The question of whether Europe has been sidelined in Asia implies that at some point in the past it was actively in the game – whatever that game may have been. This was true in the distant past, and from the time of the Portuguese arrival in India in the 15th century until the end of the great Dutch, British, and French colonial empires after World War II, Europe not only was a major player in all the games of Asia – it owned them.
But since Malaysia’s independence and Britain’s 1968 withdrawal from its great naval base in Singapore, Europe (other than Russia) has not been in the Asian geo-political game in any significant way. That game has essentially been the monopoly of the United States and the Asian nations themselves. Now it is the U.S. that is being somewhat sidelined as China’s power expands inexorably. The recent development of long range anti-ship missiles by China threatens to push the U.S. Seventh Fleet back to Guam and the second Pacific island chain after having patrolled the western Pacific and the Straits of Taiwan for over half a century.
Yet China’s rising power has in a way also strengthened America’s security role in Asia because Japan, Singapore, Korea and others now seek closer ties to Washington as a counterweight to Beijing. As to Europe, the constant reduction of military forces there precludes the Europeans from coming into this game for as far as anyone can see into the future.
But the main game in Asia is economic. Here there are several different ways of viewing the play. In one sense, far from being sidelined, Europe is a star player. It is now China’s biggest trading partner, having surpassed the U.S. as the most important destination for China’s exports. It is also the second largest source of China’s imports after Japan, far surpassing the United States. More broadly, Asia – spanning east Asia, southeast Asia and south Asia – is by far the most important trading region for Europe, and European investment there is growing more rapidly than anywhere else.
“China and other key Asian players are playing an entirely different game from the one Europe and America expect and want them to play”
Europe has also been quite pro-active in trying to develop closer economic relations with Asia. It has negotiated a Free Trade Agreement (FTA) with Korea, established the Asia Europe Meeting (ASEM) between the top leaders of the EU-27 and those of the Association of Southeast Asian Nations (ASEAN) plus Japan, China, India, Mongolia, Pakistan and South Korea, and created the Asia Europe Business Forum as part of a comprehensive programme to better exploit the potential of Asian markets for the benefit of workers and consumers in Europe.
There is a Trade Facilitation Action Plan and an Investment Promotion Action Plan, both aimed at increasing European exports and foreign direct investment to Asia. In this sense, Europe is far more in the game than the United States, which at the moment has only an FTA with Singapore in the region (though one with Korea is nearly done) and is excluded from the East Asian Summit of Asia-Pacific nations, and has no business forum or trade or investment action plans. Of course, there is the so-called Strategic Dialogue between the U.S. and China, but Europe should not envy America this meeting as it has proven to be nothing but quicksand for U.S. negotiators and policymakers.
And yet it must be said that all of these structures and efforts and positive numbers are not very comforting. Europe does have a problem and it is more or less the same problem the United States has in Asia. The fact is that both economies are being sidelined in important parts of Asia and especially in China. Like the United States, Europe has a large and chronic trade deficit with China and Asia. Not only does it have a trade deficit, but the European Commission and EU companies, like the U.S. government and the companies in the American Chamber of Commerce in China, complain of being forced to transfer technology as a condition of doing business, of facing “buy national” policies and attitudes, of obstruction of investment, and of lack of protection of intellectual property. These complaints are largely aimed at China at the moment, but Europe generally has a trade deficit with most of the other key Asian countries and feels that it is not able fully to realise the benefits of its areas of comparative advantage and of technological excellence.
The problem here is not that there is something particularly wrong with Europe or that it is being sidelined because of lack of effort or lack of appropriate policies. It is that China and other key Asian players are playing an entirely different game from the one Europe and America expect and want them to play. They are not playing the Adam Smith, David Ricardo free-market, free-trade game. Rather, they are playing a strategic export-led growth game. It involves catching up with the U.S. and Europe which means obtaining their technology and production capabilities as quickly and cheaply as possible. It also means favouring national producers as a way of creating economies of scale that will eventually establish competitive industries, and it often means managing currency values to ensure the price competitiveness of exports.
More dialogues, action plans and FTAs won’t change this, or fix the trade balance problems. Indeed, they are only likely to obscure the real issues. Asia is winning at this game and it has no reason at the moment to change or stop playing the game. Only when Europe decides to stop whining and starts to play the same game will it be able to get off the sidelines.