Europe and U.S. Agree on Chinese Threat, but Are Too Busy Feuding to Fight It

Posted December 7, 2018 4:11 p.m. EST

BRUSSELS — They are creating defenses to limit Chinese investment, accusing China of seizing technology from foreign companies and warning of Chinese efforts to undermine their political system.

It may all sound like a game plan hatched by officials in Washington, but the agenda is straight out of Brussels. While President Donald Trump battles China over the issue of trade, Europe is in the midst of a conflict with Beijing that, in its own way, is just as intense.

European leaders have become increasingly alarmed by what they consider China’s aggressive incursions into the continent’s economy, including paying $23 million to expand port facilities in Bulgaria, providing $3.8 billion in financing for a high-speed railroad connecting Hungary and Serbia and acquiring a German robotics company that employs 14,000 people worldwide.

Now Brussels is passing laws to counter China’s influence in the region. Last month, in a move clearly directed at China, European lawmakers and political leaders agreed on a system to scrutinize investments in the 28-member bloc by investors as a way of protecting key industries.

“We want to have a better overview when certain critical infrastructure is targeted by them,” Cecilia Malmstrom, the European trade commissioner, told an audience in Brussels last month.

European politicians are also frustrated that although they have many of the same concerns as their American counterparts about China, there has been little cooperation or coordination in their strategies. Rather than joining forces to contain China’s economic expansionism, the Trump administration has treated Europe with disdain.

“We had some serious differences in the past,” Marietje Schaake, the vice chairman of the European Parliament’s delegation for relations with the United States, said in an interview. “But it has become much more confrontational, at the worst possible moment. We need to stand together as defenders of the liberal order.”

There were signs of a possible thaw after Trump and members of his administration met with German car executives at the White House on Tuesday. Those on both sides described the atmosphere as friendly.

Representatives of BMW, Daimler and Volkswagen described plans to expand manufacturing in the United States, which could tamp down Trump’s complaints that Europe exports far more cars to America than the other way around. His threat to impose tariffs on imported cars receded for the moment, representatives of Volkswagen and Daimler said.

Some White House officials, including Robert Lighthizer, the U.S. trade representative, and Steven Mnuchin, the Treasury secretary, have consistently argued that friction with Europe is a distraction from the more urgent task of reining in China. And behind the scenes, Malmstrom said, American, European and Japanese officials are having “quite constructive discussions” about trade with China.

But conversations with officials in Brussels make it clear that the relationship between the European Union and the United States has deteriorated significantly since Trump took office, and they are unsure how or if it can be salvaged.

In response to Trump’s claims that Europe treats U.S. products unfairly, representatives of the European Commission and the U.S. government have tried to dismantle barriers to trade in industries like pharmaceuticals, medical devices and even shellfish. But several participants in the talks said European and American officials have been completely out of sync, making it difficult to achieve progress.

Each side accuses the other of obstructionism. The Americans have expressed frustration with the Europeans’ insistence on assembling a consensus among its 28 member countries before agreeing to anything. White House officials have told the Europeans directly that they believe they are stalling, in hopes of waiting out the Trump administration.

“So long as the EU leadership plays the delay game, the more we will have to use leverage to realign the relationship,” Gordon Sondland, the U.S. ambassador to the European Union, told an audience in Brussels last month. “But some believe they can delay and wait out this president.”

Sondland spoke of missed opportunities for the United States and Europe to join forces against what he described as “China’s persistent and unfair trade practices,” but there have been examples of cooperation.

In September, Lighthizer and his counterparts from Japan and the EU met in New York and issued a joint statement against unfair competition by companies that are either owned by governments or subsidized, a clear dig at China.

But the Europeans have accused the White House of repeatedly poisoning the atmosphere with its raw, transactional approach to relations. They were floored when, at the end of May, Trump imposed tariffs on steel and aluminum from Europe, while threatening to impose levies on foreign-made cars and car parts.

“That was a shocking experience, that the U.S. administration is ready to impose tariffs against Europe,” said Jeppe Kofod, a Danish member of the European Parliament who has met several times during the past year with Wilbur Ross, the commerce secretary, and other American officials.

Kofod said he first realized the depth of the Trump administration’s antagonism toward Europe during a lunch in Washington late last year with Ross and a delegation from the European Parliament. The meal, in a room at the Library of Congress with a view of the Capitol, began on a cordial note, Kofod recalled. But then Ross began attacking what he said were Europe’s unfair trade practices.

“We appealed to him that we should take on China together,” Kofod said. “He said, ‘No, you are as bad as China.’”

In some ways, China is even more of a threat to Europe than it is to the United States. In America, cheap products from China are blamed for hollowing out the industrial heartland. Europe has been though the same thing. In the tumultuous last decade of financial and debt crises, China’s efforts to expand its economic portfolio and pursue manufacturing around the world left Europe with fewer well-paying, middle-class jobs at home.

The European Commission, the union’s administrative arm, has fought a long-running battle to protect its steel industry from subsidized Chinese competitors. Low-price solar cells made in China devastated Germany’s attempts to cultivate a solar-cell industry in the past decade.

China has acquired significant assets across Europe in recent years. During the debt crisis that unnerved the most vulnerable economies in Europe, China invested in ports in Portugal and Greece and even bought a stake in Italy’s electrical grid. Chinese investment in Europe totaled $40 billion last year, compared with $29 billion in the United States, according to the Rhodium Group, a research firm. The financing from China has often been welcome. Chinese investors were willing to put money into distressed companies shunned by others. Zhejiang Geely Holding Group has revived Volvo Cars since buying it from Ford in 2010, and has helped to rejuvenate the region around Gothenburg, Sweden, the port city where Volvo has its headquarters.

But European sentiment toward China shifted in 2016 after Midea, a Chinese appliance manufacturer, bought Kuka, a German maker of industrial robots for 4 billion euros ($4.6 billion).

Kuka robots are ubiquitous in car factories around the world, and the company was an example of German technological leadership in a growing industry. Midea’s acquisition of the company caused a political furor because Germans feared the Chinese would gain control of Kuka’s expertise as factories were becoming increasingly automated. But German political leaders had few legal tools to intervene.

The decision in Brussels last month to give the EU more power to block such acquisitions was, in large part, inspired by the Kuka deal and the inability of political leaders to protect sensitive technology.

European leaders are also worried that China is trying to disrupt European unity. Since 2012, China has been holding summits with 11 eastern EU countries and five Balkan countries, an effort called 16+1. The group’s stated purpose is to promote business ties and investment. One example is a project to upgrade freight transport facilities in the Bulgarian port of Burgas on the Black Sea.

But 16+1 is also seen as an attempt to exploit tensions between wealthier Western European countries and formerly communist countries like Hungary. Unlike Chancellor Angela Merkel of Germany, the Chinese do not nag Viktor Orban, Hungary’s authoritarian prime minister, about policies that are seen as a threat to democracy. A bank controlled by the Chinese government is financing improvements to the rail line between Belgrade and Budapest.

So even if the United States and Europe share many of the same objections to Chinese economic policy, they are far apart on what to do about it. Trump has used tariffs and threats of tariffs to put pressure on China, and has been unconventional in his approach. Trump sees international trade as a deal, by him and with him, to be made personally with President Xi Jinping of China.

The Europeans want to preserve the World Trade Organization as the forum to resolve conflicts. Last month the European Commission proposed changes to the organization’s rules that were drawn up in part to allay American concerns about the panel that adjudicates trade disputes. The reforms would place limits on the legal issues the appeals panel can consider, a response to complaints by the United States that it often oversteps its mandate. The proposals found an unlikely ally. China was among 11 other countries that backed the reforms. The United States did not. A spokeswoman for the U.S. mission in Geneva, where the trade organization is based, declined to comment.

“That’s what we try to tell our American friends,” Malmstrom, the European trade commissioner, told a small group of reporters at a briefing in Brussels last month, two weeks after returning from talks in Washington. “Let’s work together. When we work together we have a lot of impact.”