US-EU De-risking and its Impact on China
"[China should] make full use of the differences between the US and the EU's de-risking strategies towards China"
Ke Jing’s (柯静) analysis of the US and EU’s de-risking approach to China is a must-read for anyone interested in how Chinese analysts have been interpreting the recent transatlantic rejection of “decoupling” in favour of “de-risking”. In one of the most comprehensive assessments to have been published on this topic in mainland China, Ke successfully captures many of the arguments that have been voiced there since the US and EU adopted this new slogan earlier this year.
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Advocating “de-risking” and rejecting “decoupling” does not imply a change in the US and EU’s increasingly tough approach towards China.
This softening in tone is purely rhetorical and is aimed at assuaging concerns both within the US and the EU, as well as among current and potential international partners.
If Washington and Brussels wish to restructure global supply chains and construct “a new global economic order” that is more beneficial to them and less beneficial to China, they will need to form a large coalition of countries that goes beyond the Western camp.
The choice of the term “de-risking” is particularly apt in that it provides its users with considerable flexibility and independence when defining its scope. This should help facilitate the diffusion of this concept internationally.
What the US and EU de-risking policies have in common:
A focus on industrial policy aimed at boosting domestic manufacturing in key sectors and reducing dependence on China.
Technology as their core focus.
The promotion of international mechanisms that exclude China and seek to strengthen policy coordination and supply-chain cooperation among partner countries.
Where the US and EU de-risking policies differ:
Whereas the main target, if not the only target, of the US’s de-risking strategy is China, this is not the case for the EU which is intent on also de-risking itself from Russia.
Unlike Washington’s approach, Brussels’ toughness towards Beijing and the future direction of its de-risking strategy remain highly uncertain. A lot will depend on the course taken by the war in Ukraine.
Washington and Brussels have distinct regional priorities. Resources will therefore be allocated differently.
While the promotion of free trade agreements is set to form an inherent part of the EU’s de-risking strategy, this is not the case for the US.
Difficulties facing the US’s de-risking strategy:
Convincing developing countries to de-risk from China without market access and tangible economic benefits in return is sure to be an uphill battle for Washington.
Disagreements between Republicans and Democrats and a change of administration after next year’s elections threaten the viability of the international mechanisms currently being promoted by the US (e.g. IPEF).
Pushback by American business against this policy will continue.
Difficulties facing the EU’s de-risking strategy:
Disagreements between Brussels and certain EU member states threaten some of the initiatives that the EU has been putting forward.
The rate at which EU policies are drawn up by Brussels and then approved and implemented by individual member states may not be able to keep up with the speed at which new technologies are emerging.
Although this grand de-risking strategy still faces considerable challenges, it is and will be affecting China in the following ways:
Negative perceptions of China are being exacerbated and the risks of overly close economic ties are being exaggerated.
China’s integration into the global economy is being undermined.
The rise of China’s tech industry is being hampered.
China’s exclusion from US- and EU-initiated economic groupings, the formulation of new norms targeting China and the increase of protectionist policies around the world will continue to divert trade away from the country.
Globalisation is being affected. Divisions in the Indo-Pacific region and even in the world economy may yet emerge.
In the face of this, Beijing should “make full use of the differences between the US and the EU's de-risking strategies towards China” so as to thwart this containment strategy. It should also continue to emphasise its openness to trade and investment, expand and deepen its own network of free trade agreements, and strive to consolidate its essential role in Asian and world supply chains.
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