Hungary Is Helping Europe Kiss Decoupling Goodbye

Particularly in Europe, this now seems to be an imperative of some urgency. European economies have been stagnant since energy sanctions imperiled many manufacturers. To regain its competitive strength, Europe needs to maintain and expand its economic openness.

Hungary isn't alone in its recognition of this. Alfred Kammer, the IMF's European director, recently stated that“our number-one advice to Europe is, don't become protectionist.”

Even the current Polish government recognizes this situation. In a recent speech to the Sejm, Polish foreign minister Radosław Sikorski called for peaceful competition between China and the United States.“We do not want to choose,” he said,“between having good relations with a major trade partner on the one hand, and the most important security provider on the other.”

German Chancellor Olaf Scholz also recently pointed out that Germany, too, doesn't want to decouple from China .

Yet without positive discussion of this on the European level, the cooling international environment around EU-China relations leads to large opportunity costs.

Recently the European Union launched a number of investigations into Chinese firms. The European Commission began an inquiry into Chinese medical device manufacturers as well as to TikTok. Its investigation into the Chinese EV industry has also been ongoing since late last year, and European officials are now expressing concerns about Chinese buses .

These measures are counterproductive, as the underlying problem concerns Europe's own lack of competitiveness. European consumers would be happy with cheap Western-made solar panels, electric cars and wind turbines. But for Europe to exclude Chinese EVs, a devastating 55% tariff would be necessary, according to the Rhodium Group .

To place this in perspective, the aggressive EU tariff on American cars is currently 10%. Instead of competing on industrial capacity or price, the“one field where the European Union still leads the world,” as the Wall Street Journal put it recently , is now regulation. Evidently a different mindset is needed in Brussels.

The Hungarian case represents a different possibility-that warm bilateral relations can underlie projects of reindustrialization. The Hungarian strategy has involved attracting Chinese (and other) manufacturers to physical operations within the European Union, on the view that this strategy is not in conflict with promoting domestic manufacturing, but rather supportive of it.

China-Hungary industrial cooperation has focused principally on Hungary's role in the automobile supply chain. Hungary is the location of CATL's second European battery factory, and the southern Hungarian city of Szeged will be the site of BYD's first European electric car factory.

After last week's visit, it's clear that Budapest's path isn't just words. In 2023, China became Hungary's biggest single investor with almost 11 billion euros of investment, amounting to 6.5% of GDP.

During the Chinese president's visit, Hungary announced a number of new substantive industrial projects -including a rail ring bypassing Budapest that will facilitate the westward shipment of manufactures; a high-speed connection from the Budapest airport to the city; a national network for charging electric cars; and a comprehensive agreement on nuclear cooperation.

The larger story here is that Europe needs to articulate its own interests on the international stage. If European economies followed a similar path, they could focus on their strengths while not simply hemorrhaging industrial capacity to areas beyond their shores. Neither great power-neither the United States nor China-should drive a wedge between Europe and the other.

In the changing geopolitical environment, Europe must adopt a strategy of prudent connectivity and articulate it as an important element of European strategy. Otherwise, its open economic framework will suffer as tensions between China and the United States lead to greater pressure on Europe to decouple, which would in turn injure the European economy.

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Further, a shift of American military posture toward Asia could also heighten the demands on Europe to provide for its own defense. But since a decoupled Europe would be industrially weak, a connectivity strategy is also necessary to heighten Europe's defense-industrial capability.

As I have argued elsewhere , American interests would be poorly served by attempting to pressure Europe into a course of decoupling that it could not ultimately follow. While the United States appears to be going in a more protectionist direction, Europe is not in a position to tilt toward economic warfare with China.

The path that the United States has taken in recent years emerged because of American industrial decline and the American role as a Pacific power. In order to adjudicate its own concerns effectively, though, the United States shouldn't attempt to drag the rest of the world into tensions that few others want to participate.

In his speech alongside the Chinese president , Viktor Orban said“now we live in a multipolar world order-and one of the structural pillars of this new world order is the People's Republic of China.”

After 30 years of globalization, the global economy is far too intertwined to be pulled apart easily. EU investigations won't rebuild European industry but rather create a climate of suspicion that's injurious to business development.

While the Brussels vision of Europe's role continues to push for“de-risking” the Europe-China relationship, Budapest has embarked on an industrialization strategy aimed at contributing to national and European sovereignty.

The European decisions that follow in the coming months will tell us a lot about whether the EU wants to become a thriving economy and a pole in the multipolar world order-or wants to allow its interests to be undermined by more powerful forces.

Gladden Pappin is president of the Hungarian Institute of International Affairs, Hungary's foreign policy research institute of state.