Transatlantic Action Plan: China

China

Both sides of the Atlantic are converging in their assessment of the challenges China poses to transatlantic prosperity and democracy. The U.S. and Europe must now build on this convergence to advance a common strategy toward China. Only together can the U.S. and Europe, alongside other democratic nations, maintain the necessary leverage in trade, technology and multilateral engagement to hold China accountable to a set of standards that protects democratic societies and contributes to global stability.

To develop a stronger transatlantic approach toward China, the Biden administration must work to rebuild trust in the transatlantic relationship and recommit to multilateral alliances and institutions abandoned by President Trump. Europe for its part must unite and take action where it sees China exploiting its critical industries and infringing on its values. A common position on China at the EU–level and across several influential EU member states is critical to making transatlantic cooperation on China feasible.

Five priority recommendations for a transatlantic agenda on China are to:

1. Work together at the WTO to address China’s uncompetitive trade practices.
2. Strengthen and harmonize investment screening mechanisms.
3. Boost intelligence sharing on Chinese political influence, IP theft and technology-related threats.
4. Develop credible alternatives to China’s Belt and Road Initiative (BRI) that provide for positive governance, environmental and labor outcomes in recipient countries.
5. Institute targeted export controls and sanctions that safeguard human rights.

Challenges

Under President Xi Jinping, China has become more assertive abroad and increasingly authoritarian at home. China has taken aggressive actions against its neighbors in the South China Sea, carried out significant military modernization programs and technology initiatives to nationalize China’s technology resources and capabilities, detained millions of Uighur Muslims in Xinjiang, and extended its authoritarian reach over Hong Kong. Beijing has also become a more confident and aggressive global actor through its massive Belt and Road Initiative and in shaping the agendas of multilateral institutions.

In the months since the COVID-19 pandemic spread across the globe, China provided European countries with medical supplies and PPE to help fight the virus. However, these efforts were accompanied with aggressive attempts first to cover up the outbreak and then to spread conspiracy theories about the origins of the virus. Chinese ambassadors in European capitals also vocally criticized European responses to the virus. Closer to home, the Chinese Communist Party (CCP) took advantage of international distraction to impose a new national security law in Hong Kong, carry out a fatal border dispute with India, and increase tensions with neighbors in the Indo-Pacific including Australia.

The transatlantic community is not immune to Beijing’s assertiveness. The U.S. and Europe share concerns over Chinese forced technology transfers; trade subsidies; issues over reciprocity and market access for U.S. and European companies; surveillance technologies; and political influence associated with its economic investments. There is also increasing support in the U.S. and across Europe for pushing back against Chinese human rights abuses and developing global standards in emerging technologies as China advances its own digital authoritarian model.

Despite this convergence, there are still strong differences in how the U.S. and Europe aim to push back against Beijing. Many European countries view relations with China through their economic and commercial ties, whereas Washington sees Beijing as a geopolitical competitor across all aspects of the relationship—political, economic, technological and military. Such divisions must be overcome if the U.S. and Europe are to unite around a common strategy toward China.

Europe Gets Tougher, But Divisions Remain

The most comprehensive and updated assessment of European views on China is a March 2019 European Commission White Paper that simultaneously defined China as a “negotiating partner with whom the EU needs to find a balance of interests, an economic competitor in the pursuit of technological leadership, and a systemic rival promoting alternative models of governance.”¹ Since the release of the White Paper in 2019, the EU has taken steps to strengthen its position vis-à-vis Beijing. The European Commission has created a Chief Trade Enforcement Officer position and has launched a strategy for strengthening EU competition laws for accessing the common market, developed a framework for an EU–wide investment screening mechanism and endorsed a toolbox of measures to address 5G-related security risks.

While the EU is strengthening its hand, European member states hold diverging views on issues such as foreign direct investment screening, limiting Huawei’s role in 5G networks and guarding against Beijing’s political influence. China’s economic leverage over smaller European countries and ability to work bilaterally and through forums such as the 17+1 are also dividing Europe. Beijing’s ‘divide and rule’ strategy has inhibited the EU from taking unified stances on Chinese human rights abuses and aggression in the South China Sea.

Moreover, the Trump administration’s combative approach toward the EU and European countries such as Germany and its withdrawal from multilateral institutions have made China appear a more reliable partner for addressing some global environmental and security issues.² Similar to other areas in the transatlantic relationship, a loss of trust between the U.S. and Europe has inhibited a more coordinated transatlantic strategy on China.

An Emerging Consensus in Washington

Across the U.S. political spectrum, there is a basic level of bipartisan support for tougher policies toward Beijing. Both the 2017 National Security Strategy and 2018 National Defense Strategy define the U.S.–China relationship in terms of geopolitical competition across the economic, technological, political and security dimensions of the relationship. While the Indo-Pacific is not Europe’s primary strategic theater, it is central to U.S.–China competition. The U.S. views China as a military competitor in the Indo-Pacific due to its military modernization efforts, illegal island building campaign in the South China Sea, and aggressive actions against its neighbors and U.S. allies.

On the economic front, the U.S. and China have been locked in a trade war that has seen a ratcheting up of tariffs on one another’s imported goods. In January 2020, both countries reached a deal to ease restrictions, but tensions have shifted to technology. In August 2020, the Trump administration issued executive orders banning Chinese applications TikTok and WeChat, and the U.S. Commerce Department has continued to restrict Huawei’s ability to access U.S. technology and software.³ In November 2020, the Trump administration issued another executive order prohibiting transactions in publicly traded securities in military-linked Chinese companies.

In 2021, the Biden administration will have a Congress that widely supports rebalancing the U.S.–China trade relationship, strengthening deterrence against Chinese military posturing in the Indo-Pacific, and working with allies in Europe to defend our democracies from Chinese surveillance technologies, IP theft and political influence.⁴

Recommendations

The U.S. and Europe will be stronger if they work together on a strategy toward China. They should capitalize on their converging assessment of the challenges posed by China to strengthen dialogue and pursue a common path forward. A shared agenda will require the Biden administration to restore trust in the transatlantic relationship. It will also require Europe to unite around tougher policies where it sees China infringing on European values and interests.

Only together can the U.S. and Europe build the leverage necessary in trade, technology and multilateral engagement to hold China to a set of standards that protects democratic societies and contributes to global stability. United they can rally other nations around these objectives.

Below are five priority recommendations for a transatlantic agenda on China:

Work together at the WTO to address China’s uncompetitive trade practices

• The U.S. will not be successful in pushing European partners to pursue decoupling with China or to eject China from the WTO. Joint WTO cases between the U.S., the EU and Japan will be more effective. Such cases should prioritize Chinese intellectual property theft, uncompetitive trade practices and cybertheft.
• As noted in this project’s other action plans, a U.S.–EU working group on WTO reform could serve as an initial step in assessing how best to address Chinese uncompetitive trade practices.

Strengthen and harmonize investment screening mechanisms

• Currently, only 14 out of the 27 EU member states (plus the United Kingdom) have investment screening mechanisms in place to ensure that foreign direct investments do not pose national security risks. Other European countries in greater need of investment (including many in Southern and Central Europe) are more open to allowing Chinese state-owned companies to acquire strategic assets such as ports.
• The EU and the U.S. should cooperate to strengthen and harmonize investment screening mechanisms that will protect critical infrastructure and technologies. The Committee on Foreign Investment in the United States (CFIUS) can be used as a model.⁵ CFIUS reviews foreign acquisitions in the U.S. and blocks investments that are deemed a national security threat. While it could do a better job in catching certain investments that try to circumvent CFIUS review, these drawbacks could be corrected by EU efforts.⁶

Boost intelligence sharing on Chinese political influence, IP theft, and technology-related threats

• The U.S. and Europe must enhance awareness among national security officials, political leaders, civil society actors and technology companies of the various forms of Chinese political influence and interference.
• The EU should serve as a clearing house of information for political influence operations that European national and local governments have witnessed from Beijing. U.S. and European counterparts at the EU and member state level should also enhance intelligence sharing on cyber espionage, forced technology transfers and IP theft.
• Technology transfers to China through collaboration in research institutions and universities must be more closely scrutinized. Chinese firms have stepped up R&D collaboration and talent recruitment programs with EU companies, universities and governments. Intelligence sharing between the U.S. and the EU should therefore focus on Chinese partnerships with European academic institutions to examine risks and explore options for addressing them.
• The U.S. and Europe should draw expertise from India, Australia, New Zealand and Taiwan, as all four countries have been on the front lines of Chinese political influence and interference campaigns.

Develop alternatives to China’s Belt and Road Initiative (BRI) that provide for positive governance, environmental and labor outcomes in recipient countries

• The U.S. and Europe should provide transparent finance and infrastructure to developing countries that are growing increasingly indebted to Chinese loans and infrastructure projects.
• The Blue Dot Network (BDN) created in 2019 by the U.S., Japan and Australia and the EU–Asia Connectivity Strategy initiated in 2018 are important initiatives for delivering transparent, economically viable and environmentally sustainable investment and development to emerging market economies. Both require clearer priorities, more funding and greater political support in order to serve as alternatives to Beijing’s BRI.⁷ Efforts to ensure European participation in the BDN should be prioritized.

Institute targeted export controls and sanctions that safeguard human rights

• U.S. counterintelligence, law enforcement and relevant government officials and counterparts at the EU and in EU member states should better collaborate to prevent sensitive technology transfers to Chinese companies and military actors involved in surveillance and human rights abuses. Collaboration should also focus on developing joint standards to evaluate relevant transactions.⁸
• The U.S. has maintained a decades-long embargo on exports that could support the Chinese military. Under the Trump administration, the U.S. Commerce Department has taken additional steps to enhance regulatory review over the export of sensitive technologies to military end-users in China, with broad Congressional support.
• Europe has been skeptical of the Trump administration’s use of export controls and sanctions, given that European companies have been on the receiving end of U.S. sanctions. However, in July 2020, the EU agreed to enact its own export controls of certain equipment and technologies to Hong Kong that could be used for internal repression or surveillance. Moving forward, the U.S. and the EU should ensure broad coordination on ex