GMF - The German Marshall Fund of the United States - Strengthening Transatlantic Cooperation

Testimony to the U.S.-China Economic and Security Review Commission.

The scale of China’s involvement in the European debt crisis and its investments in Europe has been overstated. Internal politics, not external financing, has been the central challenge for the eurozone, and while Chinese FDI in the EU is increasing at a rapid clip, the volume remains modest. China has been nervous about being exposed to risky bonds on the eurozone periphery and is still cautious about the reaction to any major expansion of its investments in Western markets. As a result, although Beijing has suggested concessions from the EU that might attract more sizeable economic support, neither the perceived need on the European side nor the desire on the Chinese side have been great enough to bring it about.

For the United States, the opportunities to coordinate with the EU on economic policy responses loom larger than the risks that Europe’s need for Chinese money will act as a constraint. The EU faces a virtually identical set of challenges to the United States in its commercial dealings with China, and—despite the depth of the euro crisis—has been seeking new ways to gain leverage in its bilateral relationship. The recent introduction of a reciprocity clause that would limit access to public procurement contracts in Europe—a measure almost entirely focused on China—is indicative of recent efforts to toughen up the EU’s stance. The EU has also launched free trade talks with virtually every major economy in China’s neighborhood, an approach that some have privately dubbed ―Asia-minus-one.

Transatlantic cooperation is already well developed in some areas, such as China trade policy, but there is a great deal more scope for the United States and Europe to align their broader economic responses to China, and their trade strategies in Asia. In particular, it will be important to ensure that the new wave of bilateral and plurilateral trade deals, such as the Trans-Pacific Partnership (TPP), are complementary in their effects. As Europe and the United States seek access to economic opportunities in the region, a degree of competition is natural. But closer coordination can ensure that these initiatives are mutually reinforcing, not least in shaping China’s economic—and even strategic—environment.

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