Gradually, then Suddenly

In Ernest Hemingway’s 1926 novel “The Sun Also Rises”, the Scottish war veteran Mike Campbell is asked how he slid into bankruptcy. “Gradually, then suddenly”, he replies. A century later, it is the leaders of Europe who might be muttering the phrase under their breath—not because their countries are facing insolvency but because the geopolitical vise they have been caught up in for nearly a decade has suddenly tightened, presenting them with seemingly impossible policy choices.

On one side of the vise is Donald Trump’s America. On the other, Xi Jinping’s China. It has been clear since at least 2018, when the first Trump administration began ratcheting up pressure on European countries to exclude Huawei from their 5G networks and to stop selling advanced chip equipment to China, that Europe risked being squeezed between the world’s two superpowers. Under Trump’s successor and predecessor Joe Biden, the vise tightened further, as the United States toughened up export controls and unveiled restrictions on outbound investments and connected vehicles. But in recent weeks, the pressure has shot up to unprecedented levels, as Beijing has hit back with blunt force.

Perilous Territory

China’s decision in early April to restrict exports of rare earths and permanent magnets that are vital for the production of electric vehicles, medical equipment, chipmaking tools, and military hardware, is affecting Europe to a greater extent than has been publicly acknowledged by governments and companies. I was told that European leaders have held crisis talks on the issue, and that major firms in the medical equipment and car sectors have already been forced to shut production lines. Hundreds of smaller companies are also reeling.

Crucially, although China’s controls were a response to Trump’s self-styled “Liberation Day” tariffs, it has become clear over the past weeks that Europe is not the victim of unintentional collateral damage. Rather, officials say, Beijing is sending an unmistakable message to Europe and other developed countries about the consequences of erecting trade and technology barriers against China. “It is the most extreme case of economic coercion that I’ve ever seen from China,” a veteran diplomat from a large European country told me. “The goal is to show us [that] if you restrict things that we need, there will be a cost, and it will be a big one.” An EU trade official added: “We are entering perilous territory. The disruption has been immediate and it has been lethal. The Chinese have tasted blood.”

Far More Aggressive

Beijing is weaponizing its rare earth dominance at a time when many US trading partners are engaged in high-stake talks with Washington to mitigate the impact of Trump’s tariffs. The EU has signaled that it is prepared to agree to joint action against China as part of these talks. Beijing’s controls also come as the Trump administration is adopting a far more aggressive approach to restricting technology sales to China. In mid-May, the Bureau of Industry and Security (BIS), an arm of the US Commerce Department, said it would consider the use, anywhere in the world, of Huawei’s Ascend artificial intelligence chips to be a violation of US export controls.

Late last month, BIS ordered producers of chip design software, including a US unit of Germany’s Siemens, to halt sales to Chinese customers. The United States is also clamping down on aircraft engine technologies. More measures, notably export and outbound investment restrictions in the biotechnology sector, are in the pipeline. And Washington is telling the Europeans to get behind them or face consequences. Kevin Kurland, who oversees enforcement at BIS, issued a stark warning to a German export controls conference in late May, I was told, that the United States would move swiftly to sanction non-American companies if they fail to comply with Washington’s tougher rules.

Red Lines

What does this rapidly tightening vise mean for Europe? The bloc must continue to seek common ground with the United States and China, if only to avoid harm to its own economic and security interests. But it must also stick to its red lines, refusing to bow to coercive pressure. It will need to fast-track policies to reduce its dependencies after years of talking about de-risking but achieving too little. And it will need to diversify its partnerships, a message French President Emmanuel Macron delivered at the Shangri-La Dialogue last week, as he promised to resist pressure from the United States and China to choose a side. “We don’t want to be instructed on a daily basis, what is allowed and what is not allowed,” he told the audience in Singapore. Lastly, Europe must not shy away, when push comes to shove, from using its economic leverage.

It is a welcome sign, therefore, that the EU decided, after more than a year of fruitless talks with Beijing, to respond to discriminatory procurement policies in China by excluding the country’s medical device makers from participating in large public tenders in Europe. Also welcome was the coordinated decision last week by Prague and the EU to call out China for carrying out a malicious cyberattack against the Czech foreign ministry, the latest in a wave of state-sponsored attacks aimed at European governments and companies. In past years, the Europeans might have held off, concerned these actions would sour the mood in the run-up to an EU-China summit that is due to take place in late July.

No Closer

Now, against the backdrop of China’s rare earth clampdown and the EU’s procurement riposte, the prospects for achieving an EU-China trade truce at the summit look slimmer than ever. The Chinese are ready to roll out the red carpet: They have invited European Commission President Ursula von der Leyen to visit the eastern Chinese province of Anhui, which has a long-standing partnership with her home region of Lower Saxony that was sealed when her father, Ernst Albrecht, was premier of the German state. On substance, however, little has changed. 

Officials say that Brussels and Beijing are no closer to resolving their spat over the electric vehicle tariffs the EU introduced last October and China’s retaliatory duties on French cognac and threats to slap tariffs on pork and dairy imports from the bloc. Beijing is said to be pushing for a joint statement at the summit that would signal that the parties are on track to settle their dispute, but officials in Brussels are resisting. “[Maroš] Šefčovič wants to believe the Chinese will deliver,” said one official, referring to the EU commissioner for trade and economic security. “But others are pretty sure they won’t.” 

Some officials believe the EU’s strategy for the summit will become clear only in the weeks before it takes place. They note how quiet von der Leyen, Europe’s biggest China hawk in recent years, has become on the subject. “She is being very cautious because the US variable is still in flux,” a second official said. “The US is the priority. Whether you reach a deal with Washington or not completely changes your leverage with China.”

Very Weird

The trade hurdles with Washington remain sky high following a rollercoaster few weeks in which Trump threatened the EU with 50% tariffs, softened his ultimatum after a call with von der Leyen, watched a court rule that many of his tariffs were illegal, and then proceeded to double down with a threat to jack up steel and aluminum tariffs to new heights. Heads are spinning in Brussels as a July 9 deadline for mitigating US tariffs approaches. Much could hinge on the first face-to-face encounter between Trump and German Chancellor Friedrich Merz on June 5. The risks are high, but so are the rewards if (a big if) Merz can establish a good rapport with the president when he visits the White House. 

Meanwhile, across town at the State Department, it’s getting very weird. First, a curious screed was published on the department’s Substack account that described European attempts to regulate hate speech, combat extremism, and crack down on disinformation and political corruption as an attack on western civilization and a threat to US national security. Later in the week, we learned that Secretary of State Marco Rubio is creating an “Office of Natural Rights” whose main objective will be to counter “free speech backsliding in Europe”. Not free speech backsliding in China, in Russia, in Saudi Arabia, in Iran or in North Korea—in Europe. 

Tariff deal or no tariff deal, Trump’s America is not the country it was in the second half of the 20th century, or even of the first decades of the 21st. As Columbia University historian Mark Mazower wrote eloquently in the Financial Times this week, the new “America no longer stands for a future that most Europeans seek to emulate.” Now more than ever, Europeans need to figure out for themselves what future they want. Not gradually, but suddenly.