It is too early to say whether the international system is settling into a “strategic triangle” shaped by the interaction of the United States, Europe and China; things will probably be much more complicated than that, beginning with the EU’s own future. But what is already certain is that the problem of how to deal with China is a potential source of friction in transatlantic relations. The European decision – now delayed - to lift the arms embargo on China is a case in point; mismanagement on the EU’s part provoked misunderstanding and over-reaction on that of the Americans. Either the two sides of the Atlantic find agreement on China, or China will have ample opportunity to divide them. Such a split would have serious consequences, especially because the rise of China is already reshaping global economic and political balances.

In very general terms, Europe’s instinct when assessing China’s rise differs deeply from the American instinct. First, Europeans do not necessarily see a threat in the rise of new strategic actors; in fact some in Europe see a more even distribution of international power as a source of global balance and ultimately of stability. It is not a view shared throughout Europe, but certainly the emergence of China is often regarded as part of a multipolar world in the making, whether we like it or not. Most Europeans believe, moreover, in the virtues of economic integration as a way of dampening political conflict. Although historical experience can also point in the opposite direction – greater economic power and nationalism have often gone hand in hand – Europe’s own experience since WWII has been that economic integration was also a de facto regional security policy. Europeans therefore tend to see China’s market economy as a stepping stone towards increased democratic freedom internally and greater responsibility abroad, fitting into the kind of multilateral order the EU constantly calls for. Engagement is consequently seen in Europe as a logical option, capable of producing gradual and beneficial change.

 

Such a rosy picture may not necessarily be naïve. Since embarking on reform in 1979, China has been trying to build its great-power status – and its comparative influence –mostly on the basis of economic interdependence. One can legitimately argue that, so far, the “economy-first” theory (recast as a “peaceful rise” doctrine) is working - but no one knows for how long.

 

This relaxed view of China as an international actor, combined with trade interests, explains why the Europeans signed an agreement with Beijing on the EU’s high-tech Galileo satellite system, and considered lifting the arms embargo. Both are steps that have enraged and puzzled Americans.

 

This gap in perceptions of China reflects a fundamental and objective factor; the US and Europe have highly asymmetric geopolitical roles in east Asia. The US is a power in Asia and an external balancer, with increasing security obligations. Europe benefits from these security guarantees and remains a free-rider vis-à-vis Asian security. Nothing reveals this asymmetry more than their differences in stance over Taiwan (US engagement and commitment, European disregard) and it is an asymmetry that clearly makes any future transatlantic deal on China structurally difficult.

 

If Europe free-rides on security guarantees provided by American commitments in east Asia, the US strategy vis-à-vis China suffers from its own inconsistencies. In particular, Washington is de facto becoming financially vulnerable at a time when it appears ready to embark on a tough containment course to tackle China’s industrial rise. American accusations that Europe is weak vis-à-vis China (on security) would be more credible if the Bush administration had not overexposed the US (on economics).

 

In the end, differences on how to deal with the China challenge hide divergent perceptions over the link between economics and security. The American view is that engagement with Beijing - in trade, diplomacy and anti-terrorism co-operation - must be combined with military containment. The Europeans believe that extensive engagement could reduce the likelihood of military confrontation, at least over time.

 

It is this combination of strategic asymmetry and different instincts that produces divergent policies – much more so than divergent interests. American interpretations of EU intentions are in a sense both right and wrong. The Europeans have indeed been underestimating the Chinese security challenge, but they have no intention of weakening America’s position in Asia because they benefit from it. Put simply, they are applying to Beijing a conceptual framework in which they believe: as EU documents state, the relationship with China is seen as a “maturing partnership”, with both sides committed to raising it to the level of a “fully fledged strategic partnership”.

 

Yet the truth is that this vision of China as a benign partner is beginning to lose ground in Europe itself. While the EU’s official line is that the more China integrates internationally the better for everybody, business interests in Europe are increasingly diverse. There are winners and losers as China becomes more globally competitive. For instance, the UK is less affected than Mediterranean countries or the new EU member states by Chinese competition in the textile and manufacturing sectors. For the European Commission, merging sectoral industrial pressures is not easy; look at how EU Trade Commissioner Peter Mandelson, has been trying to mediate between the pressure to resort to the special safeguard clause on China negotiated under the WTO and other interests more favourable to cultivating Beijing – reaching in the end a provisional self-restraint arrangement with China.

 

So to many Europeans, China is becoming a potential threat. Not as a troublemaker in international security, but as a problem for their economic security. This means that the optimistic view of China is no longer wholly convincing, because massive commercial competition produces a backlash and because the emergence of this new global protagonist (followed by India and other emerging markets) seems to mirror Europe’s own relative decline.

 

Confronted with a difficult process of adjustment, Europe is undergoing a rude awakening. China is no longer just an external variable but a key issue in controversial debates on the policy mix needed to recover Europe’s lost competitiveness.

 

All this means that protectionist pressures will probably continue to increase in Europe. They will not become so strong as to off-set the reality of other growing economic interests in the China-EU relationship, but they will certainly complicate the EU-China partnership. The China issue will become easily “exploitable” in domestic policy terms. If Shanghai companies or the Beijing government become scapegoats for economic difficulties in Europe, then there will be diplomatic repercussions turning the problem of Europe’s need to adapt to global economic competition into one of strategic rivalry with an undemocratic Asian regime. Charges of “social dumping” and the human rights dimension would gain a new prominence.

 

If the benefits of international trade are to be outweighed for Europe by the perceived costs, the EU-China relationship could be badly damaged. Paradoxically enough, it is precisely through protectionist pressures that European perceptions of China could eventually converge with America’s view of China as a challenge more than an opportunity. And yet an increase in protectionist pressures on both sides of the Atlantic, would be equally detrimental to the transatlantic economic area.

 

What both the EU and US need is better management of the consequences of China’s rise, possibly including temporary protection through the WTO. This is something that European policymakers appear to have underestimated for too long.

 

Not only are Europe’s economic interests fragmented, but foreign policies vis-à-vis China remains strongly national. If we look at the major European actors – France, Germany, the UK and at some distance Italy – competitive bi-lateral deals damage the effectiveness of EU policy toward Beijing. In simplistic terms, we have a German ingredient (the commercial logic coupled with the security delegation), a British one (intelligent engagement as a security policy) and a French ingredient (a desire to counterbalance the US, plus economic competition – as evidenced by the Airbus - Boeing saga). To these we can add Italy’s peculiar “Marco Polo syndrome” - the idea of having by definition a “special relationship” with China.

 

The debate over whether to lift the arms embargo that dated back to Tiananmen reflected these very different views. The now delayed decision to do so was initially taken under strong pressure from Germany and France, chiefly for commercial reasons. It was halted when the US reacted vehemently, and when China made life more difficult for the Europeans by passing, in Spring 2005, its anti-secession law over Taiwan. In the abstract, the Europeans have good reasons; the embargo places China – from an EU perspective - in the same category as “rogue regimes” like Burma, Sudan and Zimbabwe. Nor does the embargo work efficiently, as in 2003 EU governments approved arms sales to China worth $416m.

 

But there are two main counterarguments: first, China could exploit the EU’s opening as leverage vis-à-vis its most important supplier, Russia; second, ending the embargo before a transatlantic agreement on technology transfer is reached would be a failure of European diplomacy with serious repercussions on relations with the Bush administration.

 

When the transatlantic rift over the embargo came into the open, the Europeans were themselves divided. One of the main lessons must be that when China policy becomes divisive across the Atlantic, it also divides the Europeans themselves.

 

Europe’s post-referendum crisis means the embargo will not be back on the agenda for at least several months. This time could be used to reach a new deal on technology transfer with the Bush administration. The mood in the US Congress seems particularly unfavourable, but pressure in the opposite direction comes from influential sectors of US business. the Europeans could offer a trade-off between the EU's readiness to devise effective controls on dual-use technologies and a US opening of its defence market to transatlantic bidders. US retaliation on defence technology transfers across the Atlantic would be a worst-case scenario for both sides, with the China debate effectively spinning off into other delicate areas of the Euro-American relationship.

 

Nobody doubts that the EU’s long-term aim should be to normalize relations with China without altering the balance of power in east Asia; and to do so without alarming the Americans while also advancing such European objectives as an improvement in China’s human rights. Accordingly, Europe should recognise America's military predicament in Asia, and avoid making the same mistake the US has made in the recent past - a lack of consultation with allies. The US should engage Europe in a dialogue on China's future, and on the arms embargo Washington should be ready to discuss a common follow-up arrangement based on more stringent technology transfer rules. Such a cooperative and pragmatic attitude on both sides would be a sign of transatlantic maturity. The EU would inject a strong strategic element into its global economic presence, while the US would adapt its security policy in east Asia to the new realities. Each side’s China policy would gain in coherence.

 

Unless the two sides start a more regular and open dialogue on their respective China strategies they will tend to develop competitive policies ultimately affecting non-proliferation, as well as trade and financial issues. The risk is not unique to transatlantic relations, as has been shown by the row between the US and Israel over a planned arms sale to China of spare parts for a drone aircraft.

 

Nobody can know whether China will one day act as an aggressive national power, or whether it will evolve into a responsible multilateral player. But unless the US and Europe can agree on how to deal with this uncertainty, the international response to either scenario will be much less effective.