International Trumpquake -Tentative Stirrings of a Beijing-Berlin Axis

By Ralf Neukirch, Gerald Traufetter and Bernhard Zand

With U.S. President Donald Trump threatening Germany and China with a trade war, Beijing and Berlin have begun searching for ways to tighten economic relations. But there is more dividing the two nations than uniting them.

Chinese diplomats have never had the best reputation in Berlin. At times, they’ve refused to make concessions during treaty negotiations without first asking for permission from Beijing. At others, they’ve insisted on last minute changes.

German Economy Minister Brigitte Zypries and her state secretary, Matthias Machnig, were thus all the more surprised when they met with their Chinese counterparts earlier this month at a Düsseldorf summit for G20 ministers responsible for digital affairs. The transition to the digital era must be regulated, Chinese Minister of Industry and Information Technology Miao Wei said. But, he offered, it must be done together. Machnig concluded: “He is someone we can work with.”

The source of the unfamiliar amicability, though, is not to be found in Beijing or Berlin, but in Washington D.C. Ever since Donald Trump has entered the White House, traditional alliances on the international stage have been reshuffled and the U.S., which has for decades stood side-by-side with the Germans in the struggle for free trade and a rules-based international order, has lost its moorings. If there is any pattern to be discerned from the Trump administration, it has been a move toward protectionism. Meanwhile, Germany and China, which represent opposing positions in many areas, are exploring rapprochement.

Chancellor Angela Merkel spoke to Chinese President Xi Jinping before she made her first visit to the Trump White House. Economy Minister Zypries likewise traveled to China before heading to the U.S. And Vice Chancellor Sigmar Gabriel, who is also Germany’s foreign minister, said in reference to Trump’s protectionist tendencies: “When one window closes, another opens.”

China, too, has been conspicuously seeking to improve relations with Germany. For weeks, Germans in Beijing have been noting a Chinese charm offensive, with diplomats and business leaders alike being asked by high-ranking Chinese functionaries what they can do to help.

“The election of Donald Trump has improved the dynamics in Chinese-European relations,” says Cui Hongjian, director of the European department of the China Institute of International Studies. “Europe and China share a confident view of globalization and international cooperation.”

Bitter Competitors

Does this mean that global politics will soon be influenced by a Beijing-Berlin axis? Experts say that it is not out of the question, but they also warn against inflated expectations. “It would be wrong to now throw ourselves into the arms of China,” says Sebastian Heilmann, director of the Mercator Institute for China Studies in Berlin.

Despite certain areas of agreement, German and Chinese interests – particularly when it comes to trade questions – are bitter competitors. And currently, there is little to indicate that the two countries’ joint opposition to Trump’s policies will change anything when it comes to the fundamental differences between Berlin and Beijing.

The two countries, for example, are both concerned that U.S. import tariffs could harm their economies. But that isn’t enough to turn them into allies. On the contrary: Should Trump actually go ahead with the implementation of duties or import limitations, the already significant rivalry between the two export giants would likely only grow.

For Germany, China is an enormous market that offers German technology companies a huge number of customers. China, by contrast, has no interest in allowing foreign companies to monopolize the high-technology sector. Beijing is interested in German know-how only insofar as it can reproduce it and sell it around the world. And the Chinese aren’t squeamish when it comes to pursuing their interests. The government forces foreign companies to establish joint ventures with local firms enabling state-controlled companies in China to access German knowledge.

The best example is Siemens’ high-speed train, which was initially produced in China in a joint venture. Now China has begun producing its own high-speed trains — that look strikingly like the Siemens model — and is exporting them to several countries around the world. Chinese companies have also increasingly been simply buying up German companies, with a preference for mid-sized firms in key industries like robotics and electronics.

Slowing the Chinese Shopping Spree

Often, investors are backed directly by the Chinese state and the purchasing prices are correspondingly inflated. In 2016 alone, Chinese investors plunged more money into the purchase of companies than in the 10 previous years combined. Many of those companies are in Germany, raising concerns that “Made in Germany” will soon become “Made in China.”

The German Economy Ministry is currently investigating what legal recourse it might have at its disposal to slow the Chinese shopping spree. One report on the issue should be completed in the coming weeks. At the same time, the ministry is urging the European commission responsible for international trade to create an instrument to curb such deals.

The covetousness of Chinese industrial policy has not changed as a result of Trump’s presidency. A recent survey conducted by the German Chambers of Commerce Abroad in China found that almost 30 percent of German companies operating in China believe that their legal situation has continued to worsen.

The German government has now appealed to Chinese leadership to follow up their charm offensive with concrete steps. “We take Chinese President Xi at his word and welcome his intention to reduce market constraints and disadvantages faced by foreign companies,” Zypries says. There are plenty of opportunities for doing so, given the numerous conflicts ongoing between the two countries.

One example is Beijing’s intention to force automobile manufacturers to ensure that a certain share of their car sales are electric vehicles. The draft law stipulates that carmakers must disclose their research and development plans in China – a trick for obtaining German know-how. China has indicated its willingness to negotiate, but Berlin has thus far waited in vain for concrete amendments to the draft law.

Lack of Progress

It is far from the only point of contention. German steel companies are suffering from a wave of cheap sheet metal from China, which is produced with the help of state subsidies. Thus far, protests against the practice have proven useless.

In response, the European Union has denied granting China free market economy status despite having promised to do so years ago. Should Brussels give in, it would be severely limited in the size of punitive tariffs it could impose.

China is also not moving on its joint-venture requirement for foreign companies operating in the country. Indeed, the regulation is one of the main reasons for the lack of progress on a planned investment-protection agreement between the European Union and China. “We are interested in fair rules,” says Zypries. “Market-based investments must have market-based motivations and foundations.”

On the foreign policy fronts, there are also more differences than commonalities. Beijing has kept out of conflicts simmering on Europe’s periphery, but China has been all the more assertive in East Asia. During her last trip to Beijing last June, Merkel clearly expressed her concern over China’s expansionist policies in the South China Sea. Should the U.S. ultimately give up its traditional role as regional police force in East Asia, Germany would stand up to China.

China experts in Germany are concerned that naivete could creep into Berlin’s dealings with Beijing. “We can’t forget that we have more conflicts with China than we do with the U.S.,” says trade expert Gabriel Felbermayr from the Center for Economic Studies in Munich. “The Chinese too will demand a price for the joint fight against the U.S.” Mercator expert Heilmann has a similar take: “Without pressure, the disadvantages faced by German industry will not change.” He recommends that the German government engage in shuttle diplomacy. “Germany should use Trump’s policies to extract concessions from Beijing. In reciprocation, it could influence American policy in certain areas.”

And in addition to trade policy, there are areas in which Berlin and Beijing could join forces in an attempt to influence U.S. policy. First among them is the fight against climate change. Even as Trump has trumpeted the return to the burning of coal, China has taken the first steps toward abandoning fossil fuels. Trump’s contempt for the United Nations is likewise unwelcome in both Germany and China. On those issues, an alliance against the U.S. is conceivable.

But broader cooperation beyond individual issues is unrealistic. A joint Chinese-German front in opposition to possible American isolationism isn’t going to happen. But there is one thing that definitely unites the two countries: their hope that Donald Trump quickly changes course.

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