Confronting China: Building a Transatlantic Technology Strategy

That is the key question facing Western countries in 2024. How should we confront China’s rise as a technology superpower?

Should I “separate” it? Or should we “remove the risk”?

China’s authoritarian model includes an aggressive push toward global technology leadership. From semiconductors to green technology, from undersea internet cables to bridges and roads, the United States and the European Union are in constant competition with Beijing. They subsidize their own champions and institute different and sometimes contradictory regulatory regimes. As Brussels becomes a global technology regulator, the breadth and scope of EU policy risks unintended consequences when it comes to ensuring security.

CEPA’s new China project convenes a working group of transatlantic thought leaders to assess how best to address this challenge. This Bandwidth feature provides a preview of the results. The full-length policy document will continue throughout his 2024 year.

The Allies have made important progress toward laying the foundations for an alliance. Let’s start with something philosophical. Both sides agree that the best approach is to “de-risk” rather than “de-couple.”

The United States initially supported a radical withdrawal. President Donald Trump raised tariffs and spoke from a military standpoint to overcome China. President Joseph Biden has doubled down on his tough stance, introducing new rules restricting U.S. high-tech exports and investment. Administration officials began to describe any relationship with China as an economic and security risk.

Europeans were appalled. In March 2023, European Commission President Ursula von der Leyen instead called for “risk aversion.” “I believe that separation from China is not viable and is not in Europe’s interests,” she said. “Our relationship is not black and white, and our response is neither.”

The United States accepted this change. In April 2023, US National Security Adviser Jake Sullivan adopted the European terminology: “We support risk reduction, not decoupling,” Sullivan said. This “means having a resilient and effective supply chain and ensuring that we are not subject to coercion by other countries.”

However, this general definition of “risk aversion” remains ambiguous. How should it work in practice?

One goal is to loosen China’s grip on key metals such as nickel, copper, lithium and cobalt. The EU imports almost 98% of its consumption of 17 minerals from China. The United States imports more than 50% of its requirements for 25 critical minerals. In response, allies launched a joint early warning system to prevent supply chain crises.

The United States and Europe are both beefing up domestic industries to fight climate change, and both are attacking Chinese subsidies. The United States has launched an investigation into trade misconduct by a Chinese solar panel company and electric car maker. The EU recently launched an anti-subsidy investigation into China’s electric vehicles.

At the same time, the US and EU are pushing back against China’s Belt and Road Initiative and funding joint infrastructure projects in the Global South. They are collaborating on cutting-edge technologies, from artificial intelligence to quantum computing.

The unanswered question is whether these moves will prove sufficient. Washington and Brussels are both aligned and at loggerheads.

Let’s think about semiconductors. Both the United States and the European Union agree on the need to create secure supply chains and limit China’s access to cutting-edge chips. Both countries have imposed sanctions on cutting-edge technology, with the US imposing sanctions on chips from Intel, NVIDIA and Qualcomm, and the EU on cutting-edge ASML lithography equipment made in the Netherlands. Both aim to “friend shore” domestic manufacturing capacity, launching expensive publicly funded programs, the US CHIPS and Science Act and the EU CHIPS Act.

Despite this extensive collaboration, Washington and Brussels face major obstacles to full cooperation. U.S. export controls are stricter and stronger than anything the less centralized EU can or would like to impose. Both companies are facing pushback from their own domestic semiconductor industries, which are concerned that export restrictions could backfire. Western chip makers would lose revenue from the Chinese market, and the Chinese government could retaliate by withholding access to certain minerals, legacy chips and solar panels. Export restrictions encourage China to produce cutting-edge chips at home.

Europe faces deep divisions within its own ranks. Chancellor von der Leyen’s adoption of “risk aversion” toward China signifies a strengthening of the previously conciliatory stance, but both Germany and France remain skeptical of the “security over sales” approach. It is. Although the European Commission manages trade policy, national governments remain responsible for national security, which is a key element of economic security. U.S. companies often accuse EU regulators of discriminating against U.S. tech companies in favor of EU companies. If Europe tries to prop up its domestic technology champions, it will continue to lag behind the United States in driving innovation, leaving room for China’s big companies to consolidate their competitive advantage.

Another danger is protectionism. Both the US and the EU have made fighting climate change a priority, but they have privileged domestic production, often at the expense of other countries. The $350 billion American Inflation Reduction Act imposes strict domestic production requirements. Europe’s ambitious carbon tax plans are blocking a hoped-for transatlantic deal on steel and aluminum tariffs, which could be a fundamental building block of an ambitious decarbonization union.

Protectionism remains an ever-present threat. At the recent EU-US summit, the allies were unable to reach an agreement on steel and aluminum tariffs. The proposed solution would have created a club of countries that would agree on common environmental standards and limits on government subsidies and overproduction of these two important products. Countries that do not accept these rules will be subject to tariffs.

The final unanswered question is whether the US and EU can deliver on their commitments. Both sides agree that China’s Belt and Road project, which builds bridges, roads and other infrastructure in the Global South, must be fought. But efforts to revitalize competing projects require financing and logistical coordination, which so far appears to be lacking. A good test project would be whether the US and EU can complete the Lobito Corridor, a $1 billion infrastructure project linking Zambia’s copper belt to Africa’s west coast.

It is expected that there will be many challenges. China is determined to achieve global leadership in cutting-edge technologies such as artificial intelligence, telecommunications and quantum computing. The US and EU are determined to block this goal and stay ahead of the curve. Only strong transatlantic technology partnerships can guarantee success.

Bill Echikson is a nonresident senior fellow at CEPA and editor of Bandwidth.

Bandwidth is CEPA’s online journal dedicated to promoting transatlantic cooperation on technology policy. All opinions are those of the authors and do not necessarily represent the positions or views of the institutions they represent or the Center for European Policy Analysis.