The Poker Game Between the US, China, and Europe

The Diplomat

5 days ago

The EU is badly squeezed between the United States and China – but it still has cards to play, including at the upcoming China-EU summit.
European Commission President Ursula von der Leyen and European Council President António Costa will be in Beijing on July 24, for a tense meeting with Chinese Premier Li Qiang – and, hopefully, with President Xi Jinping, though this is still unclear. The former high representative of the EU for foreign relations, Josep Borrell, famously referred to the April 2022 China-EU online talks as a 'dialogue of the deaf,' and the visit of then-Council President Charles Michel and von der Leyen to Beijing in December 2023 was hardly more productive. So, given that a lot of the topics from the agenda of previous summits will still be hovering over the negotiating table, will things be any different this time around?
Low Expectations
This will certainly be a contentious summit, which could well evolve into a shouting match. The EU has long raised the issues of a stubborn trade deficit, persistent obstacles to market access in China, discrimination against European companies, and a lack of reciprocity in bilateral relations. At the G-7 summit in Canada last month, von der Leyen issued one of her strongest rebukes of China to date, accusing Beijing of export restrictions and state-subsidized overproduction that choked international competition.
The European Parliament, too, has condemned Beijing's rare-earth export restrictions as 'unjustified and coercive' and criticized China's 'quasi-monopolistic position.' And while licensing for European firms has been loosened somewhat, the procedures remain suspiciously slow and arduous.
Over the past six months, Beijing has deployed a carrot-and-stick strategy in its approach to the EU – which includes more sticks than carrots. As part of a diplomatic campaign to cajole Europeans, last April China lifted sanctions on some members of the European Parliament, while simultaneously making more threats, such as opening new investigations into European beverages, dairy products, and meat.
In addition, China is fuming over the European Commission's announcement on June 19, a month before the Beijing summit, about restrictions imposed on Chinese medical device producers under the bloc's International Procurement Instrument (IPI). Beijing wasted no time to proceed immediately to a tit-for-tat move by barring European companies from major Chinese government medical device contracts.
The inclusion of two Chinese banks in the blacklist under the 18th EU package of sanctions slapped on Russia is yet another major irritant for Chinese leaders. While Beijing vehemently refutes accusations that China is providing substantive support to Moscow's military machine, a recent European Council press release clearly set out the EU officials' talking points, some of which will by no means be palatable to Chinese interlocutors: 'EU-China relations and current geopolitical challenges, including Russia's war in Ukraine.'
Beijing is unlikely to stop supporting Russia, a strategic partner of China's. In early July, Foreign Minister Wang Yi stunned his interlocutors in Brussels by telling them unceremoniously that China did not want to see Russia defeated in Ukraine, quite a departure from Beijing's standard song sheet about not being a party to the conflict. Notably, this is the same Chinese official who offered an olive branch to Europeans at the Munich Security Conference in February, in stark contrast to U.S. Vice President J. D. Vance's inflammatory speech. Beijing's charm offense, however, turned out to be short-lived and purely performative, and European officials are now convinced that China is not really interested in patching things up.
If Xi stays away from the summit, which marks the 50th anniversary of China-EU diplomatic ties, this will be a significant signal in itself. The talks are not expected to deliver any major outputs, and have been dubbed by some analysts a 'non-summit.' The get-together is likely to yield a bland statement on jointly combating climate change, at best. If, however, there is a last-minute breakthrough and white smoke does come out of the Beijing summit, it could take the form of a Chinese order with European aerospace giant Airbus by prioritizing it over Boeing. On the other hand, this would trigger an angry response from Washington, particularly with a view to a possible meeting between Xi and U.S. President Donald Trump later this year.
A Three-Sided Poker Game
The parallel negotiations between the U.S., China and the EU look a lot like a poker game, not without the usual attempts at outsmarting and peeking at the other players' cards. For example, China's restrictions on the export of rare earth elements and magnets target primarily the United States but European firms, too, are caught in the crossfire. Yet another manifestation of the triangular relationship may be the fact that, in an attempt to find common ground with Washington, von der Leyen has visibly hardened her tone toward Beijing.
To a certain degree, a trade agreement between Washington and Brussels by August 1 may affect a possible deal between the U.S. and China by August 12 – if these deadlines are not pushed back again. For instance, if Washington and Brussels were to seal an agreement similar to the U.K.-U.S. deal with tariffs generally as low as 10 percent, other trading partners would be put at a disadvantage, and Chinese officials have already made it clear that Beijing will retaliate.
Trump has sent a letter to von der Leyen threatening to impose 30 percent tariffs on EU exports to the U.S. This took Brussels by surprise, as European officials were hoping that the EU could strike a deal along the lines of the agreement between Washington and London. While the European Commission is putting together a package of countermeasures in case the EU-U.S. negotiations fail, this is not Brussels' preferred course of action.
Being in charge of the EU's common trade policy, the European Commission has to stick to its guns, as its mandate is to defend the interests of the entire bloc. It has already deployed a growing list of legal instruments vis-à-vis China. As for the U.S., a first round of retaliatory tariffs targeting 21 billion euros worth of American exports has already been approved, but suspended until August 6 to allow time for talks with Washington. Moreover, the Commission has reportedly proposed a second package that covers U.S. aircraft, cars, machinery, and farm produce worth 72 billion euros, though it awaits a green light and looks more like a bargaining chip at this stage.
While on August 6 Brussels may have to hit back with the first salvo of retaliatory tariffs, it will probably think twice before moving on to the second package. And it is unclear at present whether there will be sufficient political will in Europe for the use of the so-called Anti-Coercion Instrument (ACI), widely referred to as Brussels' 'bazooka.' This is mainly why von der Leyen herself has repeatedly stated that the EU should continue to seek a negotiated solution to the dispute with Washington.
Apart from the United States being the largest trading partner of the EU, geopolitics is another major factor to be reckoned with. It is clear that Europe doesn't have the capacity to ensure its own security outside the U.S. nuclear umbrella and without American weaponry. Hence the recent agreement, albeit a shaky one, on a hike of Europeans' defense expenditure to 5 percent of GDP over time, including the purchase of arms for Ukraine.
Similarly, a number of EU member states would rather avoid a confrontation with Beijing. A recent report released by the European Think-tank Network on China (ETNC) and titled 'Quest for Strategic Autonomy? Europe Grapples with the U.S.-China Rivalry' pointed out that 'national approaches to economic security remain inconsistent, with some countries showing signs of skepticism or only limited engagement.'
The Rules of the Game
The EU is badly squeezed between the United States and China – there's no hiding it. It is between a rock and a hard place, and in the most disadvantageous position in the triangle. At present, Europe may not have the cards, as Trump would say, and most probably Xi is of the same view. Hence the U.S. president's brass-knuckles attitude toward Europeans and Beijing's snubbing of the EU that will be on full display at the July 24 summit. However, being a huge market and a key trading partner of both the U.S. and China, the EU does have its cards, as long as it plays its hand smartly, which requires a clear-cut strategy.
The 2019 Strategic Outlook defined China simultaneously as a 'partner, competitor and strategic rival.' There are European voices insisting that six years later this triple definition needs to be updated and enriched with a fourth component, with China seen as a 'security threat,' even if an indirect one. This is amply illustrated by the alignment of Moscow and Beijing, and their crusade against the Western liberal order.
Things are equally complicated when it comes to the transatlantic bond, brutally shattered by Trump. The U.S. president, as well as his predecessors, has a point in calling for increased defense spending in Europe and this is already being done, albeit grudgingly, by NATO members. But Trump's conviction that the EU was formed to 'screw' the U.S. leaves little room for negotiations on the basis of a well-structured and mutually agreed-upon agenda. Add to that his obsession with viewing international politics as a poker game, whereby unpredictability, bluffing, and threats will do the trick.
Can Europe change the rules of the game, as it stands today? Most probably not. Therefore, it will have to resort to the ploys and ruses used by the other players. In doing so, the EU may actually draw some lessons from China.
When the trade war broke out a few months ago, Beijing stood its ground and cornered Washington, despite Trump's lofty statements early into his second term. Following Trump's 'Liberation Day' show on April 2, the Chinese and U.S. tariffs skyrocketed to 125 percent and 145 percent, respectively. Then Wall Street freaked out, Chinese rare earths exports to the United States slowed to a trickle, and in late June the two sides reached a temporary agreement for Beijing to speed up exports of critical minerals to the U.S. and for Washington to lift recent export controls on China.
As for the Euro-American trade dispute, August 1 may not be the end of the line. U.S. Commerce Secretary Howard Lutnick stated in a recent interview that August 1 was a 'hard deadline' and the new tariff rates would come in on that day, but he also hinted that negotiations could carry on, so there may be a number of additional talks down the road.
Gradual diversification away from dependence on both the U.S. and China, part of the notion of 'strategic autonomy,' is another possible way out of Europe's predicament. The EU is actively looking for new trading partners and sources of critical raw materials, with von der Leyen recently hosting Indonesia's president in Brussels for talks on a bilateral free trade agreement (FTA). On July 23, a day before the Beijing summit, Costa is to attend a get-together with Japan, a significant economic and political partner of the EU.
Negotiations for an EU-India FTA are also under way and last February the entire European Commission visited New Delhi. Meanwhile, Brussels has already signed FTAs with Singapore, Vietnam, and a partnership agreement with four Mercosur countries. This is not very different from China's pursuit to co-opt the Global South, even if the developing world does not have the purchasing power and absorptive capacity of the U.S. and the EU.
But even opening up to other corners of the world may not be enough. The biggest challenge for the EU will be to clean up its own act at home. Having 26 policies too many on every single issue in the 27-member bloc is an inherent European weakness that needs to be addressed as a matter of urgency. Speaking with one voice and not hesitating to play one's strong cards is an imperative, if the EU is to be taken seriously in the complex poker game in the China-Europe-U.S. triangle.