Welcome back to Critical Supply, a newsletter on trade, economic security, and EU-US-China relations. I’m Eduardo Castellet Nogués, the author of this newsletter.
For decades, European capitals have sought to reimagine their role in an increasingly dangerous and volatile world order. Many a buzzword has been used, from “strategic autonomy” to “open strategic autonomy” and even “strategic sovereignty.” China has been in the main spotlight throughout, with some policymakers arguing that it could be a good path to reduce overreliance on the Atlantic. Today, we address the faults of this thinking.
In a recent article for EURACTIV, Robert Benson and I analyzed a growing trend in Europe: Sino-alignment. As the United States reimagines its role in the world, two concerning trends are unfolding vis-à-vis Europe: the first is structural, and the latter is temporary. The first is the questioning of US security guarantees towards Europe — while Washington envisions European allies taking care of themselves militarily without excessive US support, most of these allies have interpreted it as a lack of interest in the continent’s success. The second is a concerning wave of unpopularity for the American friend in Europe — in a recent poll in Spain, China had a more positive image than the US, and other countries are verging in that worrying direction. The practice of US diplomats asking European governments to change laws they deem adverse to American interests is one of the main reasons behind this wave, despite the fact that uttering such concerns has been standard diplomatic practice around the globe for a long time.
But China seems different from a public relations perspective. Contrast the aforementioned scenario to Beijing’s diplomacy of lavish gifts, repeated visits by high-level officials, a specially-designated envoy for Europe, and a total lack of comment and/or interest in domestic affairs. One would think most Europeans would remember the brutal crackdown on democracy activists in Hong Kong, but that was many a news cycle ago. And as terrifying and concerning as the internment camps for Uyghurs in Xinjiang, or the pressure on bishops and priests from the Catholic Church in China may be, most Europeans have not even heard of these cases. And while most activists abhor authoritarianism in all its forms, the CCP seems to get a pass from many of them.
This is all relevant political context to understand why Europe has gotten to where it is regarding China. Contrary to popular belief, the EU is led by the heads of its member states, and they, as elected politicians, need popular support to make foreign policy decisions. Trying to draw closer to Washington at the moment is very politically expensive, but Beijing is not so much.
This push towards sino-alignment rests on the idea that China would treat Europe as an equal partner, wrongly assuming that Washington will not. Even if we take the last proposition as true, the move lacks any strategic logic. Abandoning a co-dependent relationship, even if perceived as one-sided, to thrust oneself into the arms of another, larger partner, lacks any strategic logic. Ironically, in the Chinese language, there is no such word for “ally,” a rather fitting metaphor for China’s model of foreign policy. And when in doubt, one only has to look at the way China carries itself on the global stage, creating alternative multilateral forums and councils specifically designed to keep the Western powers out of them. Stated plainly, Europe should no more align with Beijing’s effort to dismantle the existing order than it should reflexively hope for the return of the United States of 40 years ago.
In recent years, Beijing has not acted in good faith. The leaders calling for this alignment state that a potential partnership could leverage China into bringing the Russian war against Ukraine to an end. And while this effort is noble, it’s unlikely to yield results. If Beijing had any intention to stop the war, it would have already used its leverage — not only that, but Beijing has continued to provide financing, weapons, and even military training for Moscow despite repeated calls by European leaders not to do so. This decision makes it very clear where Europe stands in the priority list, and it’s rather low.
The rules-based order should be concerned too. While Beijing has been verbally committed to upholding the multilateral institutions we all know, it has also been infringing on the very basis of those organizations. Repeated incursions into the sovereign waters of Japan and the Philippines, amongst others, combined with territorial claims over the South China Sea and Arctic Ocean with a dubious basis, indicate that the CCP may not be meaningfully committed to a world of equals.
What has been presented as an effort to diversify Europe’s dependency is actually the opposite. The EU already imports over 98% of its rare earths from China, over 80% of its active pharmaceutical ingredients, and the list goes on. And while it is true that China has invested billions in developing countries, lifting many communities out of poverty, most of these investments have turned out to be extractive plays for raw materials and strategic assets. The capital comes in, but rather than develop industrial ecosystems in these countries, these policies extract resources and develop their value in China. Chinese firms, for instance, rarely refine any minerals or metals in the country where they mine them — instead, they ship them to China to process them and integrate them in commercial goods, the two stages of the supply chain with the most profit and job creation.
Since Mario Draghi wrote his report on the dire state of European competitiveness, Brussels has been announcing program after program seeking to accelerate economic dynamism and re-industrialize the continent. This change has been a welcome one for business leaders and entrepreneurs, but implementation has been patchy. China has an enormous role to play in this conversation.
If leaders are honest about re-industrializing Europe, it is not enough to cut red tape and facilitate growth; it is just as important to prioritize national security and root out unfair competitors. The Chinese EV industry is an excellent example — China’s use of overcapacity to flood the EV market is putting Germany out of its own game as Europe’s premier auto giant, throwing hundreds of thousands into unemployment. This is also the case with the pharmaceutical industry, solar energy, and other major manufacturing nodes, from rail to aviation.
What is even more concerning, Chinese firms have been repeatedly allowed to access national security infrastructure throughout the European continent. Robert and I wrote that the Spanish government has awarded its bid for the public bus system to Chinese EV producer BYD, which would essentially grant Beijing total access to its traffic data, a serious security risk. In Greece, the government has granted China’s shipping firm COSCO a 67% ownership stake in the port of Piraeus, effectively giving Beijing control over a strategic European asset in the eastern Mediterranean. In Germany, then Chancellor Olaf Scholz approved the sale of a 24.99% stake in the port of Hamburg—the country’s largest—again, to Chinese shipping magnet COSCO, overruling the strong objection of senior cabinet officials.
Additionally, Beijing has proven time and time again that it will leverage its control over critical supply chains for political goals. We saw how last year, the government blocked the export of rare earths to the United States following a tariff dispute, a tactic they used earlier this year and in 2010 with Japan over a territorial dispute. In 2023, Europe had a small taste of this potential when Lithuania opened a Taipei Economic and Cultural Office, a de facto Taiwanese delegation, which triggered a vast array of trade quotas, tariffs, and immense political backlash against the small Baltic nation.
At the core of all these issues, one must realize that China is an export goods-driven economy, just like Europe. The US is not; its exports are primarily services, which is one of the reasons why the transatlantic relationship has been so beneficial — it is complementary, even amongst the goods and services we trade. With China, however, there is a structural issue — the Chinese economy can only survive as long as it continues to export vast amounts of goods to high-end markets, and it is very much not in Europe’s interest to accept many of them.
If Europe is serious about building its industry again, national security must be prioritized. Competitiveness cannot mean allowing a foreign power, potentially an adversary, to own vast amounts of infrastructure, nor can it mean importing all of our raw materials from one source. To embrace the spirit of the Draghi report, Europe needs to build up its strategic discipline, and even if hard, pass on conveniently cheap supply chains and investments to secure its own interests. One would hope the lesson from Russian gas would still be fresh.
European leaders need to build up their strategic discipline. Rather than seek a new term to define the way forward, governments should take smaller but more frequent actions to prioritize national security. Investigations into Chinese ownership of ports, telecom towers, cable networks, data centers, and buses should be taking place. This will require explaining to the public the threat that China poses industrially and politically, which will demand political courage.
This Friday, European leaders will be meeting with the Commission to craft a path forward on China. A small coalition of large member states has already penned a letter that asks for a reform of the EU tariff process to better adapt to third-party shipping or sending unfinished products to Europe to evade tariffs altogether. This letter should be taken seriously, and Brussels should reimagine its economic arsenal to better adapt to this time of strategic competition — synthesizing the investigation period before launching a tariff, coordinating on investment screening, and coordinating on pricing mechanisms.
China and Europe will not be allies anytime soon, but that does not mean we cannot work together on issues of mutual interest. Confronting climate change and Islamic terrorism in North Africa are two opportunities, as is collaboration in disease prevention, given China’s network in countries with high exposure to deadly illnesses. Pragmatism and mutual interest should lead the relationship.
Washington Cuts Red Tape for Data Centers: In the last few months, the White House and Department of Energy have mobilized crucial pieces of legislation to cut red tape for the data center build-up. As FAI has written about extensively, most regulations impacting the energy, land, and labor consumed by data centers start at the local and state level, much like in Europe. Washington, however, has quietly empowered the Federal Energy Regulatory Commission (FERC), a five-member commission, to approve and supervise projects relating to the energy powering the data centers. This is quite the upgrade, considering that since the 1970s, FERC has only been able to assess the reliability of state-controlled grids. The idea is not just to expedite approvals for projects upgrading the grid, but more importantly, to ensure the same standards are followed country-wide, not state-by-state, when supercharging transmission lines. Up until now, data center companies have faced enormous backlash from local organizations, which pressure their local representatives into rejecting the projects due to concerns about the power grid being spread too thin. Some of these concerns are valid, especially when looking at the state of the grid in Texas, which has led to repeated blackouts. The solution, however, is not to say “no” to a technology we will need, but rather to ensure the grid and energy infrastructure are upgraded in time for the incoming spike, which is what this proposal achieves. This concession of power to the FERC could accomplish a more capable grid, and if so, it could be a lesson for Europe to consider as it struggles with similar issues.
Congolese Rebels Want to Export Minerals to the US: You might have forgotten about the strategic partnership between the DRC and the US, but the agreement is having a moment. In an interesting move, leaders from the rebel group M23, which holds considerable parts of the eastern DRC, are offering their mineral reserves to the United States. The Tutsi majority rebels are backed by Rwanda, and control vast deposits of tin and tungsten, but more importantly, a mine producing over 15% of the world’s tantalum, a critical mineral necessary for national security goods. The request comes at an interesting time, especially considering that the US signed a “minerals-for-security” agreement with the very government that M23 is trying to depose. The offer is likely to be refused by Washington, especially considering that the Kinshasa-based legitimate government still controls the cobalt and copper-rich South East region of the country. Since the war started, President Trump and Qatar have sought to end the bloodshed between the warring parties, but violence has restarted time and time again. A potential outcome, given the West’s dependency on tantalum, would be for Washington to convince Kinshasa to lift the ban on banks operating in the M23-controlled territory, which the rebels have asked for repeatedly. But the offer creates an interesting debate — in a world where countries have an increasing need for strategic metals, will coups d’etat adapt their military strategy to leverage foreign powers’ dependencies? If so, would US or Chinese support for the Kigali government change if M23 controlled the copper-and-cobalt-rich South East too?
China was Spain’s primary source of imports in Q1, displacing Germany.
MAGNIFICA HUMANITAS — The Holy See — H.H. Pope Leo XIV
The New Trade Order — Foreign Affairs — Amb. Robert Lighthizer
Why We Keep Using the Wrong Chart on Critical Minerals — Volt Insight — Henry Sanderson
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