Economic development in China and other Asian countries has an impact on the role of European states in global affairs. Craig J. Willy argues that with the rise of Asian economies, the world is increasingly moving away from the model of free trade championed by Europe and other states in the West. Unless Europe becomes a more cohesive actor which is capable of convincing other nations to respect Western legal and commercial principles, it will find itself forced to adapt to the East Asian development model

Willy, Craig J.

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Shanghai, Credit: Keith Marshall (CC-BY-SA-3.0)30/10/2013Europe must adapt to the reality that we are living in a worldincreasingly dominated by Asiablogs.lse.ac.uk /europpblog/2013/10/30/europe-must-adapt-to-the-reality-that-we-are-living-in-a-world-increasingly-dominated-by-asia/Economic development in China and other Asian countries has an impact on the role of European states inglobal affairs. Craig J. Willy argues that with the rise of Asian economies, the world is increasinglymoving away from the model of free trade championed by Europe and other states in the West.Unless Europe becomes a more cohesive actor which is capable of convincing other nations torespect Western legal and commercial principles, it will find itself forced to adapt to the East Asiandevelopment model.Economic relations between the European Union and China are a classic example of what Frenchsociologist Emmanuel Todd has called “asymmetric globalisation,” characterised by unequalopenness and chronic, unsustainable trade deficits.The EU is a non-State, complex and uneven “Union” of28 countries, which on most issues is incapable ofdecisive action because of the need for at least broadconsensus and national implementation. Much ofeconomic policy is prescribed in the EU treaties, almostalways in favour of open borders and free trade, and isonly modifiable with extreme difficulty. In contrast, Chinais a cohesive and authoritarian Nation-State with aneconomic policy in accordance with the East Asiandevelopment model of corporatist state capitalism.Europeans repeatedly condemn China’s developmentmodel, but this is usually without effect. The EuropeanCommission regularly cites China in its reports on therise of protectionism worldwide and firms often complainof legal uncertainty in China. As the China report of theAsia study, recently released by the BertelsmannFoundation’s Sustainable Governance Indicators (SGI)project, states, “local administrations frequently makearbitrary decisions that contradict national regulations”and corruption remains an issue. In the SGI reportChina scores very poorly on corruption prevention (2 of10 possible points) and legal certainty (3 of 10 possiblepoints).As the Bertelsmann report further points out, China’s economic growth has been accomplished throughunconventional policies and institutions, often deviating substantially from the Western marketisation-cum-privatisation paradigm. Indeed, China’s economy is characterised by strategic State planning, capital controls,currency manipulation, closed public procurement markets, disregard for Western intellectual property (three-quarters of fake goods seized at EU borders are Chinese) and support to exporters and “national champions.”China: “the most ambitious planning polity of our times”1/3The role of the Chinese State as strategic planner of the economy is difficult to overstate. As the SGI reportconcludes: “China can be considered the most ambitious planning polity of our times with regard to thecomprehensiveness and the intended domestic and global impact of long-term policy programs.”In contrast, the EU and its member states are a strange mix of interventionism and laissez-faire: significant welfarespending and regulated labour markets coexist with open borders and hostility to any “trade-distorting” State action(“national champions”, industrial subsidies). There is total free movement of capital, the world’s most open publicprocurement markets, and no euro-exchange rate policy.It is not surprising that this staggering asymmetry in economic openness coincides with asymmetric trade flows. TheEU is China’s most important economic partner with trade in 2012 estimated at €433.8 billion. The EU has a €146billion trade deficit with China or 1.13 per cent of GDP. This headline figure is significantly better than the U.S.($315.1 billion deficit with China  or 2 per cent of GDP), however it masks massive divergences within the EU.Indeed, Germany is the only EU country with a trade surplus in goods with China, at €4.3 billion in the first half of2012. In contrast, France had a trade deficit in goods over the same period of €4.7 billion, Italy of €8.3 billion andBritain of €13.6 billion. This situation is not sustainable, these flows will eventually adjust, either by diminishingEuropean consumption or increasing exports.Beijing-Brussels: An unequal struggleHowever, the EU appears to be incapable of enticing China to adopt “free and fair” trade, or even of having coherentand self-interested trade or monetary policies in general.This was particularly apparent during the solar panels dispute. After the European Commission imposed smaller-than-expected tariffs on China’s subsidised solar panel exports, China slapped tariffs on (very successful) Frenchwine exports while Germany, fearing its “special” trade relationship with China would be threatened, broke withEuropean solidarity and condemned the EU move. The Commission backed down shortly thereafter, cancelling theweak tariffs it had put in place. The British think-tank Open Europe argued: “China’s divide and conquer approachlooks to be paying off in deal on solar panel dispute.”Europe is trapped in a dangerous no man’s land: the Nation-States have largely been stripped of their economicpowers, but no strong EU-level action is possible. Beside the power of the central Chinese strategic State,policymakers in Brussels are totally disarmed: with inconsequential budgets, an incredibly slow and consensus-driven policymaking process, the EU’s long-term planning (“Lisbon Strategy,” “Agenda 2020”) is simply not in thesame league.The EU will need to either revert to Nation-States or become a far more cohesive actor. Perhaps China will revert toWestern norms of its own accord. The country is considering capital liberalisation and perhaps its economic elite willcome around to seeing the benefits for itself of thinking in global instead of national terms.It is equally possible, however, that the Euro-American globalist system will become increasingly marginal. Chinaalone is, in the medium-term, big enough to be a bigger cultural and economic world than the EU and U.S. puttogether. In addition, China will no doubt continue not only to work in Western institutions (IMF, World Bank, WTO),but also to develop its own alternatives with emerging allies: the Asian Development Bank, a possible “BRICS bank,”or the Shanghai Cooperation Organization. The world is increasingly a non-Western one with powers like China,Russia, Brazil, Japan, or South Korea, which are distinctly uninterested in making a fetish of free trade.How will Europe adapt to China?Is Europe’s paralysis inevitable? One is tempted to be pessimistic. As they are saddled by ever-increasing debtburdens, interest payments and demographic ageing, many European nations appear destined to become glorifiedretirement homes and museums for global travellers. But Europe has many qualities: a peaceful continent, a largely2/3healthier demography than East Asia, energy efficiency, a very high level of development and human capital, and arelatively high level of social cohesion and public services. However there is also a sense in which Europe has“peaked” as a force, that there is an economic débâcle, and that European nations are congenitally incapable ofacting together.The EU may explode, giving way to reborn Nation-States. The EU may become more effective as new decision-making mechanisms come into play: from 2014 most EU laws will only require a majority of governmentsrepresenting 65 per cent of the population and 55 per cent of states. The experiment of “coalitions of the willing”through the enhanced cooperation mechanism is already occurring on things such as the pan-EU patent and aneventual financial transactions tax.The EU may also become more cohesive, paradoxically, by its weakness. As the peripheral states of Europe arecrushed by the debt burden, they may come to follow the orders of creditor states in exchange for continuouslyrenewed financial solidarity (we’ve seen this with the Six-Pack, Two-Pack, Competitiveness Pact and theFiskalpakt). Creditor states may come to a more proactive attitude as they find that they, too, are incapable ofdefending their social models and middle classes in the age of globalisation.In any case, EU-China relations show two extremes in the age of globalisation: the passivity of openness and law vs.the activism of tightly-managed borders and dirigisme. In this highly unequal struggle a reversal may soon beunderway. At the very moment when the Western nations are most completely embracing globalisation and the endof the Nation-State, the rapidly-rising East Asian nations appear more then ever wedded to the role of borders andthe Nation-State in economic life. The West may believe they can impose free trade, but China’s staggering sizemeans this will not be possible coercively. Western globalisers must recognise that everything suggests this isindeed the Asian Century, and that if China ends up abiding by their Atlantic legal and commercial principles, it willhave been by choice.One way or another, it is Europe which will have to change, either achieving the cohesion to force China to respectWestern principles or adapting itself to the East Asian development model.Please read our comments policy before commenting .Note:  This article gives the views of the author, and not the position of EUROPP – European Politics and Policy, norof the London School of Economics.Shortened URL for this post: http://bit.ly/1bCmfzQ _________________________________About the authorCraig J. WillyCraig James Willy is an EU affairs writer and a journalist with the German Press Agency (DPA). Hehas notably written political analysis for the Bertelsmann Foundation and media analysis for theEuropean Commission. His French-English blog is available here.3/3

Europe must adapt to the reality that we are living in a world increasingly dominated by Asia

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