This summer, on second thought, the US government still allowed Nvidia to supply chips to China. This indicates that, for now, the US is not trying to completely disconnect China. For Europe, this is an important signal
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Many European companies are wondering whether they can strengthen ties with China, now that relations with the United States are strained. Political Europe has also long operated on the basis that there are many win-win opportunities. After all, the trade relationship is already strong and China has rare earths, electric cars and solar panels necessary for Europe's energy transition. Yet Europe has become much more critical of its economic relationship with China, believing that China does not compete fairly.
Before Europe definitively chooses its course towards China, it should ask itself what expectations the United States has of Europe in that regard. Because if the first few months of Trump's presidency have made anything clear, it is that Europe must conform to America's wishes, especially because of its dependence on US defence. The president of the European Council let slip about the EU-US trade deal: "We are certainly not celebrating tariffs, but escalating tensions with a crucial ally while threatening our eastern border would be too great a risk".
And there are clear signs that the US wants to prevent Europe from strengthening ties with China. While Europe approaches the trade relationship with China mainly economically, the US has been viewing it much more through a geopolitical lens for years. This also affects the European economy. Just look at the export restrictions on ASML and the trade deal between Europe and the US, which states, for example, that Europe works with the US on screening foreign investments, export controls and unfair competition. All this affects the relationship between Europe and China.
Since Donald Trump's first term as US president, China's share of US imports has been declining. This gathered pace in recent months. The reciprocal levies around 'Liberation Day' became so high that they would make trade with China impossible. With the United States and China negotiating their economic relationship during a 'truce', the crucial question for Europe is exactly which China relationship the United States is aiming for: are they ultimately aiming for a complete disengagement from China, so that at some point Europe too will have to cut ties? Or will non-strategic trade remain possible? In the latter case, what exactly is "strategic" according to the US?
What is already clear is that AI is strategic for the US. In Europe, we look at AI mainly with an economic view: we see it as a way to become more productive. Draghi's report points out that a larger digital technology sector is crucial for Europe's productivity.
But in the preface to the US AI action plan last July, Trump writes: "Breakthroughs in AI have the potential to change the global balance of power" and "it is crucial for national security to remain the undisputed technology leader". AI will determine the relative strength of physical and digital weaponry, is the view. The US Department of Defence will spend more than $13 billion on autonomous weapons and AI next year.
The ceo of US-based Anthropic - maker of AI model Claude - wrote an extensive piece in which he made it clear that export controls on chips are decisive for keeping the United States' AI leadership in its hands. Highly sophisticated chips allow the best models to be developed and used, and so they should not end up in the hands of China, he argued. The company announced this week on its own initiative to stop supplying Chinese companies.
Already under the Biden administration, exports of US chips to China were restricted. The most advanced chips were only allowed to be sold to friendly countries and this was seen as the crucial factor in keeping power.
On top of this came Trump's ban on exports of Nvidia's H20 chips in April. But here Trump made a turn this summer. He is now convinced that it is better to export Nvidia's H20 chips to China though. Although it met him with fierce criticism, the thinking now is that this way American technology will be the standard on which to build globally. It should also reduce the incentive for China to develop its own full-fledged alternative. Thus, the Chinese become 'addicted' to US chips and thus dependent on them. Another factor may have been that China restricted exports of scarce metals and magnets in the trade war and thus proved to have a much stronger hand than anticipated.
Whatever exactly the underlying rationale, chips may be exported again and the tariff war with China is in pause mode. For now, the United States seems unable or unwilling to adopt an approach of trying to completely disconnect China. Instead, mutual dependence will remain for the foreseeable future.
Meanwhile, the countries are working on their relative position in that power game: the United States is financially strengthening its only homegrown chipmaker, Intel. Trump is trying to prevent US technology giants from having to pay European taxes. China announced that instead of Nvidia chips, it preferred to develop its own advanced chips. In an unmissable combination of power display and verbal reasonableness, it put itself on the map as an alternative world leader this week. In doing so, it emphatically cited its ties with India.
All is by no means calm. Yet a rapid, complete economic disengagement between the United States and China seems less likely. That the door does not have to close completely immediately is an important signal for Europe.
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