Ukraine presses the EU to get real about trading with the enemy

The EU has long justified its trade with Russia and China by arguing that commerce inspires social and political change.

BY BARBARA MOENS
March 14, 2022 9:47 pm

For years, European trade policy has been underpinned by a comforting but naïve German maxim: Wandel durch Handel.

The phrase means « change through trade » and expresses the belief that closer commercial ties with the West will push countries like Russia and China toward a freer and more open political system. The fuzzy logic runs that it’s somehow harder for a nation with IKEA and Starbucks to run gulags or want to trigger World War III.

China has offered many signs over the past few years that Wandel durch Handel is a fairytale, usually retold by companies that are happy to get rich in countries with appalling human rights records. China’s ravenous consumption of Western technologies and fashions has done nothing to dent the authoritarianism of the state or divert its brutal crackdown against the Uyghur minority in the western region of Xinjiang.

Despite these problems, the EU has stuck doggedly to its mantra, even in the face of blaring warning klaxons. Brussels raced to secure a major investment deal with Beijing at the end of 2020, just as the U.S. was gearing up to condemn China for genocide against Muslim minorities.

Russia’s invasion of Ukraine, however, means that even the EU is beginning to realize that it’s been dreaming. It’s becoming starkly apparent that the German-led trade agenda of appeasing Moscow has proved strategically dangerous.

Of course, the idea of trade as a tempering, civilizing force is not solely German. The notion of doux commerce was coined by the French philosopher Montesquieu in the Enlightenment and is embedded in the EU’s trade textbook: Trade leads to dialogue, and interdependence deters conflict.

But it’s the Germans in particular who have used Wandel durch Handel as a smokescreen to make money while ignoring the abuses of Chinese President Xi Jinping and Russia’s Vladimir Putin.

German business interests pushed former German Chancellor Angela Merkel toward years of appeasement toward both China and Russia. While the stated EU goal was to reduce dependence on Russian gas, Germany committed a fatal strategic blunder by committing to the Russia-to-Germany Nord Stream 2 gas pipeline. Unsurprisingly, Berlin was the last EU capital resisting fierce retaliation against Moscow after Putin’s invasion began.

EU Trade Commissioner Valdis Dombrovskis conceded four days into the Russian onslaught that it was time to change tack.

“The weaponization of trade shows no signs of abating. We have no choice but to face up to this reality, and adapt,” he told lawmakers.

That shows every sign of being a messy transition for the EU.

Out of date philosophy
In Germany especially, the traditional Chinese wall separating trade and politics is now being questioned, even by business leaders.

Siegfried Russwurm, president of the powerful Federation of German Industries (BDI), asked what the Russian invasion meant for dealing with other autocrats. “Politicians and companies must now be clear about where they draw the red line with other countries with which they have relations and do business,” he said.

It sounds obvious, but for the see-no-evil EU, it signals the beginning of an important psychological shift.

The glory days of Wandel durch Handel were already over before the war in Ukraine broke out, according to Steven Blockmans of the Centre for European Policy Studies, a Brussels-based think tank. It was a relatively easy policy to pursue after the fall of the Berlin Wall, when Germany and the EU were economically strong and had the (soft) power to help other countries democratize. But since the financial crisis, Blockmans argues that believing in trade as a panacea has mostly been used as a fig leaf to continue trading with dictators.

“[German Chancellor Olaf] Scholz has now acknowledged it’s out of date,” said Blockmans. “This German turn will have an impact on European policy, on using trade more strategically.”

Because of its economic power, the German debate is key for Brussels. “Every time a line has been crossed, whether it’s ideological, institutional or in terms of capacity, it’s because the German anchor has shifted, » Pascal Lamy, the EU’s former trade chief, said at a press briefing in Brussels.

Until now, it was mostly France that was pushing for the “end of a naïve Europe” and more strategic autonomy in EU trade policy.

This French push had a major impact on how the EU thinks about trade. Ursula Von der Leyen’s European Commission cast itself as “geopolitical” and started building a trade defense arsenal to tackle economic threats from global rivals like China and the U.S.

But the war in Ukraine and a genuine change of heart from Germany would make trade even more geopolitical.

“The idea that trade and foreign policy can be nicely separated is now clearly a thing of the past,” said Ferdi De Ville, professor of European political economy at the University of Ghent.

Courting other partners
There are obvious lessons about the interconnection between trade and strategic power. The EU’s — and especially Germany’s — dependence on Russian gas is the chief example.

The danger light about overdependence was already flashing during the global coronavirus pandemic amid an outcry that Europe may have gone “too far in globalization” and had become too reliant on countries such as China for essential goods.

“There is one horizontal lesson which we are looking at since the COVID crisis, which is this question of supply chain resilience and supply chain diversification, » Dombrovskis told POLITICO.

But opinions within the bloc diverge widely on how to avoid leaning too much on specific countries.

For some, it’s a timely reminder of the need for strategic autonomy. The center-left lawmaker Kathleen Van Brempt said the EU is “not advanced enough in thinking about strategic autonomy if you see how dependent we still are on Russia.”

Unsurprisingly, the French are also seizing on this moment. An official from the cabinet of French Trade Minister Franck Riester said that trade disruptions related to the war in Ukraine strengthen the case for strategic autonomy.

But for others, it only shows the EU needs to open up to other parts of the world via new trade deals to diversify its suppliers.

“The market is the solution, not the problem,” said Jörgen Warborn, a Swedish center-right lawmaker. “Autonomy will not create resilience. If you want to make trade geopolitical, you need to cooperate more with others.”

That is also the line Dombrovskis toes, as he eyes the forthcoming Council presidencies of Sweden and the Czech Republic as ways to revive the EU’s trade engine after the protectionist French finish their stint at the helm.

The more diversified EU trade flows are, the more resilient they will be, he said. “That’s why I’m insisting on this point of open strategic autonomy to diversify the supply chains who need to be open.”

Revealingly, however, European leaders are scared of the scale of what they need to do. Even facing the most dangerous conflagration in Europe since World War II, the countries don’t know which way to jump. Last week, even though EU leaders fully accepted the need to break their Russian gas habit, they balked at setting a concrete deadline to do so. Old habits will die very hard.

Turning East
Inevitably, the question of how to juggle economic and political interests hangs over the EU’s China policy. Is the bloc too economically dependent on China? How can the EU reduce its dependence on Beijing before a conflict over Taiwan or the treatment of minorities becomes more violent?

While the invasion of Russia sparked a historic turn in Germany’s military policy, Jonathan Hackenbroich of the European Council on Foreign Relations argued the economic response has been less pronounced — as the EU’s inability to fix a date for breaking from Russian gas showed. Germany is dead set against cutting EU oil and gas purchases from Russia, even though they bankroll the war.

Germany should draw lessons from its overexposure to Russian gas and analyze where else trade could be weaponized, he said. “It’s almost wargame thinking,” said Hackenbroich. “What happens if you do this exercise for China?”

Before the war in Ukraine, Europe’s prime economic fear had been dependency on China. Extra trade defenses and protections against buy-outs were being designed precisely with China in mind, but it is likely that the need to decouple from Russia will now take priority.

Indeed, Blockmans didn’t see an immediate change in the German or European stance toward China. “It will be considered, but don’t forget that there is a lot at stake economically, both in Germany and in Europe.”

Sarah Anne Aarup, Giorgio Leali and Stuart Lau contributed reporting.

Link to the Politico article