Trump vs. EU: Clashing over Chinese Market Access

Last week Teresa May became the first foreign leader to meet President Trump, lobbying for a trade agreement with Washington to win leverage in her fierce Brexit negotiations. To be sure the UK-US relationship has always remained the crown jewel of UK’s foreign relations. On the one hand it has offered an essential security anchor and the UK has been one of the very few nations to forge a comprehensive intelligence partnership with the United States. On the other hand, the U.S. market and U.S. capital have long been pivotal for Britain’s prosperity.

 

 

There is only one other market that has historically attracted equal if not more attention for the British: China. As early as 1839, Britain, with impeccable foresight, understood the considerable potential of the Chinese market and aggressively liberalized the mercantilist Qing dynasty with the first Opium war. By mid-19th century Victorian age Britain – at the acme of her immense empire – enjoyed a unique position: It had obliterated Napoleon’s Continental System which challenged her access to an early version of “European common market” and it had formed exemplary trade networks with the United States in the West and China in the East. British foreign policy and strategy during that period cannot be better epitomized than in the oft-citied declaration of Lord Palmerstone that capricious Albion has “No permanent allies – only permanent interests.” Those interests had been indisputably connected to open markets and ports accommodating British trade.

 

 

In 1861 the trade paradigm that had made Britain Great began shattering in a parallel outbreak of two major twin crises. On the Western front, the U.S. Civil war challenged the very essence of open markets for British textile exports. On the Eastern front, the Taiping rebellion, the largest and bloodiest civil war in history, created significant uncertainty about the continued openness of China to British tea merchants. Unsurprisingly, Britain supported the stability of the status quo—the Qing Dynasty against the Christian Taiping rebels—and continued to enjoy open access to China. Yet the lucrative returns of British trade with the vast orient Chinese empire had attracted more noxious guests. All major European empires including a rising imperialist Japan demanded “a most favored nation” clause and in an unprecedented case of vicious multilateralism, all major powers agreed to divide the Chinese market in different commercial spheres of influence. Germany would take Shandong, Russia would take Manchuria, Japan the region between, Britain would enjoy access to major ports, the U.S. would have access to Shanghai and Tianjin, etc.

 

As the Qing dynasty failed to modernize China and succumbed to intimidating ultimata for immoderate trade concessions, the Chinese revolted in a vain attempt to regain their national autonomy from Western powers and Japan. To deal with the challenge of the Boxers—the spiritually charged Chinese peasants who revolted—eight nations (Britain, USA, Japan, Russia, Italy, Austria-Hungary, Germany, France) forged an alliance and by their superior technology and advanced military tactics easily defeated the primitive Chinese offensive.

 

Yet while the ‘Boxer rebellion” is usually seen as a defining moment in the “Century of Humiliation” it is also the pinnacle of Western commercial intrusion into the Chinese market and an unchallenged historical indicator of the consequentiality of trade with China for the commercial interests of Western nations. Western elites believed that those left behind from accessing the Chinese market would eventually see their empires lost to the rise of their competitors.

 

As the saying goes, “history may not repeat itself, it certainly rhymes.” As the Chinese market is expected to become the largest market by a big margin, it is access to this vast market that has once more lead into a cutthroat competition between major Western, namely, the United States, Germany and the UK. Yet China unlike the days of the Boxers it is much stronger and increasingly capable to play the new geo-economic game with sharp strategic competence. Unlike in 1900, this time China can choose with whom to realign its gigantic geo-economic posture.

 

 

It is theoretically tempting to analyze the factors that propelled Donald J. Trump to the White House. For instance, the cogent hypothesis that Trump has been a flaring demagogue and that trade has only harmed the middle class because of distribution rather than a distortion of income. The idea that mechanization has been the major reason for joblessness resonates well among most economists. However,Statemen’s beliefs create vital interests. Trump’s foreign policy will not be motivated by the abstract hypotheses of Ivy-league theorists, but on the very operational code of Donald J. Trump, however specious that mindset may be. It has become clear by a series of both statements and executive orders that Trump will renegotiate the global commercial order and push the comprehensive strategic mass of the United States – the most powerful economy and military machine the world has even seen – into his new trade game.

 

Trump’s overarching negotiation strategy is not accidental or disoriented. When Trump said that the EU is a vehicle for Germany it is clear that the President views Germany as a serious geo-economic competitor to his negotiations with Beijing over market access and trade reciprocity. His chief trade advisor Peter Navaro has framed Germany as a currency manipulator artificially suppressing its export prices. Unsurprisingly, in an effort to weaken Germany, Trump will foster “Euro-sceptisicm” in the EU (his senior advisor  promised to support Marine Le Pen for the May 2017 French Presidential Elections) while at the same time playing a “game of Chicken” with Beijing to gain access to the most important market of the 21st Century.

 

Germany of course will not remain an indifferent observer to Trump’s commercial revisionism. To Trump’s remarks the German deputy Chancellor has responded with an open call for the EU to reach out and forge a new trade agreement with China, even a new alliance. Germany has been a large beneficiary of EU FTA with Korea and has been supportive of the current negotiations for a trade deal with Japan as well. In China, Germany already enjoys substantial trade networks and it is German technology that is currently upgrading Chinese industry to 21st Century standards by the integration of ICT and mass manufacturing – the so called Industry 4.0. 

 

 

The ultimate geo-economic leverage of the U.S. over Germany is the very unraveling of the EU and a potential U.S.–Russia alliance to support that end is perhaps invincible unless the EU showcases unconventional resilience and strategic maturity. Sixty years ago, Karl Jaspers, a European philosopher observed that,“The world had become European through the adoption of European technology and the European demands of nationalism, and it was successfully turning both against Europe. Europe, as the old Europe, was no longer the dominant factor in the world. It had abdicated, overshadowed by America and Russia, upon whose policies the fate of Europe hanged if Europe does not gather itself together at the last moment.” 

 

Today could perhaps be Europe’s last moment of relevance, the last chance to “gather itself together” and position herself as a rational arbitrator between China and the United States. However, the current fragility of the Eurozone, the rising demagogy and the myopic vision of Germany in domestic European affairs indicate that Europe will be a taker rather that a setter of global norms in a geo-economic game between the United States, China and Germany. Europe lacks the intelligence capacity, the hard power and the political consensus to form and execute a strategy let alone play a game of brinkmanship with the behemoths. So for once again it seems that Europe’s destiny is depended on actors outside Europe: Washington and Beijing.

 

 

For the first time in modern history the resident of the Zhong Nan Hai, President Xi will be asked to make a choice: appease the White House demagogue whose almighty military machine is all around China yet whose nation is a rather a civilized competitor and not an irreversible enemy, or forge an alliance with Germany, the incidental hegemon of a fragile Union whose power can shatter the very moment that the Eurozone collapses. This will be the most critical question during Xi’s reign and the most strategically demanding foreign policy puzzle that China has to resolve in her quest for national rejuvenation. Can China appease the histrionic demagogue, support European Unity and preserve balance between the United States and Germany without upending open markets? Can China save Europe and keep the world at peace?