Biden-Xi Meeting: the Fallout for Europe

In 2015, meeting Barack Obama at Sunnylands, Xi Jinping assured that "the vast Pacific Ocean ha[d] enough space for the two large countries". The phrase revealed a sense of the hierarchy of nations in the Asia-Pacific, and fuelled speculation about a possible "G2 arrangement". Today, in San Francisco, Xi Jinping assures Joe Biden that "Planet Earth is big enough for the two countries to succeed". Some may see this as a conciliatory gesture, but the main message is about China's growing ambitions.

The legacy of the Sunnylands meeting is rather limited. One remembers above all Xi Jinping's claim that China "had no intention of militarizing" the China Sea, and of course what followed this pledge. The Obama administration - including then Vice President Joe Biden - had enough opportunities to learn its lesson and curb the initial optimism. Political relations with China have followed a downward curve ever since, from the Obama era through Donald Trump’s presidency and to Joe Biden’s current administration.

Does the San Francisco meeting mark a pause in this deterioration of relations, or is it the start of a trend reversal? In any case, the US, and especially Joe Biden himself, have done their utmost to play down expectations, leaving the slogans and emphasis on rhetoric to Xi Jinping. China failed to secure several "conditions" it had requested for the meeting to take place: first and foremost, a clear US declaration of "opposition" to Taiwan’s independence. Results on the US side are slim: a resumption of military-to-military communications intended to mitigate incidents, cooperation to prevent the export of fentanyl precursors, and an increase in commercial flights between China and the US. Cooperation on climate change, although highlighted, lacks specific commitments, as evidenced by the absence of concrete promises in China's recent announcement regarding a future limit on methane emissions. The actual gains on the Chinese side are equally modest. 

Xi’s televised photogenic walk with Biden was quickly overshadowed by Joe Biden who once again termed the Chinese leader "a dictator". A dinner allowed Xi to meet some of America's top executives - some of whom preferred to keep their attendance a secret. China may have achieved minor concessions ahead of the meeting as the US abandoned a proposal to broaden investment bans to four new Chinese companies. Chinese cooperation on fentanyl may have been obtained by the US in exchange for a resumption of police and judicial cooperation, going as far as removing the Ministry of Public Security’s Institute of Forensic Science from the Entity List one day after their meeting. Due to Congressional Democrats’ criticism, Biden’s plan to finalize the IPEF (Indo-Pacific Economic Framework for Prosperity) in time for the APEC summit had been derailed. This is an unintended gift to China: the agreement, once concluded, would compete with China's BRI (nicknamed "debt and noose" by Joe Biden in August), and would aim to secure the participants' supply chains.

The fact remains that regular contacts and meetings have unequivocally resumed - a fact acknowledged in separate communiqués from both sides and emphasized by China. In addition to military contacts, these interactions span diverse areas, including foreign policy, economics, finance, trade, agriculture, anti-narcotics, police and judicial cooperation, artificial intelligence, science and technology...

Undoubtedly, the crucial gains for China lie within this list and in Xi's meeting with business leaders. At a time when China's domestic economy is languishing, and capital outflows outstripped inward investments for the first time in decades, China needs to woo investors intrepid enough to brave geopolitical risks. Xi Jinping rarely complains publicly. Yet, he has done so in San Francisco, about American restrictions on technology and investment that are hurting the Chinese economy - while of course reaffirming that China will overcome these obstacles.

In Europe, the discussion on decoupling and its more specific version, de-risking, is frequently perceived as a potential transatlantic division. In reality, it deeply divides American business and politicians themselves. The frenzied applause from the executives at the banquet with Xi Jinping is graphic evidence of this. This is the flip side of the coin for the US economy, against the Inflation Reduction Act (IRA) which was designed to reduce dependencies on China. The IRA's 369 billion dollars budget cost is indeed criticized by many Republicans and free-enterprise advocates.

None of this will resolve the fundamental differences between America and China. Biden, and Xi even more so, have emphasized these. China is particularly insistent on the red line concerning Taiwan.This is an obvious allusion to past statements made by Biden who seemed to commit the US in the event of conflict in Taiwan. And, as always, Xi presented the Chinese military deployments as an answer to American arms deliveries. But with China's economic conjuncture and the US electoral test ahead, what we are seeing is a pause, with certain sectoral agreements on the economic front. Joe Biden, cannot compete with Republican hawks on China, so he might bet for stability.

Where does this leave Europe? Since last spring, European officials and experts have been inundated with declarations of Chinese sympathy, accompanied by criticism of alignment with the big culprit, the US. Today, they witness Chinese professions of friendship with the US, a shift that reportedly bewilders even Chinese netizens. To date - and less than a month before the next EU-China summit scheduled in Beijing on December 7 and 8 - it is impossible to see any real concession China has made to the European Union, particularly on the economic front. Besides the war in Ukraine, there is now an additional war in Gaza. Under the leadership of the Commission, but also under the intense scrutiny of Member States, the Europeans are engaged in a number of new de-risking initiatives: controlling outward investment, controlling exports in critical areas, securing supplies of critical raw materials, and protecting research and development in five major technological fields. This comes in addition to improved implementation of inward investment screening, sanctions on imports linked to human rights abuses, the anti-subsidy investigation on electric vehicles, the recently adopted Anti-Coercion Instrument, and the introduction of a carbon tax at the border (perhaps the issue of least concern to China compared to other of Europe's trading partners). This agenda is respectable. It demonstrates that the European executive has moved beyond the purely reactive phase and multilateral incantation to produce an economic strategy addressing Chinese challenges. It is also a tall order.

Tariffs on steel and aluminum that penalize Europeans have yet to be lifted. The uneven playing field for investment that resulted from IRA subsidies has only found limited solutions. In Europe, where the 2023 growth forecast is a modest 0.6%, economic challenges also influence politics. The European Union is seeking to rebalance its stellar trade deficit with China (398 billion euros in 2022) and is engaging for example with Beijing on "economic transparency" regarding critical materials supply chains. There is pressure from the Chinese side on Member States to ease investment and technology restrictions.

The worst European response would be to turn a China-Europe-US economic triangle into a reality. This would primarily benefit China, capitalizing on divisions both with the US and among European nations. And in any event, China’s stakes with America exceed those with Europe. With the EU-China summit less than a month away, it is important that Member States demonstrate their willingness to move forward with the Commission.

Equally, the US must pursue the policy of coordination with Europe that has been - with some exceptions - a hallmark of the Biden administration. The upcoming elections make this even more arduous. It is crucial that the US share with Europeans details of their sectoral consultations with China, allowing space for European interests and concerns.

Image copyright : BRENDAN SMIALOWSKI / AFP