Europe is navigating through the rivalry between the United States and China as tensions continue to rise.

During a World Trade Organization (WTO) conference in September, Gordon Brown, former prime minister of Britain, openly expressed a concern that has been gradually gaining attention among European leaders.

The speaker expressed concern about Europe becoming trapped between America and China, forced to choose between being under Chinese or American control. This could result from the growing competition between the two nations, creating a world with two opposing power centers.

“Despite Europe’s continual preference for America, upon whom it relies for security, it recognizes that its economic stability, more so than that of the USA, is heavily reliant on trade,” stated Mr. Brown. He has transitioned from UK politics to holding prominent positions at the United Nations, focusing on international matters.

The idea of the global economy breaking apart due to the breakdown of rules and connections, known as “geo-economic fragmentation,” was once seen as unlikely. However, it is now a major topic of discussion at the upcoming annual meeting of economic leaders held by the International Monetary Fund (IMF) in Marrakech, Morocco.

Europe, whose economic prosperity has long been dependent on trade, is facing a particularly urgent situation. This has been the case since its history of aggressive colonization and continues through its transformation into a self-proclaimed advocate for WTO regulations.

The European Union (EU) is composed of 27 countries and is the largest trade bloc in the world, responsible for 16% of global imports and exports. This also means that they heavily depend on goods from other regions, including essential raw materials and blood plasma.

However, there has been an increase in tariffs and trade restrictions as governments attempt to combat the rise of populist opponents who have garnered support from those who feel neglected by the rapid globalization of the past two decades, including China’s integration into the global trade market.

Both the US and Europe have been toughening their position against Beijing, emphasizing the importance of fair application of global trade regulations. However, some experts suggest that Washington is currently pushing the limits of these rules.

Brad Setser, a trade expert who has provided counsel to the Biden administration, stated to a group in Brussels last month that Europe’s strong commitment to upholding WTO principles may hinder its potential for collaboration with the United States due to the other two major powers not fully adhering to these principles.

One sign of that was the strain in talks on a US-Europe “green steel” club erecting trade barriers to box out China. The main EU concern is that the U.S. proposals could break WTO rules by discriminating against third parties.

‘BADLY PREPARED’

In 2020, European governments were relieved when Joseph R. Biden became president, replacing Donald Trump. However, they now acknowledge that the US no longer has a consensus for free trade and they must adjust before the 2024 election, which could bring Mr. Trump back to the White House.

“European companies must be ready for potential drastic situations in which they are compelled by the US to exit China,” cautioned a report discussed at a meeting of EU finance ministers in the previous month titled “Addressing Europe’s Economic Insecurity.”

Although the current policy of the US does not include imposing strict sanctions on China, a document from the EU, which was viewed by Reuters, acknowledged that the bloc is ill-equipped to handle a world of political competition and power struggles that could lead to these types of consequences.

European leaders will convene in Spain in the coming week to begin outlining a plan for economic stability in order to tackle the vulnerabilities of the region. Their aim is to reach a consensus by the end of the year.

It will be challenging.

One important consideration is determining which technologies should be subject to stricter export controls and scrutiny of outgoing investments. This may involve balancing security concerns with potential benefits for the nation’s economy.

Alternatively, European Union member states may be required to provide significant funding in the billions of euros to support the growth of local industries in strategic technologies that have yet to be determined.

They will proceed with caution knowing that any actions may anger Beijing. This could have a greater impact on German exporters who are focused on China compared to others.

According to Wang Huiyao, the head of the Center for China and Globalization think tank in Beijing, Europe should consider its historic cultural connections and economic investments in China when developing its policies.

According to him, it is necessary for the EU to have a different approach towards China compared to the US. He believes that issues regarding human rights and ideology can be resolved through communication.

In the end, practical politics may pressure Europe to take action.

According to an analysis by the IMF conducted this year, it would be most beneficial for Europe to maintain open relationships with both the US and China if the world economy were to divide along those two axes. However, it was also noted that Europe may incur significant consequences if this approach leads to increased barriers between itself and the US.

Petra Sigmund, a German government representative who helped create Berlin’s strategy towards China, acknowledged that Europe and the United States do not always agree on China. However, during a recent event hosted by a think tank, she mentioned that the Biden administration has demonstrated a strong desire to resolve any differences.

“We are optimistic that this will continue after the US election.” – Reuters