China has canceled its annual summit with the EU to protest the plans of some European leaders to meet the Dalai Lama. This is bad news at a time when EU-China relations should be moving forward, not backward. The nature of this relationship matters not only for Europe and China, but for the international system as a whole.
One lesson from the economic crisis is already clear: The response will have to be global and the world's current set of multilateral rules and institutions is not fit for purpose. This is why there has been a flurry of reform proposals for forums such as the International Monetary Fund, a push to revive the Doha round of trade talks and an effort to use the G-20, rather than the traditional G-7, to discuss lessons from the crisis.
Optimists say the crisis could accelerate a much-needed reform of the world's institutional architecture. Emerging powers such as China, India, Brazil, South Africa and Turkey will have to get a bigger say and take on more responsibility globally. Without their active engagement, the world will not be able to address pressing issues -- not only how to deal with the global recession, but also the future of multilateral trade, a post-Kyoto deal on climate change, fighting nuclear weapons proliferation, or poverty in Africa.
But there is an alternative scenario. If the emerging powers decide that international rules and institutions hinder, not help, their responses in a moment of crisis, they could become reluctant to support multilateralism in the future. The emerging multipolar order -- in which the U.S. and the EU are just two of a number of big players -- would be based on power politics, not rules. That would be an uncomfortable thought, especially for Europeans who have multilateralism written into their DNA.
The EU's task is therefore to help China to become a "responsible global stakeholder." Barack Obama may eschew George W. Bush's unilateral tendencies. But the EU still has more credibility when it comes to defending multilateral rules than America will have for a while. So the prospect of EU-China relations deteriorating over the question of who sees the Dalai Lama and where is worrying. The fact that China is willing to cancel a summit with the EU -- its most important export market and a key source of capital and technology -- shows Beijing's surging self-confidence, as well as its short-sightedness.
Even if the dispute over Tibet is short-lived (as similar spats with Germany and others have been in the past), there is a bigger threat to EU-China relations going forward -- that of protectionism. Protectionist sentiment toward China in Europe has been growing for a while. The EU's trade deficit with China has almost tripled since 2003 and this year is going to be bigger than the U.S.-China deficit. Why is it, EU politicians now routinely ask, that we buy more from the Chinese than from any other nation, but we sell more to Switzerland than to China? The answer given, implicit or explicit, is usually that "China does not play fair."
Disputes about China's rigid currency policy have abated for now because the recovering dollar has dragged up the yuan against the euro. But European businesses continue to complain about the red tape, arbitrary administrative interference and intellectual-property theft that make it difficult for them to sell or produce goods in China. With growth in China slowing precipitously and social discontent on the rise, the Chinese are in no mood to be lectured about economic liberalization. On the contrary, many Chinese think that the financial and economic crisis has discredited the very model on which the U.S. and European economies are based.
If Chinese reforms stall or new protectionist measures appear, European businesses will call for retaliatory action. These calls were usually deflected by an open-market alliance led by Germany, Britain and the European Commission. However, anti-China sentiment is on the rise in Germany -- witness the country's new foreign investment law to restrict "unwanted" foreign buyers, not least China's $200 billion sovereign wealth fund. Even in traditionally liberal Britain, people who see China as an economic threat outnumber those who see it as an opportunity by four to one. And the European Commission, under pressure from national governments, has toughened its stance since 2007, threatening to use more antidumping action and other trade defenses unless China starts opening up its own market. Punitive tariffs on Chinese screws, fasteners and candles are under consideration.
The Europeans should think again. Such one-off barriers would not make a dent in the
