EU Study: European Firms ‘Unprepared’ for U.S.-China Decoupling

EU Study: European Firms ‘Unprepared’ for U.S.-China Decoupling

The European companies are “unprepared” to face the trade and industrial decoupling between the United States and Communist China, a new EU study finds.

“European firms remain primarily unprepared for a potential deepening of the rift between the two economic superpowers,” the study by the EU Chamber of Commerce in China (EUCCC) and Berlin-based think tank MERICS said.

In light of the steps taken by President Donald Trump during his term, the European tech companies that depended on China may also find it challenging to operate in the United States.

“European companies may be forced to choose between either entirely separate operations in China and the rest of the world,” the study suggested.

The German broadcaster Deutsche Welle reported the findings of the latest study:

Washington and China have been engaged in a trade and technology war since 2018, with both sides looking to reduce their interdependence. The decoupling or disentangling of the world’s two biggest economies, tremors of which are being felt across the global economy, however, is not the biggest challenge facing European firms doing business in China, a survey showed.

The firms rated the US-China economic split below challenges posed by a global economic slowdown, the COVID-19 pandemic, competition with Chinese firms, market access issues, and rising labor costs.

Despite a high level of exposure to US-China tensions, European firms remain primarily unprepared for a potential deepening of the rift between the two economic superpowers, the survey published as part of a study by the European Union Chamber of Commerce in China and European think tank Merics found.

“Companies would do well to remedy that imbalance while decoupling remains low on the list of priority challenges, rather than after it has risen in significance,” the authors of the report said.

The authors expect the US and China to continue to reduce their reliance on each other, despite a potential improvement in relations under incoming US President Joe Biden, who has been critical of Beijing’s trade abuses that he says are hurting US workers. Biden has also supported the ban on Huawei on security grounds and has expressed concern over TikTok’s handling of data.

“The massive shift in public opinion towards China, as well as a growing bipartisan consensus in Washington to consider China a strategic competitor on a divergent trajectory, means things are unlikely to result in ‘globalization renewed’,” they said.

China is also doubling down on its efforts to build self-reliance as part of its “dual circulation” strategy. Beijing is looking to spur domestic innovation to cut its dependence on US high-tech products, such as semiconductors — a vulnerability laid bare by the ongoing tensions.

“The technologies that are defining the future, and which are increasingly integrated into every sector of the economy, are being divided between two of the world’s three largest economies, each of which has a growing firewall separating itself from the other,” the report said.

The firewall would disrupt global supply chains, which are reliant on both US and Chinese technologies, causing headaches for European firms.

“Software is possibly going to be a real challenge if the US insists on the US software and China insists on their software, and then all of a sudden, you are sitting between unable to produce,” Jörg Wuttke, president of the EU Chamber of Commerce in China, told DW, adding that European firms can’t afford to be complacent.

As it is, European countries are falling more and more under Beijing’s political and economic clout. Last month, the EU and China signed a major investment deal, opening Europe’s energy and other critical sectors to Chinese state players. According to European newspapers, German Chancellor Angela Merkel “pressed hard” to finalize the negotiations despite U.S. concerns over the deal.

The report comes as President Trump’s administration is tightening sanctions on companies controlled by the Chinese military.

“The Trump administration stepped up efforts in its final days to crack down on China with new additions to a military blacklist,” Hong-Kong-based newspaper the South China Morning Post reported yesterday. The U.S. “Defence Department added nine more firms on Thursday to its list of companies that it says have ties with the Chinese military, rounding out the total to 44.”

According to Chinese media reports, Beijing hopes to “reset” bilateral relations once Joe Biden takes over the White House later this month. Last month, Chinese President Xi Jinping congratulated Biden and hopes for a “win-win cooperation” under his administration, he said in his statement. The reset expected by the Communist regime will mean undoing the trade, defense, and foreign policies pursued by President Trump.

From his first day in office, President Trump has reduced the U.S. dependency on Communist China. However, the need to decouple the economy gained urgency in the wake of the coronavirus, which first broke out in Wuhan. Beijing ran a massive misinformation campaign to cover up the outbreak and then hide the pandemic’s origins. China-based hackers have also targeted the U.S. vaccine program.

President Trump’s administration has moved to purge rogue Chinese state-run companies from U.S. internet, mobile, and telecommunication networks. Secretary of State Mike Pompeo has created a “Clean Network” initiative to blacklist Chinese companies involved in spying and stealing military-related technologies. In August 2020, Pompeo urged the European and Western allies “to join the growing tide to secure our data from the CCP”s (Chinese Communist Party’s) surveillance state and other malign entities.”

Pompeo Urges Cutting Ties With Chinese Tech Companies, Apps (August 2020)

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