As China and the U.S. redefine geopolitics, Europe faces a win-win situation

As the United States look at disengaging from China, Europe could soon find itself in a sweet spot.

U.S. President Joe Biden has, for most of his term so far, adopted a harsh tone on China, calling the world’s second-largest economy the most serious competitor to America. Diplomatic dialogue between the two hit a rockier patch earlier this year when Washington accused Beijing of using a spy balloon to obtain intelligence from U.S. military sites.

“The U.S.’ hawkish policy stance towards China means that China needs to improve relations with Europe to mitigate the impact of export controls. Therefore, China has an incentive to work hard on improving EU relations,” Anna Rosenberg, head of geopolitics at Amundi Institute, told CNBC via email.

Officials in Europe have adopted a slightly different approach from the Biden administration, preferring to take a softer stance with Beijing, recognizing its importance to the European economy. Data from Europe’s statistics office shows that China was the third largest buyer of European goods during 2021.

“The EU is in a very different situation than the U.S., which is clearly pursuing policy-led disengagement with China,” Jacob Kirkegaard, a nonresident senior fellow at the Peterson Institute for International Economics, said via email.

“Viewed from China, the EU is the most important high-income market that it still has largely unfettered access to. This in turn makes it far less likely that China will actively try to limit trade with the EU,” he said, adding China “has quite a lot to lose from a trade war with the EU.”

European Commission President Ursula von der Leyen has, in recent months, pushed for a policy of de-risking from Beijing — reducing dependency on the country in critical sectors such as raw materials and semiconductors. However, European officials aren’t anywhere near supporting a total breakup in economic and diplomatic ties.

“The political need to de-risk the EU-China relationship is completely different from US-China relations. In a world characterized by U.S.-China rivalry, the EU is the most important economic partner for both — this gives the EU significant political benefits versus both Beijing and Washington,” Kirkegaard also said.

The EU’s single market, where goods and services move freely across borders, is home to 23 million…