Economic security, Export controls dual use, Latest news, Think Tank

THINK TANK: The weaponisation of trade

Foreign policy think tanks, usually absent from the trade policy conversations, are now busy working with trade. Weaponisation of trade, export controls, and European tech sovereignty are the themes addressed by two Berlin-based think tanks in recent days: the European Council on Foreign Relations and the German Council on Foreign Relations.

Strategic export controls: why the European Union needs to step up its game

The United States and China are shifting the geopolitical and geo economic landscape through technology trade competition but Europe is caught in the crossfire and must urgently begin discussing strategic export control before it becomes a bystander.

These are the main take-aways of a punchy commentary piece by senior policy fellow, Tobias Gehrke and policy fellow Julian Ringh of the European Council on Foreign Relations.

 “The latest US export controls on semiconductor technologies traded with China mark the beginning of a new era for global technology trade. European states need to urgently discuss strategic export controls in order to participate in it” write Gehrke and Ringh.

Late last year, the United States Commerce Department implemented additional export controls on advanced semiconductor technologies traded with China. Technology competition between the two states has reached a new level.

The US is also considering restricting artificial intelligence, biotechnology, quantum information science and clean technology trade with China.

These trade restrictions will reach beyond the US and China, as the rivals seek alliances against adversaries.

The US Commerce Department can also require any company that uses US-origin technology or intellectual property in its product or production process to have a US licence.

If the US leverages its extraterritorial power over global technology trade, it may in fact push other trading partners toward China by creating incentives to replace US-made inputs and secure Chinese market shares.

The US is hoping to use the momentum from export controls placed on Russia to garner Europe’s support and China is lobbying Europe to strengthen their technological ties.

The EU’s dual-use export controls and enforcement capacities are challenged as a resulte. For example, despite Western technology sanctions against Russia, numerous Western parts are being used to manufacture Russian and Iranian weaponry.

The US technology restrictions placed on China only affect less than one percent of chips traded globally and in which Europe currently has a limited stake, this however could change.

According to Gehrke and Ringh “the effects of expanding controls could disrupt EU trade and investment decisions, such as those foreseen under the recent European Chips Act, as companies will continuously adapt their research and development, merger, and acquisition activities according to US measures.”

“To sanction-proof their operations, European car, chemical, or smart manufacturing firms could increase investments in China, which would undermine EU strategic autonomy goals. EU-US (and EU-China) research cooperation on other emerging technologies such as quantum computing could also be increasingly affected” write Gehrke and Ringh.

Gehrke and Ringh emphasise that “the US could, in the future, make European access to critical US technology conditional on further EU alignment with US export control policy”

“Finally, multilateral export control systems such as the Wassenaar Arrangement struggle to adequately update lists of sensitive technologies to be controlled in the face of rapid technological change” Gehrke and Ringh explain.

“European Union member states need to urgently put export controls on their geopolitical and geo-economic agendas and develop a common position to avoid becoming bystanders to accelerating decoupling dynamics and their vast implications for trade, security, and technology development” write Gehrke and Ringh.

The EU should improve its enforcement of existing restrictions and also include export controls in both its geopolitical and geo-economic thinking.

“To boost their enforcement capabilities, member states should increase staff, introduce new data-driven technology, and expand information sharing” advise Gehrke and Ringh.

Accoding to the authors, “they should also swiftly adopt existing tools for exchanging licensing data between EU authorities. Intelligence agencies must be more closely involved, and collaborate with each other, to help detect the circumvention of sanctions and export controls.”

“The EU should also consider having compliance monitoring teams in EU embassies in critical third countries such as Russia, China, and Iran.”

Due to strong trade, security and foreign policy links between the EU, US and China, export controls will affect the entire bloc. This the EU to find common ground on these topics.

“It would be short-sighted to leave the response to the member states that are currently most affected – especially with more US controls on the horizon” the authors write.

“If different states develop different policies regarding trade with the US and China, the coherence and defence of the single market could be jeopardised as many technology supply chains involve multiple EU countries” Gehrke and Ringh warn.

Multipolar globalisation

In another paper published by the Gehrke and Righ’s boss, European Council on Foreign Relations director Mark Leonard discusses the next wave of globalisation and how it will differ from the last. The bipolar world order is out and multipolar is in.

“Is globalisation coming back to life? That was the big question at the World Economic Forum’s annual meeting in Davos, where WEF founder Klaus Schwab asked whether it is possible to have cooperation in an era of fragmentation” writes Leonard.

In past years, the 2008 financial crisis, Brexit, Donald Trump’s electoral victory, democratic backsliding, the pandemic and the war in Ukraine were considered indicators that globalisation had reached its tipping point.

This year in Switzerland, the mood was optimistic. It seems the world is doing better than the Davos men anticipated – the Ukraine is valiant, the West is united, Europe surviving a costly winter, and a recession may be dodged.

But superseding these short-term developments, is a shift toward a new and very different form of globalisation and a revolution in energy.

“European Commission president, Ursula von der Leyen, and Germany’s chancellor, Olaf Scholz, predict that the widespread adoption of renewables and hydrogen power will be as significant as the industrial revolution of the 19th century” Leonard says.

“At the same time, advances in artificial intelligence (AI) are opening vast new possibilities, while also creating tensions over microchips and renewed fears about joblessness and rogue robots”

Leonard highlights that “developments in all three areas – telework, renewables, and AI – will bind countries together in new networks of interdependence. As a recent McKinsey Global Institute report shows, “no region is close to being self-sufficient.””

According to Leonard, “the old model was about corporate profits, the new one is about national security in all its dimensions”

To many, the West is responsible for turning the war into an economic conflict through aggressive sanctions.

At one point the dollar-based financial system was thought of as a public good that would ultimately spread wealth. But now is seen as a tool used by America to impose both its ideological and strategic preferences.

For example, “the sanctions on Russia follow the same pattern of Western policies used to prosecute the ‘war on terror’ and the fight against nuclear proliferation in Iran and North Korea” says the author.

Countries are aiming to protect themselves against the risks of interdependence.

The EU is considering a carbon tariff on imports and has taken action to protect its citizens’ data and the US has imposed restrictions on technology trade with China.

This new wave of globalisation will be multipolar. China is central to this development, whereas n the US and Britain have been central to the first two waves of globalization.

How to operationalise open strategic autonomy in the tech field

A rigorous publication by the German Council on Foreign Relations delves into the EU’s technological dependencies and ‘operationalising’ the EU’s concept of ‘open strategic autonomy’. The report compiles findings from a ‘Digital Power China’ research consortium funded by the German government gathering specialist think tanks from across European Union member states.

China is emerging as a technological force with a broad range of foundational technologies.

“Growing geopolitical tensions have heightened the awareness that critical dependencies can be weaponized for political purposes” the report says.

This is exemplified in Russia’s invasion of Ukraine, Chinese coercion against Lithuania and the US’s willingness to act unilaterally with China.

“In the light of such deep dependencies and their weaponisation, the EU is attempting to manage its capacities and its dependencies on China.”

“It defines this as Open Strategic Autonomy, where the goal is to uphold the EU’s capability to act internationally without being constrained by technological dependencies” the authors say.

The EU has begun identifying various important dependencies but runs into difficulties when trying to operationalise them.

The EU faces divergent challenges that require a divergent set of strategic tools. The EU is finding itself questioning weather re-shoring or supply chain diversification is a better strategy.

The authors seek to help policy makers make the idea of ‘open strategic autonomy’ by using four dimensions: resilience of supply chains, criticality/national security, defence of values and sustainability and technological competitiveness.

“One-size-fits-all solutions are doomed to fail”, warn the authors.

“A policy instrument that might be useful for increasing European technological competitiveness in a given emerging technology is of no use in protecting national security concerns in that or another emerging technology” the report says.

“In some cases, tensions exist between the different dimensions of open strategic autonomy within the same foundational or emerging technology.”

Striking a balance between competing goals is not impossible but requires a thorough process.

The authors identified a four-step process to address the challenges of open strategic autonomy across the four dimensions and policy tools: ecosystem analysis, addressing the four dimensions, geopolitical contextualization and policy tool selection.

“Policymaking must start from an analysis of technological ecosystems to assess the degree of dependency and associated risks based on the criticality of the items under consideration, options for supply substitution and the extent to which dependencies are mutual.”

The authors explain that this will limit the abilities for others to weaponise European dependencies.

“Since no two dependencies carry similar risks, a geopolitical contextualization that considers geopolitical factors, such as regime type and the existence or absence of security alliances, is essential” the report concludes.

“European policymakers should use different policy tools to achieve clearly defined goals based on political priorities and depending on which of the four dimensions of European Open Strategic Autonomy is affected.”

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