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David Back St. Gallen Symposium

Competitiveness

US-China cold war will force the EU to choose sides, experts say

IbyIMD+Published 7 May 2021 in Competitiveness ‚ÄĘ 5 min read

The US-China rivalry is descending into a new ‚Äúcold war‚ÄĚ that is fracturing the world into two blocs and will force the EU to choose sides,¬†experts said at the 50th¬†St. Gallen Symposium¬†on Thursday.¬†¬†

Speaking at a session moderated by David Bach, IMD’s Dean of Innovation and Programs, they expressed concern that the EU is in danger of becoming a hapless plaything in the escalating tensions between the world’s two biggest economies.   

Ann Lee, a leading authority on China’s economic relations, rejected claims made by America’s top diplomat Antony Blinken on Tuesday, who tried to downplay the country’s tensions with China during a separate conference.   

‚ÄúIf you look at what the US has done in the last¬†few¬†years in terms of stepping up tensions¬†with¬†China, like starting a trade war, like imposing restrictions on US companies being able to sell semiconductor chips to¬†China,¬†or¬†forbidding Chinese companies from investing in US or European¬†tech¬†companies‚Ķit shows the¬†US¬†is trying to move towards a cold war¬†with China.‚Ä̬†¬†

But she drew a contrast with the first cold war between the US and Russia, pointing out that China is one of America’s largest trading partners and there are official diplomatic relations.   

Simon Evenett, Professor of International Trade and Economic Development at¬†the¬†University of St.¬†Gallen,¬†said the ‚Äúdecoupling‚ÄĚ of the US and China was evident in¬†the drive by both sides to more closely scrutinize foreign direct investment, especially under¬†the Donald Trump administration.¬†But so far,¬†US-China investment flows¬†seem to belie the¬†rising¬†geopolitical tensions.¬†¬†

Evenett¬†suggested¬†the capitalist motive to maximize shareholder returns clashes with the political rivalry between the superpowers.¬†‚ÄúAny degree of decoupling is possible. The question is, at what price?‚Ä̬†he¬†asked.¬†‚ÄúUnfortunately, these issues are often framed solely in terms of national security.¬†The¬†economic, business¬†and¬†social benefits of engagement are overlooked.¬†That conversation needs rebalancing.‚Ä̬†¬†

EU businesses cannot afford to ignore the big market opportunities in China

Andreas Treichl, Chairman of the ERSTE Foundation and President of the European Forum Alpbach, agreed there is divergence between business and political interests, noting that European companies especially are dependent on Chinese production in sensitive areas like raw materials, pharmaceuticals and semiconductors.  

The¬†COVID-19¬†pandemic¬†caused bottlenecks that underscored the¬†need for¬†supply chain diversification.¬†But¬†Treichl¬†said that, unfortunately, Europe was forced to choose between US and Chinese suppliers, especially in the technology sector.¬†‚ÄúWe have to accept that and we are not leading anymore in any of the new technologies,‚ÄĚ he said.¬†‚ÄúIt¬†is much more urgent now¬†for Europe to¬†develop its own digital infrastructure.‚Ä̬†¬†

Treichl also expressed concern in the EU that the bloc could be wedged between the US and China, especially in Germany where Angela Merkel, the country’s chancellor, has…

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