Game theory is the scientific discipline of strategic interaction, which makes it possible to better understand the strategies of actors, for example in an economic or political context, and to derive recommendations for action from them. It is therefore an essential skill of game theorists to be able to abstract from details and see the larger context, the “big picture”.
I am convinced that we in Germany and Europe have lost this ability – especially with regard to America and the global power competition that continues to rage between the USA and China even after the end of the Trump era.
It all began in 2017 at the World Economic Forum in Davos, a few days after Donald Trump’s inauguration. China’s President Xi Jinping was hailed as the savior of free trade because, contrary to Trump’s messages, his rhetoric sounded very trade-friendly.
In fact, at this point in time and afterwards, foreign companies complained about the lack of protection of intellectual property in China and the need to cooperate with Chinese companies when entering the market. The Trump administration, which no longer wanted to accept this asymmetrical world trade, was the bad guy.
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Four years later, just in time for Joe Biden’s inauguration, Xi Jinping is once again the star guest of the virtual business forum. Once again, host Karl Schwab rolls out the red carpet for him, but this time not literally, and again Xi skillfully plays the verbal and political keyboard. Despite the obvious breach of all agreements in Hong Kong, he continues to speak of international law, multilateralism and the opening of his own markets.
It’s just cynical. From a European perspective, however, this public perception is so important because the USA, even under Biden, sees the People’s Republic of China as the greatest threat to the western social order and its prosperity. This is where Republicans and Democrats in the United States are not that different.
At least Europe is no longer seen by the Biden administration as an adversary, but is to be won as an ally for a global alliance against China – but an ally from whom an appropriate contribution is also required to push back Chinese dominance.
China’s strategic move
While the transatlantic relationship cooled noticeably over the course of the Trump administration, China used the time to draw closer to Europe. Once again, the political strategists in Beijing have used a power vacuum, as they did with the “New Silk Road” project.
A few weeks after Biden’s election, but before he took office, China signed an investment agreement with the EU – a development that annoys the Americans, because it may bind the EU much closer to China, thus further decoupling Europe from the USA Ahead.
The meaning, purpose and morals of such an agreement with the authoritarian state remain open. Ultimately, the investment agreement and the coordinated trade policy with regard to China that the USA is pushing will be the ultimate test for Europe: Does Europe really want to tackle the major problems such as climate change and fair trade together with the USA, or does it prefer to maintain its almost defiant independence alongside the two superpowers and depending on the situation looking for bilateral solutions?
If the EU actually strives for a coordinated trade policy with the Biden administration, then it needs a strategy in order not to be the loser in the end, but possibly even to get significantly more from a joint action with the USA against China than the investment agreement today promises.
The Europeans’ bargaining chip
The nucleus of a global alliance and coordinated trade policy would always be the cooperation between the EU and the USA. In this scenario, the investment agreement that has not yet been ratified would even be a valuable bargaining chip for Europeans. Because: The Biden administration knows very well that Europe cannot do without military support and trade relations with the USA for the foreseeable future.
It will therefore act vigorously to further bind the EU to America and to push it into a US-led alliance against China. The USA will therefore increasingly give Europe the choice between maintaining security and economic relations with America or strengthening Europe’s ties to China.
Should the EU (want to) make a clear commitment to the Americans and possibly still be ready to crush the investment agreement, then this would be the opportunity to demand sacrifices from the USA for joint action as well.
The alliance that the USA is striving for can and must be even larger than the United States plus Europe in order to be able to throw maximum weight into the balance in future negotiations with China. NAFTA, the EU and their closest allies account for almost 50 percent of global value added. It’s an incredibly powerful trading bloc.
Choice of extremes threatens
From a negotiating strategy perspective, I would recommend that the USA and Europe not seek a direct confrontation with China as a first step, but first force necessary allies besides the USA and Europe in the NAFTA area and Asia into an alliance. As a negotiator, I would suggest winning these countries sequentially, one after the other, for the common line vis-à-vis China.
Lukewarm strategies and appeals will not help much; China’s trade ties, especially with its neighbors, are too great for that. For example, China is currently circumventing the tariffs introduced by Trump by sending its products for final assembly to Vietnam or Thailand – actually very China-critical states – and thus increasing the dependence of these countries on China.
Given only the extreme choice of either going along with Western trade policy or being treated like China itself, some of these countries will join an alliance.
However, it is uncertain whether Europe will have the courage to side with the US in the global power competition and to abandon the strategy of a neutral middle ground between the superpowers. In Dante Alighieri’s “Divine Comedy” it is loosely translated: “A special place in limbo is reserved for those lukewarms who remain neutral in times of crisis”. If we are unwilling to pay a price, we are worthless as allies and if we are unwilling to fight for our values, we will lose them anyway.
More: We have to learn from the Trump method, otherwise the four years were in vain.
Marcus Schreiber is a founding partner and Chief Executive Officer at TWS Partners. He has many years of experience in strategic purchasing and broad industry know-how. His focus is on strategic purchasing, applied industrial economics and market design. He also supports companies in applying game theory knowledge in complex awarding decisions.
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