Germany’s differences with President Trump should not lead to a hasty and unguarded European pivot to China

Writing in Germany’s Die Welt newspaper on 24th May 2018, Anders Fogh Rasmussen cautions that current differences between Germany and the USA should not lead Europe into an China’s embrace ‘with its eyes closed’. _ Two countries have drawn the most fire from President Trump over trade: China and Germany. As the leaders of the […]

Writing in Germany’s Die Welt newspaper on 24th May 2018, Anders Fogh Rasmussen cautions that current differences between Germany and the USA should not lead Europe into an China’s embrace ‘with its eyes closed’.

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Two countries have drawn the most fire from President Trump over trade: China and Germany. As the leaders of the trade surplus ‘offenders’ club meet in Beijing, preventing a trade war with the USA will likely top the agenda. Chancellor Merkel’s visit also comes as many Germans question the sustainability of the transatlantic alliance after substantial disagreements with Washington on Iran, climate change and trade.

However, Germany would be making a mistake if its current differences with the occupant of the White House lead it to embrace China with its eyes closed. After all, Beijing has geopolitical ambitions of its own, that Europe would be naïve to brush aside.

It is certainly the case that Germany has significant economic interests in China. Volkswagen sold 4.2 million cars there last year. Chinese companies generate on average seven percent of sales there. Chinese Foreign Direct Investment deals to Germany have exploded from $1.3 billion in 2015 to $12.1 billion in 2016. As a Nordic free trader, my initial reaction to this was to wholeheartedly welcome it as much needed investment and export opportunities for European businesses.

Yet Chinese investment into Europe is not merely an economic transaction. For China, it is also part of a wider strategy to build an economic beachhead into Europe, to create client states through its massive state-owned businesses, and even to further divide the European Union.

China’s explosion of strategic investment began in southern Eurozone economies heavily distressed by the crisis. The signs of how economic investment delivers political dependency have been seen on several occasions, for example in June 2017 when Greece blocked an EU statement critical of China’s human rights record, a few months after selling Piraeus port to a Chinese company.

However, in recent years Chinese ambitions have shifted towards northern Europe and its cutting-edge technology. In Germany several high-profile cases have raised concerns; most notably the acquisition of German robotics firm Kuka, and an attempt to acquire the chip manufacturer Aixtron, which was subsequently blocked due to US objections. The desire for hi-tech investment is not a purely commercial decision; many of these transfers of technology can be shifted from civilian to military use, potentially bypassing the EU’s arms embargo.

China’s Belt and Road initiative, the flagship project for connecting China with Eurasia, could further accelerate this process. Goods are unlikely to be the only thing flowing through the new silk road; influence will also. That is why we need a robust framework to be put in place now to ensure that Chinese investment and trade opportunities are transparent, do not harm our security and strategic interests, and are reciprocal. As Chinese businesses have been able to invest heavily in Europe, European companies have found investing in China more troublesome leading to a 25 percent reduction in 2016 alone. If China wants to be an international player, it cannot merely talk the talk on open markets; it must walk the walk and play by the rules.

Europe can protect itself by taking three actions. Firstly, it should proceed with the development of national and EU-wide investment screening mechanisms. A proposal is currently progressing through the EU institutions that was initiated by Germany, France and Italy. While not coercive, such information-sharing mechanism will enable Europe to gain a fuller overview of China’s investment activities in Europe. Secondly, it should develop a clear definition of strategic sectors, especially with the development of new technology such as Artificial Intelligence. And thirdly, the EU should develop a collective framework for setting the standards for Belt and Road investments to ensure such a route does not merely generate a one-way flow of commercial and political influence.

As the largest trade partner to China, Merkel’s Germany has leverage and holds a special responsibility. We saw in the past, with the case of solar panels, the negative impact when German bilateral commercial interests are promoted at the expense of a concerted EU strategy. If Chancellor Merkel wants to show that Europe can hold some weight on the international scene and that Germany can lead, then she must not succumb to Chinese cash and promises.

The piece is available to read on Die Welt’s website here: https://t.co/mURVFgsD5y

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