The relationship between the EU and America these days puts me in mind of troubled celebrity couples on the red carpet — they smile for the camera, and act as though everything is fine, but in private, we all know, they are anything but content.
At the recent G7 summit, there were happy photo-ops and even some progress around trade conflicts, such as the Airbus-Boeing truce. But at bottom, Europeans remain deeply sceptical about whether the Biden administration is just a way station on route to another bout of toxic populism. Meanwhile, Americans are frustrated with Europeans for hedging their bets between a tighter transatlantic alliance or a closer relationship with China.
It doesn’t have to be this way. In fact, it must not be. If the EU really wants to protect liberal values in the age of surveillance capitalism, it needs America. And if the US truly wants to decouple from China economically in strategic areas such as semiconductors, green batteries and electric vehicles, it needs demand from more than just the domestic market. There is low hanging fruit to be plucked here. But it requires some real empathy and understanding on both sides.
First, Europeans shouldn’t mistake America’s new industrial strategy, outlined last week by the director of the president’s National Economic Council Brian Deese, for protectionism. It merely brings the US into line with what most other developed and many developing countries do as part of normal economic planning — making strategic investments in high-growth technologies and using the power of government procurement to support local workers and businesses.
Beyond that, the plan aims to create more domestic and global economic resilience, in part by creating more geographic redundancy in areas such as semiconductors, where 75 per cent of capacity is concentrated in China and East Asia, according to a recent BCG report. Nearly all of the world’s most advanced semiconductor making capacity — some 92 per cent — is located in Taiwan.
Does anyone actually think that’s a good idea given the geopolitics of the region? The Europeans certainly don’t, hence the EU’s “Digital Compass” plan to double their own share of chip output by 2030. The US Senate’s $52bn bill to boost domestic semiconductor production is a good complement to this. But the truth is that it will take a decade or more to rebuild America’s industrial base in chips, and even then, the US will need partners to create enough demand to make the economics of scale for an industry like semiconductors work.
Allies like Japan and South Korea, but also countries such as the Netherlands, could all play a crucial role in reconfigured semiconductor supply chains. Creating less concentration — both regionally and within specific companies — would be a good thing for global markets. In an ideal world, the US, EU and Asian allies would work together to create common industry standards so that incremental innovation and demand could spread across regions in areas like chips, green batteries, clean tech and AI.
Another way for the EU and the US to find agreement right now would be “to focus on common answers to existing challenges within their democracies”, rather than on China, where the Europeans don’t want to pick sides, says Renaud Lassus, minister counsellor for economic affairs at the French embassy in Washington, and author of The Revival of Democracy in America and the Better Angels of Your Nature, a Tocquevillian call for optimism about the future of the US.
Those challenges might include everything from Big Tech regulation to shared goals on climate change, perhaps even something as ambitious as putting a price on carbon. Despite opposition from some European countries, including Poland, it’s possible that by July, the EU could put out a draft proposal for a carbon adjustment mechanism. The US has an opportunity to respond in kind with a proposal of its own.
That’s a heavy lift for the administration; last week’s bipartisan infrastructure deal included little on clean energy. But it’s one that would fit the stated goal of putting climate at the centre of its own industrial strategy. It would also, by proxy, begin to address certain shared trade concerns about China. Chinese steel dumping, for example, would become impossible if there was a real price on carbon.
The Biden administration might use any upcoming “Summit for Democracy” that the White House convenes as a place to begin that work. Already, there is a virtuous circle of ideas sharing between the US and EU in areas such as digital privacy, with Europe’s General Data Protection Regulation (GDPR) inspiring even more aggressive Californian privacy laws that may one day be adopted nationally. Antitrust is another such area, where both sides have informed each other’s efforts to curb platform monopoly power.
One could imagine more co-operation on issues such as press freedom, the ways and means of creating a digital bill of rights, principles for how to regulate artificial intelligence and genomic research, and so on.
All this would go some way to creating a new basis for the transatlantic relationship, one focused more on fixing domestic weaknesses and bolstering regional strengths than on bashing China. Both sides have too much to lose by going it alone.