No one can ignore China

Why Merkel and Xi made a trade deal certain to aggravate Biden

Note: This is a two-part essay; we will publish the second part tomorrow.

By Claire Berlinski in Paris and Vivek Y. Kelkar in Mumbai

The wheels of history

On December 11, 2020, China’s State Councilor and Foreign Minister Wang Yi attended the opening ceremony of the “Symposium on the International Situation and China’s Foreign Relations in 2020.” The event was co-hosted by the China Institute of International Studies and the China Foundation for International Studies, and Yi delivered the keynote address: “China’s diplomacy in the midst of once-in-a-century changes and pandemic: Being responsible to the country and doing its part for the world.”

The speech warranted more attention in the global media than it received. There are no truly independent think tanks in China; the China Institute of International Studies is administered by China’s Ministry of Foreign Affairs. A policy memorandum funded by the European Union—but perhaps not read by those who funded it—advises foreign observers to pay scrupulous attention to China’s think tanks, where one may gain “unique” access to the highest levels of Chinese strategic thought.

The venue was significant, the speech significant. Recently, the Cosmopolitan Globalists appraised the implications of China’s comprehensive trade pact in the Asia-Pacific. Yi’s speech came a few weeks after the announcement of that deal. A few weeks after his speech, China made a deal with the EU, the world’s third-largest economy. If ratified, it would be the most ambitious investment deal China has ever concluded. 

After seven years of negotiation, the agreement was announced on December 30—on the eve of the inauguration of President-elect Biden, and to the horror of the United States. The timing was no fluke.

Yi explained, at length and methodically, China’s plan to weave an economic web across the most significant regions of the world, with China at the center. To that end, he said, 2020 had been “a watershed in human history” and “groundbreaking” for China’s foreign relations.

2021, he noted, marked the centennial of the founding of the Chinese Communist Party. The year is pregnant with significance to the Party leadership. Yi said that in 2021, China would “start a new journey.” Domestically, it would build a modern socialist country “in all respects.” Abroad, it would “resolutely forge ahead” in shaping “major-country diplomacy with Chinese characteristics.” This, said Yi, would herald the birth of a new era, “characterized by a new type of international relations.”

After expatiating at length upon China’s plans to Sinoform the world—the plans are very detailed and already quite well-developed—he concluded: “The wheels of history will always move forward, and nothing can stop the overwhelming trend of the times.”

To judge by the EU’s eagerness to sign up for the plan, it might seem Europeans agree.

Merkel did it

By all accounts, it was Angela Merkel—now in her last year as chancellor—who used the final days of Germany’s six-month term as EU Council President to ram the deal through. Italian, Polish, Belgian, and Spanish officials raged to the press, claiming they’d been “pulverized” by the “German engine” inside the European Commission. With the UK out of the EU, there was no counterweight to Germany—though it is not clear the UK would have been a counterweight.

France’s acquiescence is strange. Just two weeks ago, it opposed the agreement. In an interview with Le Monde, Minister Delegate for Foreign Trade Franck Riester said that trade agreements should serve as “leverage to advance social issues.” The deal on offer, he said, failed the test. China’s immiseration of its Uighur population was intolerable; Europe must not sign unless China ratified the International Labor Organization’s convention against forced labor. (According to the deal, China will “make continued and sustained efforts” to ratify the convention. One wonders how it could be quite so difficult.)

It seems Merkel changed Macron’s mind. Accounts vary, but Politico reports that they reached an understanding: She would conclude the deal under the German presidency of the of European Council, but its ratification would occur in 2022, when France will be President. The prospects for Airbus, too, reportedly rectified Macron’s thinking. Others have suggested he groped for the deal because somehow it fit in with his view of “strategic autonomy” for Europe. Or perhaps he agreed because Merkel told him he had to. France is counting on Germany for those Eurobonds.

Merkel and Xi thoroughly undermined the Atlanticists at the European Council on Foreign Relations, who only recently, on November 26, put out a policy brief calling for a “new transatlantic bargain.” They wrote that Biden’s victory had been met with “sighs of relief” in Europe’s chancelleries. They observed with dismay that “authoritarian powers have extended their reach into new areas, from China’s actions suppressing democracy in Hong Kong to Russian disinformation campaigns targeting Europe.” They proposed that “2021 has the potential for a democratic comeback if the EU and US combine their forces.” 

So much for the ECFR. The deal and its timing could not be more aggravating to the United States. The only thing about which Democrats and Republicans agree is that the world needs a Sinicized Europe like it needs a hole in the head. So why did Merkel rush to make this deal—burning up sixteen years’ worth of acquired political capital weeks before the inauguration of a President who has vowed to do exactly what Europeans claim to want—repair the transatlantic relationship and cooperate in confronting China?

And why did she do it despite widespread European revulsion? On December 17, the European Parliament passed not only a resolution but an emergency resolution “strongly condemning” China for enslaving hundreds of thousands of Uyghurs and ethnic Kazakhs. At the debate, French MEP Raphael Glucksmann gave a speech punctuated with j’accuses: J’accuse the international community for “consenting by its silence” to the “worst crime against humanity of the 21st century.” J’accuse the hypocritical Muslim leaders who brandish their faith while taking China’s money. J’accuse the the bosses of Zara and Nike who profit off China’s slavery. J’accuse Europe’s weak and cowardly leaders.

And European Parliamentarians agreed. The resolution notes that the EU’s diplomacy had yielded no “tangible progress in China’s human rights record, which has only deteriorated during the last decade,” and insists the EU raise this issue “at every political and human rights dialogue with the Chinese authorities.” It calls for sanctions and frozen assets. The deal with China exposed all this condemnation as vapor.

Some members of the European Parliament have vowed it will never be ratified. An outraged editorial in France Soir described the deal as a new Munich:

Rushing to sign an economic agreement with China before Joe Biden, the new president of the United States, take the reins at the White House, this is what the European dwarves have accomplished at this calamitous end of the year. … The risk is clear that the Sino-European agreement of December 2020 marks a new defeat of freedom in the face of the dictatorship. Communist China ends the year with a double triumph: It can claim to have conquered the epidemic, and its economy has returned to the path of growth. The agreement with Europe further embellishes the picture of its hyper-power.

Meanwhile, on Twitter, the European External Action Service continued issuing strident demands for China release its political prisoners—as if no one had told them the news.

It’s hard to understand. Merkel grew up under a repressive communist regime. Her reputation for moral integrity is largely deserved. What was she thinking?

Was it just the cars?

No doubt she was thinking of Germany’s car industry. In the past year alone, Volkswagen poured more than two billion dollars into China. Other German industries, too, see thrilling opportunities in China and an economy that unlike the United States’ has not been ravaged by Covid-19. Germany’s Badische Anilin und Soda Fabrik, the world’s largest chemical producer, is giddy: “BASF has been a committed partner to Greater China since 1885,” says the company’s website, which explains:

Today China is a country on the move and increasingly self-confident, both economically and politically. As the Chinese see it, it is in the process of regaining its rightful place among the great nations. …

The German economy is built on exports, and the German economy powers Europe. But Europe’s population—particularly Germany’s—is aging. The pandemic has dealt a devastating economic blow to every country in Europe. Germany, for the first time, agreed to undertake common Eurozone debt to promote Europe’s recovery. Merkel surely had this in mind.

China offered Europe no concessions on human rights, but offered concessions on trade that stunned European negotiators. Some EU officials have tried to minimize the agreement by saying it’s no more significant than Trump’s Phase 1 deal; indeed, they claim, it’s just a response to it—putting Europe and the US on a “level playing field.” This is not true. If China does what it says it will—of course, that is a very big if—the deal would be far more advantageous for Europe. On paper, at least, the deal gives Europe access to China’s markets so unhampered that one Chinese observer, dismayed, likened it to the unequal treaties.  

The Phase 1 deal reduced some US tariffs on Chinese goods in exchange for Chinese pledges to purchase more American farm, energy and manufactured goods. It addressed a few American complaints about intellectual property theft. It did nothing to advance any economic, strategic, or moral concern beyond this.

But the EU-China deal removes all limits on European investment in China. European companies will be granted access to China’s standard-setting bodies. EU firms won’t have to find Chinese joint venture partners anymore, nor will they be forced to share their technological knowhow in exchange for access to the Chinese market. China has promised to make transparent rules for its state-owned enterprises transparent. If honored in letter and spirit, the deal would sweep away barriers in the automotive sector, telecoms equipment, cloud-computing, private healthcare, and ancillary services for air transport. If you put aside strategic and moral considerations—and if you believe China will do what it has promised—the EU’s deal is superb compared to Phase 1. Viewed in these terms, this tells us what we already know: No, Donald Trump is not good at making deals.

But you can’t put aside strategic and moral considerations—nor assume China will do anything it says. Quite a few Europeans think no deal at all should be signed with a one-party state that is swallowing Hong Kong whole, putting hundreds of thousands of Uighurs in concentration camps, and eagerly preparing to Sinicize the world. What’s more, they think aggravating the United States is strategic insanity—particularly because the US is so close to inaugurating a President who is not hostile to Europe.

Merkel’s nightmare

Merkel is not stupid, though. She was thinking well beyond her car industry. She clearly fears the US cannot repair the transatlantic relationship or cooperate with Europe to confront China.

By all reports, Berlin was stunned by the 2020 election results. Biden won, yes. But 74.2 million Americans—despite everything—voted for Trump. Now, with the whole world watching, Trump is refusing to concede the election, and a significant portion of the GOP continues to enable his lunacy. Merkel has concluded—as has most of Germany, and much of Europe—that the US is unstable, unreliable, and potentially hostile. Thus Germany cannot afford to alienate China. It must hedge its bets.

Even before the pandemic, Trump’s trade war had sent Germany hurtling toward a recession. Richard Grenell did inconceivable damage to German-American ties: Merkel will not soon forget that an American ambassador lent his support to neo-Nazi elements in Germany. Nor would she forget that Trump—after insulting Merkel personally, publicly, and repeatedly—announced, out of the blue, that he was pulling American troops out of Germany. Peter Beyer, Merkel’s coordinator for transatlantic relations, warned at the time that this decision “would break transatlantic bridges.” It did.

The final blow was the American response to the pandemic. This was, literally, a matter of life and death, but the Americans were nowhere to be found. It may not be true that Americans stole medical supplies from France and Germany, as widely reported. But by this point, given everything Trump had said and done, it was not possible to discount the idea as ridiculous. And like Russia, Trump made Merkel’s job harder by spreading lunatic conspiracy theories about the virus and denialism. None of this was in the spirit of Article V.

Merkel described her nightmares at length at the 2019 Munich security conference. Threats, she said, seemed now the be coming at Germany from every direction. She likened the “traditional and, to us, familiar order” to a puzzle that might break into pieces. She certainly wasn’t able to laugh Trump off as a joke:

I will say quite frankly that if we are serious about the transatlantic partnership, for me as German Chancellor it is a little disturbing, to say the least, [that] the US Department of Commerce has said that European cars are a threat to the national security of the United States of America. You see, we are proud of our cars, and we are entitled to be so. These vehicles are also built in the United States. The largest BMW factory is in South Carolina, not in Bavaria, in South Carolina. South Carolina in turn exports to China. If these vehicles, which are no less of a threat by being built in South Carolina than they would be by being built in Bavaria, suddenly pose a threat to US national security, then this comes as a shock to us. 

Nor was the US the only “major challenge” Europe faced. She catalogued the list of crises occasioned by Russia, and particularly lamented Russia’s violations of the INF treaty. The termination of that treaty—she had supported ending it—was in her view the worst news of the year. It had been “agreed for Europe’s sake, a disarmament treaty that affects our security.”

Recalling Germany’s role in “the horrors of the Second World War and National Socialism,” she said a response of “blind rearmament” was out of the question. What she offered, instead, was suggestive:

… since a representative from China is here today, I would say that disarmament is something that concerns us all, and we would, of course, be pleased in this regard if such negotiations were held not only between the US, Europe and Russia, but also with China. I know that there are many reservations about this, and I don’t want to go into details about this right now. But we would welcome this.

Europe, she continued, also confronted terrorism and the Euro crisis. As if that wasn’t enough, Europe “then had to grapple with the refugee issue on a massive scale.” She put special emphasis on the Middle East and Africa:

if development in sub-Saharan Africa, but also in Egypt, in Morocco, in Tunisia and in Algeria does not progress in a way that gives young people opportunities and hope, that gives them prospects for a life in these countries, we will not be able to tackle the prosperity gap between Europe and Africa.

Her next thought was unspoken, but obvious. The gap would inspire hundreds of thousands of refugees and migrants to flee to Europe. The refugee crisis had already destabilized the Continent. For the first time since the fall of the Third Reich, neo-Nazis had entered the Bundestag. In this context, her description of China is notable. Nowhere in the speech does she describe China in hostile terms. And when she does refer to China, she always sees something potentially useful in China’s behavior.

We can see that in recent years China has pursued development policy in Africa on a large scale in the form of investment. We can see that we in Europe have implemented traditional development policy to a considerable extent. I have often talked with President Xi Jinping about how we can learn from one another with regard to what each of us does well. But we have not yet drawn up a development policy agenda with which we could say that investment will ultimately create enough jobs to ensure security, peace and stability in these countries, too.

Her greatest fear, she said, was that the world’s puzzle-pieces would break—the global order would be replaced by feuding, sovereign nation-states with no shared rules at all.

As German Chancellor, I can only respond: if so, our chances are poor. For the United States of America has so much more economic clout and the dollar as a currency is so much stronger, that I can only say: obviously, it holds the better hand. China, with more than 1.3 billion people, is so much larger. We can be as hard-working, as impressive, as super as we like—but with a population of 80 million we won’t be able to keep up if China decides that it no longer wants to maintain good relations with Germany. That’s how it will be all over the world.

This is why, despite the opprobrium she incurred, Merkel rammed the deal through, on a timeline pleasing to China. She believes the worst-case scenario is sufficiently likely that she must, above all, protect Germany’s interests—in Lord Palmerston’s sense.

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The writing’s on the wall

Over the past decade, particularly during the Trump Administration, China has asserted itself as the center of Asia’s future. Asia is quickly becoming an industrially integrated power bloc. China’s policies, domestic and regional, will determine the future of Europe and the United States. The EU, in particular, needs access to Asian markets. Any barrier—economic or military—to the South China Sea, South Asia, or East Asia would be devastating to its prospects.

In May, China unveiled plans to invest USD 1.4 trillion in the technologies that will shape the economy for decades to come, such as 5G and artificial intelligence. China now has the first-mover advantage: Its domestic market offers the scale and its spending the heft to power the kind of technological development that so far, only the US and Europe have achieved.

The EU has been contemplating these developments for several years. Trump’s presidency persuaded many European leaders that the familiar geopolitical landmarks were gone—for good. The globe was no longer unipolar; the United States no longer reliable. The world was fragmenting, even as the US was renouncing its role as the guardian of global trade routes.

To Germany in particular, a country built on exports, the strategic picture looked dire. Merkel saw a future defined by complexity—systemic and economic—and in response developed a complex strategy. “Blind rearmament” was out of the question.

But hedged strategic trade alliances were not.

Tomorrow, we will explain the intellectual origins of Merkel’s hedged-bets strategy, look at Yi’s speech in detail, and consider China’s plans.