Expanding the Transatlantic Toolbox for Economic and Strategic Competition with China: Export Control, Foreign Subsidy Rules, and Investment Screening
As calls for more methodical and coherent policy measures to manage economic and strategic competition with China continues to grow across the Atlantic, both the United States and the European Union are reshaping and expanding policy instruments with the aim to ensure fair market competition, safeguard intellectual properties in critical and emerging technologies, and mitigate potential threats to national security.
In the United States, the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) significantly broaden the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS). In the same year the Export Control Act of 2018 gave the U.S. executive branch broad freedom to restrict Chinese access to “emerging and foundational technologies” when government interventions are “essential to the national security of the United States.” The Trump administration subsequently imposed export controls on AI software, jet engines, and equipment for manufacturing semiconductors. The Biden administration has largely maintained these measures and the U.S. Department of Commerce has expanded its lists of targeted Chinese entities. Driven by a strong bipartisan consensus on the need to step up strategic competition with China, both the Biden administration and Congress are seeking closer coordination with the EU.
In Europe, the EU has been pushing for a number of parallel regulations. In March 2019, it created a foreign investment screening mechanism to cooperate and exchange information on investments from non-EU countries that may affect security or public order, which went into force in October 2020. This was followed by the adoption of the new EU regulation on the Union regime for export controls of dual use goods and a new European Commission proposal to crack down on market-distorting subsidies from foreign governments. These new tools significantly expand policy coordination regarding economic competition with China throughout the bloc, but their scope and efficacy will be tested by the tug of war between Brussel’s push to expand its regulatory power and EU member states’ zealous guard of their sovereignty over national security and defense.
Germany has the most extensive trade and investment relationship with China within the EU. It exports the most to China and invests more than its European peers in China but is also most directly threatened by Chinese retaliation. Berlin’s approach to implementing EU’s new regulatory directives, which are largely bottom-up in process, are closely followed by many other member states and could shape the entire block’s policy outlook. At the same time, Germany’s trepidation of jeopardizing its highly profitable economic relationship with China continues to temper new national and European initiatives to challenge China as a “economic competitor” and “systemic rival,” even as the German government has incrementally tightened its investment screening rules and members from all major political parties in the German Bundestag now call for a change of course in the country’s bilateral relations with Beijing.
Effective policy making to manage economic and strategic competition with China needs a combination of tools as well as close coordination between the United States, the EU, and its members, especially Germany. The goal is to establish fair and rule-based competition in the international trade system, advance US-EU leadership in critical and emerging technologies, and reorganize the global supply chains to mitigate national security threats steaming from heightened strategic competition with China. It is important that the transatlantic partners manage their differences carefully through persistent dialogues at all levels and expand intelligence and information sharing. Washington’s growing tendency to use investment screening and export controls as first-best policy to address national security concerns regarding China and the EU’s fundamental commitment to its open market could lead to transatlantic frictions. And multilateralizing export controls, whether by expanding the Wassenaar Arrangement, bringing back the Coordinating Committee for Multilateral Export Controls (COCOM), or other means, needs to be carefully weighed against divergent economic interests between the United States and its European allies and additional challenges to the WTO which is not well prepared to resolve these kinds of disputes.
This workshop will assess recent policy developments on investment screening, export control, and foreign subsidy rules in the United States, Germany, and the EU. Are these tools essential for managing the growing economic and strategic competition with China? What are the areas ripe for transatlantic policy coordination? How should the United States and the EU approach their differences regarding the purpose, scope, and deployment of these policy tools?
Dr. Mary E. Lovely is senior fellow at the Peterson Institute and professor of economics and Melvin A. Eggers Faculty Scholar at Syracuse University’s Maxwell School of Citizenship and Public Affairs, where she combines interests in international economics and China’s development. During 2011–15, she served as coeditor of the China Economic Review. Her current research projects investigate the effect of China’s foreign direct investment policies on trade flows and entry mode, the relationship between proximity to export markets and cross-city wage variation, and the influence of Chinese tariff reductions on labor shares of value in its manufacturing firms. She recently completed studies of American manufacturing employment and outsourcing to low-income countries, the role of intellectual returnees in the success of China’s photovoltaic solar industry, and the structure of Chinese reforms of state-owned enterprises. Lovely earned her PhD in economics at the University of Michigan, Ann Arbor and a master’s degree in city and regional planning from Harvard University.
Dr. Stormy-Annika Mildner (M.Sc.) is the Executive Director of the Aspen Institute Germany in Berlin. As adjunct lecturer, she is adjunct lecturer for political economy at the Hertie School.
From 2014 to 2020, she was head of the department “External Economic Policy” at the Bundesverband der Deutschen Industrie (BDI), Federation of German Industries, being responsible for international trade and investment topics. In this function, she also spearheaded the BDI TTIP campaign (2015-2016). As Sherpa she was responsible for the German Business 7 Presidency (2015) and the German Business20 Presidency (2016-2017). 2017-2019 she represented the BDI in the Deutschlandjahr Wunderbar Together, an initiative by the German Foreign Ministry, the Goethe Institute, and BDI, to strengthen the German-U.S. relationship.
Until December 2013, she was a member of the Executive Board of the German Institute for International and Security Affairs (SWP). Before joining the SWP, she worked for the German Council on Foreign Relations (DGAP), where she headed the program “Globalization and the World Economy”. Ms. Mildner conducted her Bachelor studies in economics and North American studies at the Free University of Berlin and earned a Master of Science in international political economy from the London School of Economics (2000). She wrote her PhD thesis at the Free University of Berlin on the economic and political rationale of export credit finance in the United States.
This event is generously supported by the Fritz Thyssen Foundation.