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Europe’s China Gambit

Summary:
The new EU-China agreement underscores a fundamental question of the post-pandemic world order: How should strategic and economic relations between major powers with very different institutional and political arrangements be managed? Can democracies remain true to their values while engaging in trade and investment with China? CAMBRIDGE – Just as 2020 was ending, the European Union and China announced the completion of a Comprehensive Agreement on Investment (CAI) between the two economic giants. This “will be the most ambitious agreement that China has ever concluded with a third country,” boasted the official announcement from the European Commission. Remove and Ban Trump Now

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The new EU-China agreement underscores a fundamental question of the post-pandemic world order: How should strategic and economic relations between major powers with very different institutional and political arrangements be managed? Can democracies remain true to their values while engaging in trade and investment with China?

CAMBRIDGE – Just as 2020 was ending, the European Union and China announced the completion of a Comprehensive Agreement on Investment (CAI) between the two economic giants. This “will be the most ambitious agreement that China has ever concluded with a third country,” boasted the official announcement from the European Commission.

The CAI gives European firms enhanced access to the Chinese market, removes (or relaxes) Chinese government requirements on joint ventures and technology transfer in some sectors, and promises equal treatment with state enterprises and greater regulatory transparency. Moreover, the Chinese government has undertaken some obligations on environmental sustainability and labor rights, notably by agreeing to make “continued and sustained efforts” to ratify the Forced Labor Convention.

On paper, this is a win not only for European industry, but also for human rights. But the reception the CAI has received has not been uniformly positive. The US reaction ranged from disappointment to outright hostility. For hardliners, including officials of the outgoing Trump administration, Europe’s decision looked like caving in to Chinese economic might and handing the country an important diplomatic win.

But many moderates, including President-elect Joe Biden’s designated national security adviser, were dismayed as well. The incoming Biden administration would have preferred presenting a unified front against China, by striking an economic deal with Europe first.

For others, it was the EU’s apparent naivete on China’s human rights promises that rankled. Guy Verhofstadt, a former Belgian prime minister and member of the European Parliament, 

Dani Rodrik
I am an economist, and a professor at the Harvard Kennedy School. My most recent book is Economics Rules: The Rights and Wrongs of the Dismal Science (Norton, 2015). I was born and grew up in Istanbul, Turkey. I still follow Turkish politics very closely, as you will find out if you spend any time with this blog.

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