When German Chancellor Olaf Scholz visited China in early November, it sent shock waves in the Transatlantic Alliance. The visit came only months after NATO declared China as its enemy. The visit’s significance also lies in the fact that Olaf is the only leader from G7 to visit China since the COVID-19 pandemic began three years ago. The visit reaffirmed both countries’ resolve to pursue bilateral ties. Apart from trade, the joint statement also stressed the importance of avoiding the use of nuclear weapons. Coming against the backdrop of Russia’s ongoing special military operations in Ukraine, the statement shows that a key purpose of Olaf’s visit was to convince China to play a more assertive role in managing the conflict in Europe and in finding an acceptable solution. Olaf was certainly not unsuccessful in getting that diplomatic support from Beijing. At the same time, Olaf was also able to discuss with China that any change in Taiwan’s status must be peaceful. In making this joint statement, China did not lose anything. In fact, it potentially secured guarantees of trade between China and Europe’s largest economy.
Ever since the visit. German officials have stressed that Germany will continue to do business with China. Responding to questions from the US media about ‘too much dependence’ on China, Germany’s Economy Minister Robert Habeck said that they were “not stupid.” Because they are not stupid explains why, despite US objections and warnings, Olaf took Germany’s key industrialists with him to expand trade ties with China. They are “not stupid” is the reason why they are not happy with US policies either.
In other words, whereas the US plans to trigger a conflict with China around Taiwan in future, German’s growing interests in and with China tend to undercut this plan. The key question is: why’s Germany doing this? The Germans know how the US politics of NATO expansion has cost them. Germany’s economic growth depended, for decades, on a smooth supply of cheap gas from Russia. Conflict in Ukraine created unavoidable conditions for that supply to halt. But the same conflict also created conditions for the US to sell its gas to Germany (and other European nations) and earn massive profits from it. The Germans are “not stupid.” They know the price they are paying for US gas and for supporting US policies.
Germany, to fill the gap left by the missing Russian gas, is forced to buy expensive gas from the US. The US, the Germans know, is charging exorbitant prices. As some reports have indicated, the US is marketing in Europe at prices three to four times that of the domestic price. As reports in the German media show, Germans are paying more than 173 per cent higher gas bills this year than the previous year. Thanks to the “Transatlantic unity” (whatever that means!).
As a result of pricy gas, the German economy is not reviving. In fact, German officials have confirmed that the German economy will shrink in 2023 by 0.2 per cent. Inflation increased because of the initial shock of the Russia-Ukraine conflict, but it has not at all come down after the US started its supplies. There was no meaningful impact on economic growth because of continuing high energy prices. Thanks to Washington’s benevolent energy trap, the inflation rate is likely to remain around 8 per cent in the next years as well.
Since its alliance with the US is not paying the dividends Biden promised via Transatlantic Unity, Germany decided to revive – and expand – its trade ties with China as an alternative way of saving and reviving its economy. The Germans are “not stupid.” They understand that toeing the US line on Transatlantic Unity unconditionally will never pay. They understand this is a trap for Germany. In fact, sticking to this idea of unity continues to mean, as the Germans know, what the Alliance’s first (British) Secretary Lord Ismay articulated as the politics of keeping “the Soviet Union out, the Americans in, and the Germans down.”
Therefore, developing economic ties with China makes sense for Berlin, and taking top German industrialists to China to meet Xi makes sense for Olaf who is trying hard to break out of the limitations of the American form of ‘unity.’ Therefore, to expand trade ties – which stood at more than 245bn Euros last year – Olaf took CEOs of German blue-chip firms, including the CEOs of Merck, a drug company, Siemens, an engineering giant, and Volkswagen, Europe’s biggest carmaker, to China.
The Americans, on the other hand, think that Germany’s expanding trade ties could make Germany ‘dependent’ on China. This is a strange type of argument, given that the US itself does a lot of trade with China without ever entertaining the question of ‘dependency.’ The US is China’s most important market, with China’s surplus with the US standing at US$85.2bn in October 2022. Compared to this, China’s trade surplus with Germany is almost half (US$41bn in September 2022).
These figures make sense to the German business groups. Many of them think Germany does not have a ‘China problem.’ For instance, Martin Brudermüller, who is the CEO of a chemical company called BASF said that “China bashing” must stop. To quote him, “Overall, we come to the conclusion that it is advantageous to expand our involvement [in China].”
His thinking is supported by a broad political opinion in Germany, represented, most clearly by Olaf himself. Olaf thinks as he wrote in an op-ed for Politico and addressed his US audience, the world does not need a new Cold War with China. This idea directly undermines the US plans to confront China sooner than later around Taiwan. This idea directly undermines the US plan to jeopardize China’s economic growth by banning the export of semiconductor microchips. Olaf said China represents a key centre in an increasingly multipolar world. Therefore, it makes no sense to decouple.
But even though Olaf said he coordinated with Germany’s European and transatlantic friends about his China visit, he made it clear in his op-ed that Germany does have a plan to develop balanced ties with China in ways that reduce the so-called dependence and optimize ties in ways that are beneficial for both sides. This optimization, however, does not serve the US interest of creating a wedge between China and Europe and thus undercut its global rival’s capacity to replace the US as the most important country.
Salman Rafi Sheikh, research-analyst of International Relations and Pakistan’s foreign and domestic affairs, exclusively for the online magazine “New Eastern Outlook.”