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“We should not pick a geostrategic fight over trade and investment”

China-US relations will feature prominently at this year’s Munich Security Conference as both countries are sending their largest-ever delegations to the annual meeting, which will be held from February 15 to 17.

As Germany and the EU risk being pulled into this intensifying great power competition, European policymakers should keep a cool head about China, advises MERICS director Frank N. Pieke.

This year’s Munich Security Report states that “the world is entering a new era of great power competition.” In light of a confrontational US China policy and China’s growing assertiveness, will Europe be forced to pick sides in a new Cold War?

Frank N. Pieke: When presented with such a stark choice between our most important ally and China’s one-party state, it is obvious that Europe should stand on the side of the United States. But since European policymaking is not driven by superpower ambitions, we may not have to pick sides. Do we have to be mindful of China as a potential military rival? Yes. At the same time, we do not see eye to eye with the current US administration on a number of global issues. It is in our economic interest to maintain a fruitful trade and investment relationship with China, and we need China as a partner to find solutions for many global challenges, from peacekeeping to the repair of the world trade system to climate change.

Many EU members are considering excluding Huawei from building their national 5G networks. Are these steps justified?

Frank N. Pieke: The broad definition of national security in the State Security Law and the “comprehensive national security outlook” promoted by Xi Jinping as well as the PRC’s legal and executive practice suggest that Chinese companies can be forced to grant the state access to critical infrastructure and information, possibly even beyond China’s borders, and even if it might conflict with other domestic or international norms and obligations. This also applies to Huawei. At the end of the day, this is not a question of what Chinese laws say or don’t say, but of whether we can trust the Chinese Communist Party’s intentions.

The competition with China’s state-led economy has led to investment screening and even a revival of more activist industrial policy thinking. Germany’s Minister of Economic Affairs and Energy Peter Altmaier (CDU) caused a stir when he presented his “National Industry Strategy 2030.” He calls for the creation of national and European champions and for a state investment fund to protect industries of national importance from foreign takeovers. Is China changing our economic model?

Frank N. Pieke: We should not use trade or investment or technological competition to pick a geostrategic fight with China. In that sense, Germany and the EU are different from the superpower United States, whose primary concern is to maintain its global hegemony in the face of China’s challenges. Not being a superpower allows us to take a multifaceted-approach to China. There is no doubt that China uses state aid and industrial policy to distort market competition. We have to be firm and take measures that aim to restore the free market, both internationally and in China.

However, trade sanctions and industrial policy are blunt measures that threaten to deepen the divides and hasten the destruction of global markets. Once we go down such a mercantilist route there may be no turning back. We may end up permanently dividing the world in national or regional markets. This will not only make us all much poorer, but will also increase the likelihood of strategic rivalry, ultimately forcing the EU to side with the United States in an escalating conflict between the West and China.

This interview or excerpts may be quoted with proper attribution. 

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