The heads of the world’s advanced democracies are speaking a similar language. They do not want to “decouple” from China. They would rather “de-risk.”
G7 countries — the United States, Japan, Germany, the United Kingdom, France, Canada, and Italy — enjoy close economic ties with the world’s manufacturing leader. A complete break is unrealistic. Although some European and Asian allies continue to harbor fears that the US is moving too fast to impose export controls and curb investment into China, G7 leaders seem ready to acknowledge Beijing’s threat to global supply chains and economic security.
US National Security Advisor Jake Sullivan frightened Europeans last year when he announced that the US must ensure it maintains “as large of a lead as possible” in the tech innovation race. He vowed to impose export controls as part of a “small yard, high fence” wall to China’s ability to “exploit American and allied technologies.” Under Secretary of Commerce for Industry and Security Alan Estevez made the stakes of the Sullivan Doctrine crystal clear: “we do not balance trade with national security.”
The security-at-any-cost philosophy is now being re-packaged. In an April speech, US Treasury Secretary Janet Yellen called for a “constructive” and “healthy economic relationship” between the US and China. US tech controls, she emphasized, are “motivated solely by our concerns about our security and values,” and not to “gain competitive economic advantage.” In a similar speech, Sullivan reframed the strategy as building “a fairer, more durable global economic order,” assuring that US export controls are “narrowly focused on technology that could tilt the military balance.” He called on allies to show “dedicated commitment” to bear the economic costs of this policy.
Brussels seems to be moving toward making that commitment. When French President Emmanuel Macron visited Beijing and called for the European Union to reduce its dependence on the US, he faced a barrage of criticism on his return home. The EU is rewriting its “partner, competitor, rival” China strategy in favor of a “clear-eyed but not confrontational” approach that requires controlling European capital flows to-and-from China, says European Commission President Ursula von der Leyen. Von der Leyen used the term “de-risking” weeks before Yellen and Sullivan.
The new hardened European policy was on display when the Netherlands joined Japan in implementing US export controls on advanced chipmaking equipment. Dutch intelligence services recently labeled China “the greatest threat to Dutch economic security.” As a bloc, the EU recently reached a major agreement on new rules allowing retaliation against countries that attempt to coerce member states using trade policies – a direct response to China’s actions against Lithuania. EU Trade Commissioner Valdis Dombrovskis is pushing for new EU-wide export controls on certain advanced technologies. And Chinese firms aiding Russia face European sanctions.
“De-risking” European supply chains from China is a gargantuan task. Nearly 10% of Germany’s GDP relies on trade with China and almost 60% of its 5G telephone infrastructure contains Chinese parts. Ireland is the only EU member state with a trade surplus with China. Europe imports 80% of its solar panels and 98% of its rare earth raw materials from China. Overall, Europe is more exposed to China than America — with 8% of publicly listed European firms coming from China, twice the level of American ones, according to Morgan Stanley.
This disparity fuels a continuing G7 debate over imposing limits on investments in China. The US wants them, although there is disagreement in the White House. European leaders and Japan are skeptical. South Korea, a guest nation at the G7 meeting, is bristling at US requests to bar Korean chipmakers from filling potential China market gaps left by US firms. Going into the Hiroshima summit, this issue remained unresolved.
Washington, Brussels, and Tokyo must accept that “de-risking” from China means convincing skeptical allies to incur steep economic costs. Together, they must forge a way to minimize the commercial costs of choosing a security-first approach to trade with China. Otherwise, the budding democratic consensus on China may erode Western tech-trade leverage.
Matthew Eitel is a Program Officer for CEPA’s Digital Innovation Initiative.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.