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Wednesday, January 20, 2021
The Recoupling of Europe-China Ties
ANBOUND

Joe Biden is expected to bring some changes to the world after taking office as President of the United States. Secretary of State designate Antony Blinken said at a congressional hearing on January 19 that he would have three "priorities" if he were to become the nation's top diplomat. First, to reinvigorate the U.S. State Department by investing in its greatest asset: the foreign service officers, civil servants, and locally employed staff. Second, to work across government and with partners around the world to reinvigorate American diplomacy. Third, to reinvigorate American leadership and to re-engage actively in international affairs.

Europe is undoubtedly the most important element in the Biden administration's efforts to reinvigorate U.S. diplomacy. During the Trump administration, relations between the United States and its traditional ally, Europe, have taken a considerable hit. On the economic front, the United States and Europe have direct disputes over digital taxes, trade, tariffs, Nord Stream 2 project, and other issues. On the attitude toward globalization, the U.S. and Europe have some major differences; on the diplomatic front, the U.S. has repeatedly criticized Europe for its insufficient responsibility in NATO and its neglect of the security brought by the U.S. to Europe. On the climate issue, the U.S. withdrew from the Paris Agreement; on the Iranian nuclear issue, the U.S. withdrew from the "Iran nuclear deal" regardless of the opposition of Europe, and unilaterally imposed sanctions on Iran, leaving Europe with a mess of potential risks. On relations with Russia, the U.S. withdrew from the Open Skies Treaty and the Intermediate-Range Nuclear Forces (INF) Treaty.

All these have made Europe suspicious of relying on the U.S.-EU relationship for security. Although this does not change the basic pattern of the U.S.-EU transatlantic relationship, the rift between the U.S. and Europe has emerged, and "a more independent Europe" and "Europe in control of its own destiny" have become the goal pursued by many EU countries in the future.

While the Biden administration has made it clear that it wants to mend ties with the EU, we note that the EU is still pushing for projects with the characteristics of a "more independent Europe." The European Union is set to unveil plans to strengthen the international role of the euro as it seeks to erode the dominance of the U.S. dollar and to insulate the bloc from financial risks, including U.S. sanctions, as reported by Bloomberg Businessweek. The European Commission blueprint will outline how the region can fortify its economic and financial resilience by bolstering the single currency's architecture and through growing markets like green finance, according to a draft of the plan seen by Bloomberg. Calls to boost the bloc's autonomy have been growing for years and gained steam after the U.S. imposed sanctions against Iran that would also punish European banks, companies, and individuals who do business with the Islamic republic. According to the draft document, the ability of the U.S. to impose international sanctions due to the influence of the dollar "has seriously affected the EU's and its member states' ability to advance foreign policy objectives." Washington's policies have sometimes "compromised legitimate trade and investment of EU businesses with other countries."

These moves signal Europe's desire to reduce its dependence on the U.S. and advance its foreign policy goals at a time when the U.S. ally is less predictable.

It is far from certain that the EU's plan can be successfully implemented to establish a system free of the dollar and the U.S. financial system. ANBOUND's researchers tend to believe that the EU is unlikely to form a "structural divergence" from the U.S. financial system in the short term, and it appears that Europe has formed a "consensus" on this matter. The so-called strengthening of independence is just such a consensus. As a matter of fact, the original purpose of the birth and development of the euro as an independent currency was to become the third pole currency, which was to construct the European monetary system and financial system. Whether structural reform can take place in Europe in the future depends on the progress of the financial clearing system, central bank reserve resources, financial trading system, and so on. Without substantial progress on these fronts, the EU's changes will not be structural, but merely a consensus.

The EU is an important economic partner of China. Over the years, the EU has been one of China's major trading partners, and it has remained China's second largest trading partner even in the face of the COVID-19 pandemic. According to the new "1+3" geo-economic pattern proposed by ANBOUND's founder Chan Kung in 2018, Germany as the core country of the EU is an important economic partner that China should strive for cooperation under the framework of globalization. In the face of the new pattern of changing U.S.-EU relations, China will also need to adjust the framework of its foreign relations and reposition or adjust its relations with the U.S. and Europe in the future. In a world where the United States has identified China as a "long-term strategic competitor," it is important for China to reorient and strengthen its relationship with Europe.

In the face of changing U.S.-EU relations, China needs to reorient its strategy towards relations with Europe. It is not simply about improving China-EU diplomatic relations, but about systematically adjusting the China-EU relations from multiple aspects, including trade, investment, financial cooperation, diplomacy, geopolitics, climate change, science, technology, and cultural exchanges on the basis of a profound understanding of the changing world pattern and the EU's core needs. In addition, China and the EU need to have exchanges and discussions on inescapable issues such as value perspective, human rights, democracy, intellectual property rights, market institutions, and labor rights. In the opinion of ANBOUND's researchers, it is important for both sides to understand the differences in culture and values in the exchanges and cooperation between China and the EU. Even if there is no agreement on the above issues, at least the discussion itself is a kind of communication progress.

Taken together, the core of China-EU relations in the future will definitely be economic. In the economic sphere, the EU will show a very different interest and attitude from China in terms of geopolitics, security, and value perspective. In this regard, China needs to grasp the EU's main economic concerns. Nicolas Chapuis, the EU's ambassador to China, admitted recently that the aim of the EU-China investment treaty is not to quantify procurement targets, but to seek "rebalancing". This "rebalancing" is mainly reflected in two aspects: First, the rebalancing of the EU and China. The EU believes that the size of the Chinese economy and the way it behaves at home and abroad have changed and that it needs a new model to rebalance it. Second, the rebalancing of the economic relationship between China and the United States. The EU believes that the conclusion of the first phase of the economic and trade agreement between China and the U.S. has created new asymmetries and imbalances for China's other trading partners and therefore a rebalancing is needed.

We believe that it is important for China to grasp the interests and attitudes of the EU's "rebalancing". As a major participant in globalization and the world's second largest economy (which will become the largest economy in the future), China has enough market space to accommodate the EU's call for "rebalancing". We would like to emphasize that in the context of the adjustment of U.S.-EU relations, China needs to lock in the core economic partnership between China and Europe with economic cooperation. Such a structured new partnership, once reached, could become a new paradigm in the era of "Globalization 2.0", which would be beneficial to both China and the EU.

Final Analysis Conclusion:

The advent of the Biden Era will not bring U.S.-EU relations back to the same level as in the past. To the EU, strengthening its independence will be its long-term policy goal. In this context, China needs to restructure its relationship with Europe, improve the relationship between China and Europe through economic cooperation based on open communication, and find a foothold for the era of "Globalization 2.0".

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