The transatlantic partners are closer in their assessments of the China Challenge today than they were four years ago. When Donald Trump attended his first NATO summit, China was nothing more than an afterthought. NATO leaders now agree that Beijing challenges “our interests, security and values” and “present[s] systemic challenges to the rules-based international order.”
Yet transatlantic efforts to meet the China Challenge have proven ineffective. Neither party is prepared to match the money Beijing is throwing behind its own agenda. Neither has been willing or able to harness the full combined potential of their deeply integrated $8.7 trillion economy to ensure they remain global rule-makers rather than become rule-takers.
The transatlantic partners approach Beijing from different strategic positions, with different tools, and with different senses of urgency. Priorities are often mismatched. European countries remain wedded to global trade rules. US Democrats and Republicans alike are concerned that China has abused those rules and wants to weaken them.
The two sides have found it difficult to align their export controls and investment screening efforts. And while the United States has reduced its dependence on imports of Chinese manufactured goods over the past five years, the European Union (EU) has become more reliant on China. Key industrial sectors in countries like Germany, Spain, and Hungary are doubling down on China.
Although Washington and Brussels each address challenges coming from China, their own relations are beset by competitive impulses, underlying questions of trust, and mutual doubts about relative commitment and capacity. Americans think Europeans have brought clubs to a gunfight; Europeans think Americans have brought guns to a fistfight.
In the US, Republicans and Democrats differ little in their diagnoses of the China Challenge, even though they may diverge on the remedies. They agree that China is a world-class peer competitor to the US and its allies. Consensus exists that China’s leaders seek to reshape the international system by reducing their reliance on the rest of the world and increasing others’ reliance on China. Beijing aims to match and eventually exceed Western and Indo-Pacific powers’ economic and technological preeminence; force American military power out of the Western Pacific; and create new, China-centered international institutions.
Although European countries do not always agree on how to deal with China, they have become increasingly hawkish. They are furious about China’s support of Moscow’s war economy and concerned about China’s violations of human rights and its challenges to Taiwan, to other Asian countries, and to such fundamental principles as freedom of navigation and freedom of information. Chinese investments in European infrastructure and technologies, including strategic ports, telecoms, power grids, and defense-related supply chains, jeopardize European security. Fears are growing that Beijing could blackmail Europe by exploiting China’s control over critical materials. Chinese industrial overcapacity could generate a wave of cheap, state-subsidized imports that threaten EU domestic producers.
The European Commission team that took office in early December 2024 has signaled a tough approach. Commission President Ursula von der Leyen believes Chinese leader Xi Jinping’s “clear goal is a systemic change of the international order with China at its center.” She has threatened the “full use of our trade defense instruments” if Beijing keeps flooding Europe with subsidized exports that could harm European companies. The EU’s new commissioner for trade and economic security, Maroš Šefčovič, says the EU must sharpen its tools to ensure it does not suffer from “China’s state-driven economic model and industrial policy, as well as the overcapacities that are distorting global markets and supply chains.” The EU’s new foreign policy chief, Kaja Kallas, has decried China’s unfair competition, arguing that Beijing needs to “feel costs” over its support for Russia’s war against Ukraine.”
The allies allow their own bilateral squabbles to get in the way of a robust transatlantic effort to meet the China Challenge. During the Biden administration, contentious bilateral disputes over aircraft subsidies and agricultural support schemes, market access, sanitary concerns, and government procurement were shelved but not resolved. Tensions fester over digital privacy, digital taxes, tech regulations, and competition laws. Negotiations have languished on a Global Arrangement on Sustainable Steel and Aluminum and a critical minerals agreement. The US is concerned about the EU’s carbon border adjustment mechanism, corporate responsibility directive, and deforestation regulation. Europeans remain worried about the discriminatory provisions contained in the US Inflation Reduction Act.
These simmering problems could boil over in 2025. French President Emmanuel Macron argues that Europe should prepare for “a world of tariff wars.” President Trump has threatened blanket 10-20% tariffs on European countries and 60%+ tariffs on China. That could cut 1% or more off the EU gross domestic product (GDP). Germany could lose 1.4% of its GDP by 2028 (more than $134 billion over the four-year period).
A tariff war could escalate. Trump trade advisor Peter Navarro promotes “reciprocal tariffs,” which means that Washington could mirror the tariff rates foreign countries impose on US exporters with equivalent duties on foreign importers. For example, Washington could decide to match the 10% tariff rate Brussels imposes on US cars entering the EU by raising to 10% from the present 2.5% of the US tariff on EU car exports to the United States.
A confrontation on digital services taxes could follow. The incoming Trump administration and the Republican-majority Congress oppose the multilateral tax reform convention supported by the Biden administration and most countries around the world. US rejection of the deal could prompt many countries, including Canada, the United Kingdom (UK), France, Italy, Spain, Turkey, and other European states, to impose digital service taxes that target US tech companies. The first Trump administration and the Biden administration threatened to retaliate with punitive tariffs, something a second Trump administration is also likely to do.
Additional clashes loom. The Trump administration is likely to abandon the Biden administration’s “small yard, high fence” policy of limiting specific technology transfers to China, in favor of broader restrictions. As Washington constricts its own trade with China, it is likely to pressure Europe to do the same — otherwise, Europeans will be seen as taking advantage of their American ally by selling restricted goods and technologies to China and by allowing Chinese companies to evade US controls by selling their products in European markets. Europeans, in turn, are concerned that if China is blocked further from the North American market it will redirect cheap, heavily subsidized exports to Europe.
Should the Trump administration impose tariffs, the EU is likely to target politically sensitive US exports, as it has in the past. Some European commentators recommend matching blanket US tariffs on European exporters with equivalent duties on US exporters. Brussels could choose to deploy its new Anti-Coercion Instrument, which allows trade controls, customs duties, and other measures against companies or countries determined to be engaged in coercive behavior. So far, the EU has trained this so-called “bazooka” on China. Should relations deteriorate, Brussels could turn its sights to Washington.
Given that the US-EU commercial relationship is by far the largest in the world, such actions would be costly for both sides. Neither party has an interest in being caught in the escalatory spiral of a tit-for-tat trade war that would put a brake on European defense spending, hamper efforts to face down Russia over Ukraine, and destroy any chance that the two parties would align their approaches to the China Challenge.
The fundamental unanswered question is whether the Trump administration and European leaders believe their own bilateral disputes are more or less important than the need to adopt joint or complementary approaches to China. Does the Trump administration believe it can and should fight predatory Chinese economic practices on its own, or forge a broad coalition of countries that could impose far greater costs on China than individual efforts ever would? Are Europeans willing and able to bridge their own considerable differences over both China and Trump’s America to help lead such a coalition, or do they prefer to stand apart?
Initial answers are likely to come in the early days of the Trump administration, particularly if the president makes good on his pledge to impose tariffs. A second test comes in March, when an important transatlantic tariff truce on European steel and aluminum will lapse. The Biden administration continued to suspend the tariffs. In return, the EU and the UK each agreed to postpone their respective retaliatory tariffs on over €4.8 billion of US imports, including 50% on bourbon whiskey, Harley-Davidson motorcycles, and motorboats.
The choice is clear. The allies could continue their truce. They could work to finalize a deal to impose common transatlantic tariffs on nonmarket (read: Chinese) producers of aluminum and steel. Or they could charge into a destructive conflict that will benefit China.
Daniel S. Hamilton chaired CEPA’s yearlong series of workshops examining the transatlantic response to the China Challenge. He is a senior non-resident fellow at the Brookings Institution and senior fellow at the Foreign Policy Institute of Johns Hopkins University School of Advanced International Studies.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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