to provide a level economic playing field; staying ahead in harnessing critical technologies that will shape the future and could alter the relationship among individuals, firms, and the state; and defending open, democratic systems. The U.S. should agree with key national governments like Germany and France, and at the European Union level, to identify and prioritize their top common interests that they can pursue jointly on the basis of shared risk and responsibility.

In order to construct a transatlantic China policy, Europe needs to be prepared to pursue joint long-term interests. The United States must also rediscover the ability to lead by designing and implementing policies that attract broad commitment. Overcoming the trust deficit is hard to conceive unless the U.S. halts its counterproductive trade policies toward the EU, and European partners are able to prioritize the systemic challenge from China above near-term economic interests. To get there, policymakers need to take the pragmatic route, as they have in the recent joint proposal by the U.S., the EU, and Japan on new WTO subsidy rules, which provides an excellent example for policy cooperation.

Overcoming the trust deficit is hard to conceive unless the U.S. halts its counterproductive trade policies toward the EU, and European partners are able to prioritize the systemic challenge from China above near-term economic interests.

One of the most relevant issues for transatlantic cooperation is foreign investment screening. In large measure to address Chinese state-backed strategic acquisition of assets and key technologies, an April 2019 EU foreign investment screening regulation improves information-sharing among European countries but stops short of binding EU-wide rules. Europe in this respect lags behind the U.S., which in 2018 strengthened the authorities of the Committee on Foreign Investment in the United States (CFIUS) through the passage of the Foreign Investment Risk Review Modernization Act (FIRRMA). However, in the U.S. Treasury’s most recent annual CFIUS report, it shows a 38 percent spike in national security investigations of European foreign investments in the U.S. in 2017, while China reviews increased only 11 percent—this is an indication that something is amiss in how the U.S. seeks to protect critical assets. But it also highlights an opportunityU.S. law requires CFIUS to consult with allies and partners to protect the national security of each side, and it directs the President to work with them to strengthen investment screening and the multilateral export control regime. The U.S. government should upgrade ad hoc discussions with European partners to interagency bilateral consultations with top-level political endorsement. This should include information sharing on screening measures, individual cases, as well as adapting export control frameworks.

The German struggle to formulate an effective policy on 5G communications illustrates the need for a coordinated European and transatlantic approach. Chancellor Merkel’s government in 2019 tried to ignore voices at home and from the United States warning that the future digital backbone of the country’s advanced economy could be compromised if Chinese suppliers like Huawei played a role. Merkel attempted to ignore Huawei’s obligation to hand over information to the Chinese government, and German regulators devised an approach based on technical evaluation rather than the statutory obligations of foreign suppliers. It sparked an uncharacteristic backlash within Merkel’s own party and across the German political system, which now is forcing her to consider tougher rules. Merkel is temporizing as she often does in a political impasse and is seeking to delay a national decision on Huawei, even as Beijing’s threats become increasingly explicit that it will punish Germany and other countries that place meaningful limits on Huawei’s 5G participation. A March EU summit may bring greater European alignment on the issue on the basis of the European Commission’s recently released “toolbox” recommendations. (It is a bitter irony for Washington that the EU vilified by President Trump has proven more constructive on 5G than the United Kingdom, America’s closest ally.) European exposure to the Chinese economy means that Germany and other European nations require political solidarity to resist Chinese pressure. The U.S. and the EU should create a joint public-private effort, including native 5G technology suppliers and service providers, to mitigate 5G risks and provide a basis for greater European cohesion. The EU and the U.S. should combine their respective advantages in hardware manufacturing and software design, respectively, and use appropriate trade and investment measures to promote consumption of European (hardware) and U.S. (software and components) 5G products, which would ensure greater security while raising their international competitiveness.

The U.S. and the EU should create a joint public-private effort, including native 5G technology suppliers and service providers, to mitigate 5G risks and provide a basis for greater European cohesion.

Artificial Intelligence (AI) is another emerging issue that warrants close transatlantic attention. Much like 5G, Beijing has adopted a whole-of-nation approach to achieving global leadership in AI. Both the EU and the U.S. are concerned with the privacy and human rights implications of China’s data gathering and massive public surveillance. The European Commission is moving forward to devise new recommendations for AI regulation, a markedly different approach from the U.S., which gives its innovation ecosystem much more freedom to develop the technology. Adopting extensive regulations akin to the EU’s General Data Protection Regulation (GDPR) is one possibility, in which the EU could use its leverage as a “regulatory superpower” to try to shape the employment of AI. While the EU’s 500 million consumer market greatly extended GDPR’s global reach, the lack of EU leadership in AI development may significantly curtail the EU’s ability to shape international regulations alone. Instead, sweeping regulations could limit Europe’s ability to innovate before the technology is widely applied.

The wide range of potential AI applications creates a vital opportunity and reward for transatlantic cooperation. An effective AI partnership between the EU and the U.S. should prioritize a set of AI ethics standards grounded in liberal democratic values. At the same time, the EU and the U.S. should coordinate their efforts in creating compatible transatlantic regulatory frameworks in order to help U.S. and European companies to compete with China’s strong position in AI commercial applications.

An effective AI partnership between the EU and the U.S. should prioritize a set of AI ethics standards grounded in liberal democratic values.

Some challenges lend themselves best to concerted action by governments. Where there is an established legal framework, clear authorities, and a functioning policymaking system, it is the most effective way forward. But dysfunctions in the U.S. administration, indecisive European national leaders, and a patchwork of national and EU authorities create an uncertain policy landscape lacking well-worn paths of bilateral or multilateral cooperation on the major challenges of the future. In those circumstances the legislative branches have an especially important role to play—the German Bundestag, for example, has been crucial in forcing a reassessment of the German government’s approach to 5G. Stakeholders in the transatlantic community of legislatures and industries urgently need to find alternative platforms of consultation in order to bring their perspectives and develop new avenues of transatlantic cooperation.

The U.S. Congress, key European parliaments, and in certain cases the European Parliament should establish regular dialogue to share information on issues such as investment screening, export controls, artificial intelligence and emerging technologies. In some instances, special committees like the U.S. Congressional AI Caucus and the Bundestag Study Commission on AI could consult regularly to reduce divergences in legal and regulatory approaches and create an environment that reinforces transatlantic competitiveness in emerging technologies.

There are also opportunities for the U.S. and Europe to cooperate in response to China’s grand global infrastructure investment strategy, the Belt and Road Initiative (BRI) and to promote transparency and democratic principles. The U.S. International Development Finance Corporation (DFC) will have more resources than its predecessors—a $60 billion exposure cap—and the ability to make equity investments overseas. The Europe-Asia Connectivity Strategy similarly seeks to increase infrastructure investment across the Eurasia region and the next EU budget (2021-2027) may include as much as €60 billion for external spending. However, neither the U.S. nor the EU appears to have the political appetite for aggressive spending to match China. For comparison, the China-Pakistan Economic Corridor (CPEC)—the Pakistani component of China’s broader Belt and Road Initiative—alone is valued at $62 billion. Even a joint approach of the U.S. and the EU would pale in comparison. But Japan, in contrast, has backed investment projects in Southeast Asia valued at $367 billion, almost one and half times China’s in the region.

It is thus crucial for the transatlantic partnership to engage Japan, which has a long track record of managing infrastructure projects and an extensive investment portfolio in Asia-Pacific. With both the U.S. and the EU having already formed separate infrastructure investment partnerships with Japan, the governments should take a further step forward to establish a trilateral arrangement to track their investment activities and promote a division of labor based on geography, global supply chain, and technical expertise.

There is substantial untapped potential for U.S.-European cooperation on the key China-related challenges faced by both sides of the Atlantic. Elevating this collaboration to a strategic purpose and building new channels of dialogue is essential for prioritizing the most pressing areas of concern. Together, the transatlantic community can forge a common agenda and create new instruments and patterns of collaboration that will extend beyond the executive branch and bring greater continuity. This framework for political solidarity and coordination is crucial for shaping the international landscape of the decades to come on the basis of shared democratic values, interests, and objectives.

The views expressed are those of the author(s) alone. They do not necessarily reflect the views of the American Institute for Contemporary German Studies.