The European Union must prepare itself for the fact that the U.S. will favor coercion over cooperation in its economic war with China.
And how powerful is China? Very, very powerful. See my postscript.
20 November 2024 (Paris, France) – It is only now that most government are realizing – especially after Trump’s flurry of announcements on who will run the U.S. government – that the Democrats’ loss to Trump has reduced Biden’s time in office to a mere intermission within a larger, angrier Trumpist age that has been building for years.
Until the American elections, it seemed that Russia and China posed the most immediate challenges to the economic security of the European Union. But the next U.S. presidential administration holds the most power to disrupt the EU’s economic security strategy.
The U.S. has presented Europe with two seemingly opposite faces in contending with China’s economic might, one coercive and the other cooperative. During the first Trump administration, and against the backdrop of a rapidly expanding US-China trade war, the U.S. forcefully compelled or bullied European governments and businesses to go along with U.S.-led decoupling policies. This was clearest in U.S. efforts to get EU governments on board with restrictions on Huawei and its role in European 5G infrastructure. Under the Biden administration, the U.S. eschewed such baldly coercive measures and instead emphasized diplomatic cooperation with Europe in the name of shared economic security and measured de-risking from China.
Some positive appraisals of the Biden approach have pointed to effective cooperation with the Netherlands and Japan on semiconductor export controls to China. Yet even such diplomacy-led collaboration has not been all smooth sailing. No matter who won the election, the U.S. was unlikely to curtail the politicized and ever-expanding range of “security” concerns driving its approach to economic security. And even countries most willing to work with the U.S. have long had different risk assessments and economic realities that expose a gap between their and U.S. interests.
A significant restriction
The case of the Netherlands provides a clear window into these realities. During Trump’s first term in office, the United States started to restrict China’s access to advanced semiconductors and related technology. That work involved not only countries that produce semiconductors, such as Taiwan and South Korea, but also those making equipment needed to make chips, such as the Netherlands.
In 2018, the Trump administration began talks with the Dutch government about limiting exports by ASML, the world’s leading producer of chipmaking equipment, to China. A year later, the Dutch government halted the export of the company´s most advanced equipment to China. Under President Biden, the US maintained pressure on the Netherlands that led to further restrictions on ASML’s sales in China.
Helping the U.S. entails costs for the Netherlands. ASML is the EU’s largest tech company. As a result of restrictions imposed by the U.S., ASML can now sell to China only its older models of chipmaking equipment. This is of particular significance at a time when orders for new equipment in some of its other major markets are less than expected. When it comes to economic security, it can be difficult for US allies and partners to assess and respond to America’s combination of cooperation and coercion. Maintaining good relations with the US is generally beneficial for smaller countries, which understand that the U.S. government has financial, economic and diplomatic means to exert pressure on them if needed.
Protecting governments and companies
If the Dutch experience with ASML is any indication, U.S. allies and partners should expect the new administration to prefer coercive over cooperative means in pursuit of a China-focused economic security front. That could include efforts to deepen controls on ASML itself or to revive pressure on European countries to restrict the activities of Chinese tech companies, including Huawei.
As a result, the EU now faces the impossible task of trying to make its tools protect and promote its economic security – applicable not just to China and other non-Western actors but also to its relationship with the U.S. The EU wold need to rapidly adapt its “anti-coercion instrument,” which is aimed at deterring and responding to economic coercion by third countries, in order to protect not just the governments of its member states but also their companies.
This would be a pretty big stretch as you might imagine.
But unless they are protected not only by their own government but by the EU as a whole, European companies will be particularly vulnerable to pressure from the U.S., China, or Russia.
For years, Tim Cook insisted Apple could change China from the inside. Instead, China changed Apple.
The latest evidence? Apple spent billions developing cutting-edge electric vehicle battery technology with Chinese automaker BYD, only to watch its innovations become the cornerstone of BYD’s rise to global electric vehicle dominance.
Apple walked away with nothing. China walked away with everything.
This isn’t just another story about corporate research and development gone wrong. It’s a cautionary tale about how even America’s most valuable company has become trapped in China’s web of technological control — and how that web is about to tighten even further.
The battery partnership reveals a familiar pattern: American innovation flows into Chinese hands, strengthening Beijing’s technological ambitions while weakening America’s competitive edge.
But BYD isn’t the real story here: It’s about how deeply Apple has become entangled with the Chinese Communist Party’s strategic objectives. The company that once removed the Dalai Lama from its ads to appease Beijing now faces an even more consequential test: artificial intelligence.
As Apple races to roll out Apple Intelligence globally, it faces a stark choice in China. The country’s strict AI regulations require companies to hand over their algorithms for government review and ensure their AI systems “adhere to the correct political direction”. For Apple, this means either walking away from its largest overseas market or creating a separate, censored version of its AI assistant that advances the Chinese Communist Party’s surveillance and control objectives.
History suggests Apple will choose accommodation. The company already stores Chinese users’ iCloud data on state-owned servers, removes apps at the government’s behest and blocks VPN services that could help users evade censorship. When China claimed Apple was a national security threat in 2014, the company didn’t push back — it handed over its encryption keys.
The cost of resistance is simply too high. China accounts for one-fifth of Apple’s sales and produces 95 percent of iPhones. When CEO Tim Cook recently spent $40,000 to dine with President Xi Jinping, it wasn’t just courtesy — it was a necessity. Apple’s dependence on China has become so profound that it ranks as the third most China-dependent major U.S. company.
Yet this accommodation strategy isn’t working. iPhone sales in China fell 19 percent this year as consumers shifted to domestic brands like Huawei. The Chinese Communist Party’s demands, meanwhile, only escalate. Each concession Apple makes doesn’t buy breathing room — it only increases Beijing’s leverage to demand more.
This dynamic exposes the fundamental flaw in Cook’s famous defense of operating in China: “You show up and participate … nothing ever changes from the sideline.” The reality is that Apple’s participation hasn’t changed China’s system — the system has changed Apple.
The implications extend far beyond one company’s bottom line. As artificial intelligence reshapes the technological landscape, America’s leading tech companies face a choice between their values and their profits. Apple’s trajectory suggests many will choose profits, inadvertently strengthening an authoritarian regime’s capability to control information, monitor its citizens, and advance its technological ambitions.
The solution isn’t simple, but it starts with recognition: America’s economic engagement strategy hasn’t made China more free — it’s made American companies less so. Until policymakers address this reality with stronger guardrails around technology transfer and data sharing, companies like Apple will remain caught between Chinese demands and American interests.
And increasingly, China’s demands will win.