As China and the U.S. redefine geopolitics, Europe faces a win-win situation

As the United States look at disengaging from China, Europe could soon find itself in a sweet spot.

U.S. President Joe Biden has, for most of his term so far, adopted a harsh tone on China, calling the world’s second-largest economy the most serious competitor to America. Diplomatic dialogue between the two hit a rockier patch earlier this year when Washington accused Beijing of using a spy balloon to obtain intelligence from U.S. military sites.

“The U.S.’ hawkish policy stance towards China means that China needs to improve relations with Europe to mitigate the impact of export controls. Therefore, China has an incentive to work hard on improving EU relations,” Anna Rosenberg, head of geopolitics at Amundi Institute, told CNBC via email.

Officials in Europe have adopted a slightly different approach from the Biden administration, preferring to take a softer stance with Beijing, recognizing its importance to the European economy. Data from Europe’s statistics office shows that China was the third largest buyer of European goods during 2021.

“The EU is in a very different situation than the U.S., which is clearly pursuing policy-led disengagement with China,” Jacob Kirkegaard, a nonresident senior fellow at the Peterson Institute for International Economics, said via email.

“Viewed from China, the EU is the most important high-income market that it still has largely unfettered access to. This in turn makes it far less likely that China will actively try to limit trade with the EU,” he said, adding China “has quite a lot to lose from a trade war with the EU.”

European Commission President Ursula von der Leyen has, in recent months, pushed for a policy of de-risking from Beijing — reducing dependency on the country in critical sectors such as raw materials and semiconductors. However, European officials aren’t anywhere near supporting a total breakup in economic and diplomatic ties.

“The political need to de-risk the EU-China relationship is completely different from US-China relations. In a world characterized by U.S.-China rivalry, the EU is the most important economic partner for both — this gives the EU significant political benefits versus both Beijing and Washington,” Kirkegaard also said.

The EU’s single market, where goods and services move freely across borders, is home to 23 million companies and over 450 million consumers, according to data from the European Council.

“We don’t want to feed the U.S.-China rivalry,” an EU official, who did not want to be named due to the sensitive nature of situation, told CNBC. “We prefer to calm things down … without being naïve,” the same official said.

The American rhetoric toward China eased slightly following a meeting of G7 leaders over the weekend, with Biden warming to the concept of de-risking, rather than completely detaching the two largest economies in the world.

Beijing wouldn’t have relished the idea of G7 leaders coming together to criticize China’s policies. In the wake of the gathering, China imposed a ban on its companies buying from American chipmaker Micron.

Alicia García-Herrero, a senior fellow at European thinktank Bruegel, said Europe might not find itself in an easy position amid these U.S.-China tensions.

“I actually very much doubt that will happen,” she said regarding the prospect of Washington and Beijing both looking to Europe for its economic ties.

“China is taking a lot of retaliation action against Europe in many ways and the sense that Europe is increasingly dependent on China — this kind of strategic dependence for green energy is becoming increasingly clear,” she said, noting Beijing is aware of the leverage it holds as Europe looks to develop a more sustainable economy. China is the largest supplier of several critical raw materials in the world, according to a study published by the European Commission, which are used in products like electric vehicles.