US-EU united front on China faces challenges

As the Biden administration gets up and running, perhaps the sharpest policy difference with its predecessor will be the new president’s desire to repair global alliances, build coalitions, and work constructively with like-minded countries. This is particularly true when it comes to trade policy, where President Biden has expressed a strong desire to establish a united front with the EU on trade grievances with China. 

The Trump administration consistently undermined its China trade policy by not only failing to work with the EU, but by unnecessarily antagonizing the cross-Atlantic relationship. Biden’s desire to reverse this dynamic is prudent. 

However, a word of caution is in order. While there is broad alignment between the US and the EU on China trade issues, there are sufficient differences which could complicate the establishment of an effective coalition. 

This reality was already evident even before the new administration took office. The EU’s decision to move forward with an investment agreement with China, ignoring the entreaties of the Biden team to “slow down”, demonstrates the extent to which US and EU China strategies are not always in sync. Moving forward, additional obstacles will have to be overcome. 

US and EU on rocky ground 

Although it has been largely overshadowed by the US-China trade war, the US-EU trade relationship is also on fairly rocky ground. The EU was broadsided by the Trump administration’s imposition of steel and aluminum tariffs taken on national security grounds, and promptly responded with US$3 billion worth of retaliatory tariffs. The never-ending Boeing-Airbus subsidies dispute continues to drag on, with the US authorized by the WTO to slap US$7.5 billion in tariffs on the EU, while the EU has been given the greenlight to return the favor with US$4 billion in tariffs on the US. And, despite the recent suspension of tariffs on France, storm clouds continue to form over European moves to implement digital taxes that the US believes are unfairly targeting US tech companies. With both sides busy lobbing hand grenades across the Atlantic at each other, it’s reasonable to wonder how cohesive a US-EU united front can be. 

Philosophical differences  

Although the US has a diverse list of trade complaints with China, ranging from agricultural policies to treatment of financial institutions, a common theme which cuts across many of these grievances is the role the Chinese government plays in the economy. In the view of the US, the Chinese government uses its predominant position and influence in subtle and not-so-subtle ways to tilt the playing field to the advantage of Chinese companies and Chinese interests – particularly when it comes to technology and other strategic industries. The case in point often presented by the US is China’s Made in China 2025 program in which the Chinese government funnels support and preferences in various ways to 10 strategic industries, undermining the competitiveness of foreign companies – not just within China’s market, but globally. 

While the EU shares these concerns to at least some degree, its member countries are generally more comfortable philosophically with higher levels of government involvement in the economy. Indeed, many of the interventionist Chinese policies criticized by the US have approximate parallels in the EU. Germany’s Industry 4.0 program, for instance, shares much in common with the Made in China 2025 initiative. Clearly, there will be limitations to how much common ground the US will be able to find with the EU in challenging China on the role of its government in business and the economy. 

And while the EU might share Biden’s worker-centric approach to trade, that philosophical alignment might actually prove divisive as it typically manifests in more nationalistic policies. 

Tactical differences   

The US and EU will not only have to contend with differences on policy objectives, but also on tactics. For better or worse, one of the enduring legacies of the Trump presidency appears to be a higher comfort level in the US with the use of tariffs as negotiating leverage.   

It is instructive to note that despite the widespread criticism of this approach and numerous studies that have shown significant cost to the US economy as a result of the punitive tariffs enacted by the Trump administration, the Biden team has made no commitments whatsoever about ratcheting down the tariff strategy. Quite to the contrary, Biden’s policy statements indicate a willingness to aggressively use the same trade remedy laws Trump used to apply tariffs.