Checking In On Europe’s De-Risk From China

Written by Jack Elbaum

What’s happening: European leaders are pursuing a policy of de-risking from China. That means reducing dependence on China for critical resources while keeping lines of communication open on issues where it is best to work together. It’s a softer policy than decoupling because it’s about “ending exclusive reliance on China, rather than withdrawal,” according the Washington International Trade Association.

Why Europe wants to de-risk: Europe's close trade relationship with China is risky. China could use trade as a weapon, especially because it's not friendly with Europe's main ally, the U.S. Europe is also concerned that the trade relationship is helping China, even militarily. With the possibility of future conflicts, perhaps war, Europe knows it needs to depend less on China.

Easier said than done: Twenty percent of all imports to Europe in the first half of 2023 came from China, it supplies over 80 percent of Europe’s lithium-ion batteries — which are used for electric vehicles that Europe wants to make more of — and China has made big investments in critical European infrastructure. Additionally, Europe is almost entirely dependent on China for rare earth metals.

• And much, much more: Many European ports, power grids, subsea telecommunication cables, airports, electricity companies, and wind and solar farms have all been powered through Chinese investments.

• Another pain point: It would be difficult to get private businesses on board with this de-risking plan, and it is unrealistic to think Europe could create its own supply chains. Germany wants to tighten government controls over foreign investment to solve this problem.

Zoom out: Chinese investment into Europe flows to the tune of billions, while into America, almost nothing. That makes Europe’s task much different and more difficult than America’s.