Robert Oppenheimer, the father of the atomic bomb, once compared the US and the Soviet Union to “two scorpions in a bottle, each capable of killing the other, but only at the risk of his own life”.
This week’s US-China summit in Beijing underscored that what was true during the Cold War remains the case today – but that the two contemporary superpowers’ stings are increasingly tipped with economic, as well as literal, plutonium.
America, on the one hand, dominates the global financial system and the production of many of the world’s most advanced semiconductors. China, on the other hand, retains a chokehold over global mining and, especially, the refining of so-called rare earths, which are critical components in numerous high-tech goods, including electric vehicles, radars and fighter jets.
This mutual dependence stands in stark contrast to the situation during the Cold War, when trade between the US and the Soviet Union was negligible. It also explains why, when US President Donald Trump launched his global trade offensive last year, China was able to fight America to a draw. Both sides could – and still can – ensure the other’s economic annihilation.
Europe, unfortunately, possesses no comparable weapons of economic mass destruction. Unlike the US, it can’t shut countries off from the world’s financial system or restrict sales of cutting-edge chips. And unlike China, it can’t introduce sweeping export controls on critical minerals that shutter production lines across much of the world.
Indeed, the EU’s security dependence on America means that Washington retains far greater leverage over Brussels than it ever did over Beijing, a fact which, as top EU officials have openly admitted, explains the bloc’s capitulation during last year’s trade talks with the US.
But does Europe’s lack of trump cards – in both senses of the word – mean that it effectively has no cards at all? Many people (including, previously, this author) have concluded that it does.
But not everyone agrees.
“We don’t have this one super-card, this one chokepoint that will rule them all,” said Tobias Gehrke, an expert on economic strategy and great power competition at the European Council on Foreign Relations.
“So, rather than sort of looking for that ultimate chokepoint that the Chinese have and the Americans have, we need to think of leverage much more broadly. There’s not one measure that would do it,” he added.
Europe, in other words, can still deter, even without any ultimate deterrent.
Tailored and swift
But how?
In two recent papers, Gehrke explores how the EU could strengthen current trade defence instruments, streamline its decision-making, and prepare a range of potential retaliatory measures targeting Beijing’s and Washington’s respective “pressure points”.
Although each response should be context-dependent, China’s heavy reliance on industrial exports makes it especially vulnerable to EU import restrictions. America, meanwhile, is far more susceptible to limits on its service exports. (While the EU runs a €200 billion surplus in goods with America, it also runs a €150 billion deficit in services, a fact conveniently forgotten by Donald Trump during his periodic criticisms of Europe’s trade policy.)
EU export restrictions, particularly on chip-producing ultraviolet lithography technologies (for which ASML, a Dutch firm, retains a near-global monopoly), also provide Brussels with a significant source of leverage, Gehrke notes.
Moreover, the EU should express a greater willingness to use its most powerful trade instrument – the anti-coercion instrument (ACI), informally known as the ‘trade bazooka’ – which allows the imposition of a wide range of retaliatory measures against any kind of economic coercion.
The still-unused instrument is considered “the nuclear option in our arsenal: it is at the very end of what we’re ever going to do”, Gehrke said. “I think this is a mistake. We have to denuclearise the ACI and depoliticise it. We should consider the ACI as just another instrument that helps us structure these kinds of high-stakes, transactional negotiations.”
Bully for Beijing
Arguably, Trump’s inability to secure any major concessions from his Chinese counterpart, Xi Jinping, during their two-day meeting this week further demonstrates the need for Europe to strengthen its deterrence posture.
“The EU can never be China; they shouldn’t try to copy it,” said Arthur Leichthammer, a policy fellow at the Jacques Delors Centre. “But you need to learn lessons from [China’s response to Trump’s trade measures], by preparing credible retaliation and by being willing to absorb short-term losses.”
This, however, will require the EU to go beyond its current official policy of merely “de-risking” from China and, following Trump’s re-election as US president last year, from America.
The attempt by Brussels to reduce strategic dependencies is “not necessarily bad”, Leichthammer noted. “But it still does not correspond to a coherent system of deterrence, where you can push back against immediate economic coercion.”
Unfortunately, the EU’s ability to engage in economic deterrence is hamstrung by various structural factors. These include a near-permanent lack of consensus among the bloc’s 27 member states, and, as Leichthammer indicated, a deep reluctance to support measures that might inflict economic pain on European citizens, especially at a time of mounting populist sentiment.
Such unwillingness stands in stark contrast to China, whose high pain tolerance was one of the main reasons it survived last year’s trade conflict with Washington. Indeed, Xi himself has previously encouraged China’s struggling youth to “eat bitterness”, advice that would be tantamount to political suicide if it were ever uttered by a European politician, who, unlike their counterparts in Beijing, face democratic elections.
Fortunately, there is some evidence that Europe’s economic squeamishness might be subsiding. In January this year, Trump reneged on his threat to annex Greenland, a self-governing Danish territory, after several EU leaders expressed willingness to engage in a full-blown trade war with their erstwhile ally.
“Back down, or we’ll go all the way,” Bart De Wever, Belgium’s formerly staunchly Atlanticist premier, warned at the time.
Trump may have believed him. But regardless of the US president’s actual motives for yielding, it is clear that, in a world of increasingly intense great-power competition, the EU should be more willing to incur economic costs than it currently is.
After all, if you’re trapped in a bottle with a couple of scorpions, you’re highly likely to be stung – even if you’re able to sting them back.
See the original report from Thomas Moller-Nielsen here.