World News

cross-posted from: https://lemmy.sdf.org/post/44658116

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Negotiations by individual member states with the Chinese leadership are unlikely to create the leverage necessary to force concessions from Beijing or change its current escalatory course. Not even Germany (currently the world’s largest importer of Chinese permanent magnets) has secured sustainable relief since China’s April provisions came into effect, and there is little reason to expect change.

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Europeans need collective leverage to even start a conversation with Beijing—otherwise acceptance becomes the new normal and Beijing will continue to gradually escalate. Contrary to popular belief, the EU has one of the most powerful geoeconomic tools: the 2023 anti-coercion instrument (ACI). Because it leans on the bloc’s strong trade competencies, rather than its much weaker foreign policy ones, the ACI lets the EU hit back hard—with a variable toolkit designed to create real pressure: import tariffs, services restrictions, export controls, suspension of IP rights, curbing access to finance, banking, or public procurement, or restricting foreign investors. It allows targeting entire sectors, single firms, or even individuals. This is the EU’s sharpest weapon against economic blackmail, especially because it does not require unanimity for decisions

To trigger the tool, a qualified majority of member states in the Council must agree that the EU is being subjected to economic coercion. If China’s recent actions do not meet that threshold, it is hard to imagine what ever will. Once activated, the instrument offers a broad, flexible menu of options that can be adjusted to maximise negotiating space. And China has serious vulnerabilities that Europe can exploit.

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Beyond already controlled extreme ultraviolet lithography machines (which the Dutch government blocked in 2019 with significant US pressure to stop China’s access to cutting-edge chip tech), much of China’s semiconductor output still depends on older deep ultraviolet models. These machines are supplied and serviced by European companies whose maintenance and spare parts support could be curtailed in response to coercion, choking China’s chip output.

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China relies on Western turbofan jet engines and advanced machine-tooling to build its indigenous aircraft programme. Beijing’s plan is to be independent of international components anyway, but clamping down on European exports would delay this process.

Italian and German machine-tool makers are market leaders in the production of aircraft and engine parts, such as compressor blades, aircraft structures, and navigation systems. High-precision computer numerical control machine tools, used to make everything from jet engine parts to tiny circuit board components, are dominated by German and Japanese firms. Limiting their export or servicing could threaten production issues across advanced Chinese industries.

China’s passenger air travel is dependent on more than 2,000 European aircraft. Restrictions on production and future sales within China could be put on the table for a more direct and immediate impact. Chinese demand for aircraft is growing massively—it is expected to need almost 10,000 new passenger and freight planes in the next twenty years, so such measures would disrupt a rapidly expanding market.

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China is also relying on European (and Japanese) speciality steel products such as high-precision bearings used in turbines, EV drivetrains and machine tools. German and Swedish players lead in this niche. Powdered superalloys, used primarily in aerospace, power generation and industrial sectors, remain significant Chinese imports. Restricting exports or maintenance could create significant pressure points, complicating Beijing’s ambitions for technological self-sufficiency and industrial expansion.

This dependence extends to heavy-duty gas turbines, which power China’s utilities, industry and parts of its grid. The global market is dominated by German and Italian companies, alongside American, British and Japanese peers. Restricting exports or maintenance of these turbines could have strong effects on Chinese industrial centres.

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China’s vulnerabilities are not limited to its imports. Thanks to the American tariffs, its exports face an even bigger problem. Chinese exports to the US have plunged by more than 27% year-on-year, while exports to Europe are up by almost 14%. Retaliatory European tariffs imposed on Chinese steel, wind turbines, electric vehicles, electronics and low-end consumer goods could squeeze Chinese exporters further. There are only so many developed markets in the world, and the EU should aim for reciprocity in areas where European companies face barriers in China.

European leaders should focus on sectors they aim to protect anyway but where political consensus is elusive: wind, electric vehicles, telecommunication equipment, medical devices, machine tools and pharmaceutical products, to name just a few. They should probably exclude areas in which Europe does not aspire to regain industrial leadership, like solar panels. Coordinating measures at the G7 level would multiply the impact.

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To force Beijing to the negotiating table, European policymakers should take a page out of the Beijing playbook and move into offence. The objective of an escalatory response should be a “landing zone”, a negotiated political agreement with China on the basis of mutually assured destruction—akin to an economic disarmament treaty. The agreement would still allow goods for basic industrial needs to flow, but it would protect core European industries. Failure to honour this agreement would trigger wider measures which could go further than the initial ACI response and could include sensitive areas such as China’s financial sector. The goal for Europe is to buy time; time it needs to decouple its industry from Chinese rare earths.