German Scholar Says EU, US Should Cooperate, but Cannot Stop China Industrial Policy
China's attempts at using economic tools, such as export controls on rare earth minerals or punishing imports from Australia, have only been somewhat successful, according to Maximilian Ernst, the speaker on the American Institute for Contemporary German Studies webinar Dec. 7, called “How to Respond to China’s Carrots and Sticks? Prospects of a Transatlantic Response to Chinese Economic Coercion.” Ernst is researching Chinese coercion for a Ph.D.
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He said that while the U.S.-China trade war has an economic dispute at its heart, the history of trade actions China initiated, such as restricting exports of rare earth minerals to Japan, were over national security issues, not economic competition.
He said the European Union should take threats from China on how it would treat German cars seriously. China threatened action if Germany barred Huawei from its 5G network. Germany is considering a bill that would make national security a consideration for telecom network components, but would not explicitly bar Huawei.
Ernst said the rounds of import retaliation against Australia show that China would do retaliation, even if they never explicitly acknowledge it. “There's not yet an effective way to constrain Chinese economic coercion,” Ernst said, but he thinks a trade deal between the U.S. and Europe that includes economic compensation for companies hurt by retaliation could help.
He also thinks diversifying the supply of car batteries, high-tech batteries, rare earth minerals, medical supplies, pharmaceuticals and 5G components is needed, to make the West less vulnerable to coercion. At the same time, he recommends that countries “increase interdependence with China on non-critical industries and are not threatened by supply chain domination.”
When asked if laptops and cellphones' supply chains are dominated by China, he said they should not be a target of decoupling. “This is not about buying Chinese products in the end,” he said; if a Chinese-built cellphone or laptop is the best price and good quality, it should be available.
He also said that the U.S. ambition to fight Made in China 2025, whereby China intends to harness government policies to advance industries such as semiconductors, is bound to fail. “I don’t think we should try to contain China or can,” he said. “Economic cooperation per se is never bad.”