The West Should Stay Focused on Geoeconomic Rivalry With China

World Politics Review, 04.05.2022
Peter S. Rashish, director de programa y académico (Johns Hopkins University)

As China leveraged its state capitalist model to become a global superpower, it increasingly challenged the market-oriented basis of the liberal economic order founded by the United States and its allies 75 years ago. When this competition between the Chinese and Western economic systems gained steam in the 2010s, the main battlefield of international relations also began to shift from the classical realm of security to the normally “civilian” fields of trade, investment, technology and finance—in other words, from geopolitics to geoeconomics.

With Russia’s invasion of Ukraine, military force is front and center once again, even before the United States and its European and Asian allies have been able to cement a common strategy toward China’s economic rise. So is the age of geoeconomics, in which the balance of power is determined by the systemic economic rivalry between China and the West, over before it ever began? Three developments would seem to lend credence to this idea.

First, Western economic policy has been on overdrive since Russia’s aggression. But it is not being drawn upon to maintain the rules-based global economy, which until the hostilities in Ukraine was arguably the dominant strategic interest of the United States and like-minded countries. Instead, financial sanctions, export and investment controls, oil import embargoes and revoking Russia’s “most favored nation” trade status in the World Trade Organization are being deployed to blunt a malevolent use of hard power in global politics.

Second, Russia’s aggression has reinforced the notion that the main dynamic in world politics right now is the conflict between autocracy and democracy, not how to strengthen the global economic order. Already, certains aspects of China’s authoritarian regime—such as its human rights abuses, its use of artificial intelligence to monitor its population and its subsidization of state-owned industries—had fueled this idea and provided much of the impetus to U.S. President Joe Biden’s Summit of Democracy last December. Since Russia’s unprovoked actions in Ukraine, there is a heightened sense among Western countries that while democracies are generally peaceful, autocracies are not just economic rivals, but are also prone to choose military means to advance their interests.

Finally, apart from its natural resource industries, Russia is now essentially disconnected from the global economy owing to the concerted response by the G-7, the European Union and others to its invasion of Ukraine. This has happened to a country that is the world’s 11th-largest economy overall, with a GDP of approximately $1.5 trillion, and the world’s third-most-important oil producer. Although not an economic superpower like China, Russia ranks fifth among the EU’s trading partners. Russia’s exclusion from international commerce seems to mark the end of the recent period in which the tension between economic competition and economic interdependence—rather than power politics—was driving relations among states.

But the idea that a nascent age of geoeconomics has been eclipsed by the return of geopolitics is not only wrongheaded but full of risk. While the United States, the European Union, Japan and other liberal democracies do need to strike a better balance among the competing objectives of prosperity, values and security in their international economic policies, it is in their interest to stay focused on the geoeconomic chessboard.

Why? Certainly, Russia’s invasion of Ukraine is a momentous historical event, one with the most devastating consequences for human life, peace and security on the European continent since World War II. But it does not necessarily foretell more conflicts of the same nature elsewhere, for example with China. One reason is that the United States and its allies—especially Germany—have learned an important lesson from Russia’s behavior about the need for deterrence to play at least as important a role as engagement when dealing with other challengers and adversaries, including China. Berlin’s old mantra toward authoritarian regimes—Wandel durch Handel, or change through trade—now looks safely to be a thing of the past.

But it is also the case that if the West still wishes to recouple with China on a fairer and more secure basis—rather than decouple entirely, which would have severe economic consequences—it will need to pursue a concerted effort of economic statecraft that combines inducements, deterrence and enforcement toward Beijing to achieve that goal. The priority should be not on eliminating dependencies entirely, but on creating new tools and, in the longer term, new rules that counter the way that China’s economic behavior—for example, its subsidies to state-owned enterprises—distorts the global economy.

The need for the U.S. and its allies to stay engaged in geoeconomics has several implications for policy.

First, while the upcoming second meeting of the U.S.-EU Trade and Technology Council, slated for May 15-16 in France, will necessarily broaden the council’s scope to account for Russia’s actions, it would be wise to keep China in its sights, as originally intended. Arriving at common positions on certain issues, like export controls, will have important consequences for how the trans-Atlantic economies treat both Russia and China. But in other key areas on the agenda—inward and outward foreign investment screening, supply chain due diligence, standards for artificial intelligence and global trade rules, for instance—it is China’s economic practices that challenge U.S. and European security, not Russia’s use of military power.

Second, the mandate of the Trilateral Initiative comprising the U.S., the EU and Japan—begun under the Trump administration to reform global trade rules and rejoined by the Biden administration in November—should be broadened. The initiative’s focus until now has been on devising new rules for subsidies and state-owned enterprises that better account for China’s economic behavior. It should now expand to include joint approaches to both deterring and responding to China’s economic coercion, like its ban on Lithuanian imports in response to the latter’s decision to allow Taiwan to use that name, rather than Taipei, for its representative office in the country. Such a toolkit could include a “solidarity fund” to help affected countries and a ready-made set of retaliatory tariffs and sanctions, both of which would have greater impact if deployed in concert by the U.S., the EU and Japan when need be.

Finally, the global economy is becoming increasingly anarchic owing both to the WTO’s failure to create any meaningful new rules since its founding in 1995 and to China’s flouting of the letter and spirit of the rules that do exist. But that doesn’t mean that the West should sideline the WTO. The recent G-7 and EU decision to revoke Russia’s most favored nation trade privileges in response to its invasion of Ukraine took place within a WTO context, demonstrating that although WTO rules may be imperfect, they do provide opportunities for its members to deal with outliers. These flexibilities need to be updated and expanded, not abandoned.

This calculation that China, unlike Russia, should be treated foremost as a geoeconomic rather than a geopolitical rival is obviously subject to change—if, for instance, China were to offer military and other logistical support to Russia’s invasion of Ukraine. Fortunately, the West’s concerted and vigorous response to Russia’s aggression is likely already having a deterrent effect on Beijing’s ambitions beyond the geoeconomic realm. The U.S. and its allies would therefore do well to maintain their focus on geoeconomics in dealing with China.

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