Europe’s China deal: How not to work with the Biden administration

Just after Christmas, the European Union reached a political agreement on the Comprehensive Agreement on Investment (CAI) with China. It has drawn a firestorm of criticism in Europe and from the EU’s major partners. This is directed less at the deal itself, which compares relatively favourably to the US-China Phase One trade deal and the Regional Comprehensive Economic Partnership, and more at the political context for the agreement. It is significantly out of step with increasingly sceptical public sentiment on China in Europe, and comes off the back of an exceptionally aggressive and repressive Chinese stance on issues ranging from Hong Kong and Xinjiang to economic coercion of Australia. More importantly, from Washington to New Delhi, the agreement looks less like an act of strategic autonomy and more like a form of free-riding. The EU took advantage of the nascent sense of collective pressure that Beijing was facing, and China’s eagerness to undercut the new US administration’s coalition-building efforts, to secure a bilateral deal at the first opportunity. Yet, while the episode reinforces European partners’ longstanding fears about its approach to China, it is in many ways the end of an era. Rather than the exemplification of European unreliability, it should be seen as the final bid to lock in a model for the EU-China relationship that no longer commands any real depth of support.

The case for the CAI itself is a reasonable one: the deal was under negotiation for seven years; the EU set a deadline in 2020 as a means of forcing the pace; and, in the end, China conceded on the major European negotiating demands. The CAI was never the vehicle through which to achieve every bilateral objective with China and was always understood to be limited in nature. It makes a little progress on issues of common concern – from industrial subsidies to sustainable development – while China’s market access commitments accrue to everyone, not Europe alone. The EU is strengthening other instruments to go after Chinese subsidies and sanction human rights abusers. There are questions about Chinese willingness to adhere to the terms of the agreement, but it is still easier to pressure China to fulfil its commitments than to push it to take steps it has not agreed to at all. And while there is a legitimate debate about how to pursue a rebalancing of supply chains and other forms of economic dependence on China, Europe – like every other major economy – will continue to maintain substantial trade links with the huge Chinese market, and it is preferable to do on less restrictive terms and with stronger formal protections.

While one can dispute many of these points, the thrust of the argument is compelling: that the agreement is a modest advance, and in its very modesty it is not a major new gamble on China or an obstacle to working with others on a shared list of common China-related concerns. But in the wider strategic context, the picture looks different.

Even a CAI agreed in September 2020 – the original Leipzig summit deadline – could have been perceived as an understandable decision on the EU’s part to secure comparable benefits to the US deal amid uncertainty about November’s presidential election. But the fact that China did not take the steps for an agreement at these earlier dates is at the heart of the United States’ and others’ concerns: by December there was no uncertainty. Joe Biden was coming to office with an open offer to craft a new approach to China in close consultation with partners and allies, which he stated would be a priority for the very first weeks of his presidency. And Beijing wanted to spike them.

The full story of the machinations that month has yet to be told. What is clear is that during a window in which the Biden transition had to restrict foreign contacts, China – with Xi’s personal involvement – made the concessions to get the deal over the line and the EU agreed, following Angela Merkel’s personal involvement in the final talks and in corralling it through the EU processes over a range of objections. There were no illusions about what China was up to. The fact that the Chinese government wanted the agreement pushed through before the new administration took office was described in an EU paper as a “window of opportunity” that had to be seized. And in case it was not perfectly clear what the Biden administration thought, the incoming US national security adviser, Jake Sullivan, made a delicate and unusual public intervention with a simple request: wait, let’s talk first. That request was rebuffed.

The notion that the EU should consult with Washington, or anyone else, before reaching an investment agreement with China still elicits near-outrage from certain corners in Europe. Beyond protestations about European sovereignty, there is a prevailing scepticism from trade hands that the Biden administration will bring about a fundamental change in the way these issues are handled. For all that the Trump administration never saw fit to share any of its China negotiating texts with the EU or compare notes on their bilateral talks, the Obama administration showed no inclination to share Trans-Pacific Partnership texts either, even amid political exchanges about “pivoting to Asia together”. The sense is that, had Washington been in a comparable position, it would not have thought twice if a good deal for US companies was on the table.

After a year of egregious Chinese behaviour, the value of a convincing-looking common front extends well beyond trade matters.

This pessimism is excessive. There has been a genuine reassessment in Washington about the value of a US-only approach after unilateral American leverage over China was tested to its limits over the last four years. Moreover, after a year of particularly egregious Chinese diplomatic, economic, and military behaviour, the value of putting on a convincing-looking common front to China extends well beyond trade matters. The failure to extend the benefit of the doubt, even briefly, to a sympathetic incoming US administration for the sake of a relatively thin deal with Beijing is not an exercise in hardheadedness. Instead, it is the sacrifice of Europe’s wider goals in favour of considerably narrower ones. Moreover, the CAI itself was a demonstration that coalition-building on China is not inherently hopeless. It was not single-handed European leverage that led to the Chinese concessions. Given that Beijing was already sufficiently concerned to make the offers that it did, more might very well have been extracted if coalition-building efforts had been given their fullest opportunity. The CAI decision instead weakens that signalling and reinforces a view in China that coalition partners can be bought off, rather cheaply at that.

Addressing all this will take some salvage work, but several factors at least make that easier. With Merkel stepping down by September, the political constellation in Europe that brought about the CAI is fading. The underlying trends in Europe continue to move in the same direction: the collapse in China’s standing in opinion polls, the upsurge in scrutiny and criticism from European media and parliaments, and the increasingly critical China analysis from European business groups, many of which are unconvinced about the merits of the CAI itself. While the whole episode demonstrates that the old model of the EU-China relationship is not going to be surrendered without a fight, what happens next is a further political choice. The explosive reaction to the CAI may even result in some compensatory moves, whether on the transatlantic cooperation front or expediting other parts of the EU’s China toolkit. Having banked the CAI, there is good reason now to concentrate efforts on sharpening the competitive and rivalrous elements of the relationship. The CAI was certainly a damaging moment. But it will be even more harmful if the issue is allowed to dominate a critical year in determining what European China policy will look like in the post-Merkel era, and the critical coalition-building work that Europe itself still needs.