Europe must prepare for a US–China decoupling and continue to make supply chains a top issue in geopolitical thinking, former European Commission president, José Manuel Barroso, has warned.

The EU needs to strike a delicate balance to keep doing business with two of its biggest trade partners and sources of foreign direct investment, despite their fracturing relations, he told fDi on the sidelines of the Urban Land Institute’s (ULI) Europe conference in Milan, Italy, on June 12.

While a decoupling of the world’s two biggest economies would have global ramifications, Mr Barroso believes the stakes are particularly high for markets such as Europe that are committed to open economies and rely on international trade. 

“If there are geopolitical developments that will irreversibly separate the US from China — and that could happen —  Europe has to be prepared for it,” he said. He believes that some form of decoupling will happen, given America is more polarised than ever, and being “tough on China” is one of the few points where Democrats and Republicans agree.

To mitigate the fallout, he urged Europe to remain engaged and keep doing business with both countries, while continuing to be “prudent” in managing security risks posed by China.

However, if there is a full decoupling, Mr Barroso is sure that “Europeans will not be with China, [but] with the US”, highlighting the countries’ shared values, and Europe’s geostrategic and security needs given Russia’s aggression.

Unpredictable, assertive, aggressive

Mr Barroso describes Europe as facing a more unpredictable US, more assertive China and more aggressive Russia. While protectionism has increased under the current US administration, he expects a “serious possibility” of a trade war between the US and Europe if Mr Trump returns to office as the next American president.

Mr Trump has promised to impose a 10% tariff on all imported goods if elected in November, and as US president he threatened to withdraw the country from the World Trade Organization. “All those indications are what I would say [is] not America First, but America Alone,” said Mr Barroso. “I hope [a trade war] will not happen, but I want to be honest. There is a possibility.”

To avoid getting to this point, he believes Europe’s best strategy would be engaging with the US administration, Congress, think tanks, universities and interest groups.

As for China, Mr Barroso said the EU’s compromise approach — by embracing a de-risking policy to limit its reliance on the country in strategic sectors, while still keeping business open with Beijing — is a realistic way to balance its relationship with the country. “It would be completely wrong, at least at this moment, to decouple from China, but it is also completely wrong to ignore that there’s a problem,” he said. 

His comments came on the day the European Commission hiked tariffs on Beijing, and told fDi he expects there could be more to come. Economics aside, Mr Barroso is focused on the fact China has never been as close to Russia as it is today, and the threat this poses to Europe given Moscow’s war in Ukraine and aggressive posture towards the continent.  

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Goodbye hyper-globalisation

Despite a fragmenting global order, Mr Barroso said it’s “too soon” to suggest the world is de-globalising. Instead, it is moving from an era of “hyper-globalisation” to re-globalisation where regional trade is more important than global trade. He believes supply chains have become “one of the top issues in geopolitical and geo-economic thinking”, with considerations of resilience and national security taking over efficiency and economics. 

He suggests the rise of populism in several countries and gains by far-right parties in recent European Parliament elections indicate it may be time to reconsider some aspects of globalisation.

“We may have not managed globalisation [well enough]”, he said during his keynote address at ULI’s event, adding that democracies intent on keeping their economies open must do so in a way that brings along their population and takes into consideration social matters and competitiveness.

“We are in a situation of transition. The world is no longer the same,” he told fDi. “But we don't know yet the shape of the new world to come.”

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