The Great Economic War (GEW) (Part 13: Mapping geopolitical alliances)
Phuah Eng Chye (14 January 2022)
Changes in the geopolitical map are driven by structural forces. Sergey Glazyev thinks “we are now experiencing a simultaneous change in the technological and world economic structures, while the technological basis of the economy is changing, there is a transition to fundamentally new technologies, and the management system is also changing…technological structures change about once every 50 years, and their change is usually accompanied by a technological revolution, depression and an arms race. And world economic structures change once every 100 years, and their change is accompanied by world wars and social revolutions. This is due to the fact that the ruling elite of the countries of the core of the old world economic order impedes changes, does not take into account the emergence of more effective management systems, tries to block the development of new world leaders using them, and tries to maintain its hegemony and its monopoly position by any means, including military and revolutionary ones. Say, 100 years ago, the British Empire was trying to maintain its hegemony in the world. When it was already losing economically to the combined resources of the Russian Empire and Germany, the First World War, provoked by British intelligence, was unleashed, during which all three European empires self-liquidated. I am talking about the collapse of tsarist Russia, the German and Austro-Hungarian empires…Britain, for some time it retained global dominance and even became the largest empire on the planet. But due to the inexorable laws of socio-economic development, the colonial world economic structure, based in fact on slave labor, could no longer ensure economic growth. The two fundamentally new political models that emerged – the Soviet and the American ones – demonstrated a much greater efficiency of production, since they were already organized on other principles: not on private family capitalism, but on the strength of large transnational corporations with centralized structures for regulating the economy and with limitless monetary emission of credit through fiat money. They enabled the mass production of products much more efficiently than the administrative systems of the colonial empires of the XIX century. The emergence of social states in the USSR and the USA with centralized control systems made it possible for a sharp jump in their economic development…the imperial world economic structure: Soviet and Western (with the center in the USA)”.
Sergey Glazyev points out “after the collapse of the Soviet Union, which could not withstand global competition due to the fact that the directive system of government was not flexible enough to meet the needs of technological progress, the United States seized global dominance for a while…the hierarchical vertical structures characteristic of the imperial world economy turned out to be too rigid to ensure continuous innovation processes and lost their comparative effectiveness in ensuring the growth of the world economy. On its periphery, a new world economic order has been formed, which is based on flexible management models, a network organization of production, where the state works as an integrator, uniting the interests of various social groups around achieving one goal – raising the public welfare. The most impressive example of such an integral world economic structure today is China, which for more than 30 years has outpaced the growth rate of the American economy by three times…Another example of a model of a new world economic order, which we called integral (due to the fact that the state in it unites all social groups of different interests), is India. It has a different political system, but it also has the primacy of public interests over private ones, and the state seeks to maximize growth rates in order to fight poverty. In this sense, the new world economic order is socialist in ideology. At the same time, it uses market mechanisms of competition, which makes it possible to provide the highest concentration of resources for making a technological revolution with goals to ensure economic leaps based on a new advanced technological order…Thus, it is already obvious to everyone that at present the pace of world economic development is shifting to Asia: China, India and the countries of Southeast Asia already produce more products than the US and the EU. If we add to them Japan or Korea, in which the management system is similar in its principles to the integration of society around the goal of increasing public welfare, then we can say that today this new world economic structure already dominates the world, and the center of reproduction of the world economy has moved to Southeast Asia. Of course, the American ruling elite cannot agree with this”.
Sergey Glazyev sees a major challenge as “overcoming the US monopoly. In order to do this in the financial sector, you need to abandon the dollar. In order to overcome the monopoly in the information and cognitive sphere, it is necessary to isolate our information space from the American one and switch to our own information technologies. Creating their own contours of the reproduction of the economy, but without the US dollar and the euro and relying on their information technologies for managing money, the countries of the new world economic order ensure high rates of economic development, while the Western world is collapsing. There they have a situation of collapse of financial pyramids, disorganization and a growing economic crisis, aggravated by growing inflation due to the uncontrolled issue of money over the past 12 years”.
However, the shift from a unipolar to a multipolar landscape leaves a power vacuum because no single country is sufficiently strong to “win” on its own. Instead, the great powers need to rely on the collective strength of their alliances. Alliance-building[1] has become a dynamic and complex process because many countries are now much stronger than they were during the Cold War. They are likely to resist being passive subordinates in this renewed great power conflict. Countries will choose to maximise their options by belonging to multiple groupings, some of which are clearly aligned to one side while others have diverse memberships and objectives.
Countries are continuously honing their strategies. US national advisor Jake Sullivan[2] describes “the new template for policy – a world in which the post-1945 global structure is changing fast. What matters now is fluidity and adaptability, as the United States seeks to work with amorphous middle powers in addition to traditional treaty allies. The old Cold War construct of blocs is not coherent, Sullivan argued. Countries don’t want to choose, and we don’t want them to. Rather than trying to divide the world, we are seeking an affirmative agenda – infrastructure, climate, food security and digital rules”. In assessing the “relative positions of the United States and its adversaries in what has become a genuinely multipolar world…where the United States has less power to compel outcomes, it needs better strategy to achieve its ends. Sullivan argues that Biden has achieved the three national security goals he initially set: rebuild the U.S. economy and rejuvenate the middle class; revive NATO and other global alliances; and withdraw U.S. troops from Afghanistan to focus on current threats, rather than the day after 9/11”. Hence, the Biden administration is making progress on “building the economy of the 21st century” as it ramps up spending on infrastructure, semiconductors, electric vehicles and other advanced technologies. Critically, American has strengthened the outreach of NATO and bolstering its partnerships with Japan, South Korea and India. “We have to take Latin America as we find it, Sullivan argued, and maintain effective constructive relations. Pragmatism sometimes means accommodating the authoritarian middle powers that hedge their bets between us and a rising China”.
Russia’s invasion of Ukraine provided an opportunity for the US to galvanise its allies into action while at the same time pressuring China to disavow Russia. Despite this, China has steadfastly held onto its “no-limits” relationship with Russia. From its perspective, “when the lips are gone, the teeth are cold”. Regional-based geopolitical paradigms offer the best approach to analyse shifts in the balance of power in the multipolar world. The US concept of Indo-Pacific can be pit against the Russia-China concept of the Eurasia continent. These paradigms still fit within the Cold War framework. The multipolar elements become clearer in concepts such as the Global South and the Asian century. Consideration should be given to understanding the aspirations of allies by examining a variety of regional paradigms.
- US and Indo-Pacific
The US is reshaping alliances along the Cold War geographical boundaries to surround Russia and China – advancing its Eastern Europe boundaries by expanding NATO-EU membership and dominating the Pacific and Indian Oceans to pin China naval forces to their coastline. The Indo-Pacific is a key concept in this strategy. Dan Ciuriak notes “the Indo-Pacific has become a prominent frame of reference for geopolitical and geo-economic issues in recent years, increasingly displacing the Asia-Pacific in strategic discussions. However, what the Indo-Pacific means in geographic terms has not been settled, and what it means in policy terms varies from one interested party to the next. As Allan Gyngell wrote in a 2018 article: The Indo-Pacific is a framing device, not a geographical reality – its proponents shape it around their different interests. Each country has its own Indo-Pacific.”
Dan Ciuriak explains “the US pivot to Asia was a signature foreign policy move under the Obama administration in 2009. The pivot featured trade (Trans-Pacific Partnership) and military (Air-Sea Battle doctrine) components, both aimed at containing China. This latent or veiled conflict invoked by the geopolitical element in the Indo-Pacific framing came out into the open with the Trump administration’s promotion of the free and open Indo-Pacific in the 2017 US National Security Strategy. Seen through the lens of security, the most prominent concrete manifestation of the Indo-Pacific framing is, arguably, naval cooperation in the revived Malabar exercises involving the Quad.”
Dan Ciuriak points out “the practical impact of this is unclear – at many levels. First, economics does not align along a democracy-authoritarianism axis. Since the 2000s, it has been made abundantly clear that it is firms that trade, not states – and firms follow profit signals…Second, the Indo-Pacific framing as one of the sea lanes connecting the West to the East is not of the modern world; it has a distinct nineteenth century, even pre-modern mercantile feel, redolent of an age when dominance of the sea lanes and ports was the way to capture economic rents, when the spices from Southeast Asia were worth their weight in gold, and when the choke points of the Strait of Malacca and the Suez were ever-present dangers to shipping. But those days are long gone…But the main point is that there is no obvious point to such a blockade. It’s the twenty-first century: technological advance is transforming the economy into a data-driven economy, and there is no longer a serious value proposition to twentieth-century resource-rent wars”.
As compared with past decades though, the US no longer actively promotes free trade and globalisation. Instead, its agenda focuses on military and security concerns, supply chain dependencies, and technology competition. NATO has a flagship role and the other prominent groupings include the Five Eyes (intelligence agencies of Australia, Canada, New Zealand, UK and US), AUKUS (security pact between Australia, UK and US), the Quadrilateral Security Dialogue or Quad (security dialogue between Australia, India, Japan and US), the IPEF (comprising 14 members including US, Australia, India, Japan, South Korea and several ASEAN countries), the US-EU Trade and Technology Council (TTC) and the Chip 4 Alliance (US, Japan, South Korea and Taiwan).
Barbara Weisel[3] points out the IPEF is “not a trade agreement, or a traditional trade agreement. It’s an economic agreement, and it has four pillars. They are: connected economy (or trade), supply chains, clean economy, and fair economy. There are some objectives that they have set out for the trade pillar that could overlap with TPP…labor, environment, digital trade, trade facilitation, SPS (sanitary and phytosanitary), TBT (technical barriers to trade), and good governance…So it is possible that the administration decides that they’re going to look to TPP for some of the commitments as a starting point and decide whether or not they want to update or change those to reflect their own priorities”.
Aidan Arasasingham, Emily Benson, Matthew P. Goodman and William Alan Reinsch notes “trade negotiators representing 14 Indo-Pacific countries met for the first in-person negotiating round for the Indo-Pacific Economic Framework for Prosperity (IPEF) from December 10 to 15, 2022 in Brisbane, Australia. Following a May launch event in Tokyo, a July senior officials meeting in Singapore, and a September ministerial in Los Angeles, the six-day Brisbane round saw the first sets of draft text for certain pillars and subtopics circulated among IPEF parties for negotiation…While no new deliverables were announced, the statement indicated how text-based and detailed conceptual negotiations among parties advanced – signaling that the supply chains, a fair economy, and aspects of the trade pillar were developing faster than the clean economy pillar and other trade pillar topics”.
This year, the US has upped its Indo-Pacific campaign a notch higher. It discarded strategic ambiguity, which allowed China to sit comfortably, and amplified Taiwan’s strategic value in two ways. It turned its vulnerability of being reliant on Taiwan semiconductors into a battering ram for reshoring and for imposing chip manufacturing technology export bans. Incessantly broadcasting the threat posed by a China military invasion of Taiwan and North Korea’s nuclear tests enabled the US to bring Japan and South Korea on board with its military strategies. The US is still searching for a means to nudge ASEAN and India out of their non-aligned posture and to put its Anglo-Saxon allies, sidelined by China, into play in the region. Indeed, Australia, Canada[4] and UK, its NATO and North Asian allies are now adopting the Indo-Pacific theme and echoing US warnings of China’s threat to the world order.
- China-Russia and Eurasia
Russia and China are cooperating to accelerate infrastructure development and economic integration in Eurasia[5] as this negates the value of the logistical, military and economic blockade implicit in Indo-Pacific containment. Alasdair Macleod notes “in 1904, the father of geopolitics, Halford Mackinder, effectively predicted what is happening today…“Is not the pivot region of the world’s politics that vast area of Euro-Asia which is inaccessible to ships, but in antiquity lay open to the horse-riding nomads, and today is about to be covered with a network of railways? “Outside the pivot area, in a great inner crescent, are Germany, Austria, Turkey, India, and China. And in an outer crescent, Britain, South Africa, Australia, the United States, Canada, and Japan.” He argues ‘Russia appears to be successfully pursuing her goal of control of Mackinder’s World Island. Today, we can expand on the inner crescent concept to include Iran, the Middle East, as well as the new nations spun out of the old Soviet Union. Of Mackinder’s original inner crescent, only Germany and Austria are omitted today…Of the outer circle, we can now include most of Africa and some of South America, which are increasingly dependent on the World-Island for demand for their commodities…Russia and its ex-Soviet satellites occupy half the Eurasian continent. The Eurasian continent is 21 million square miles, or more than three times the size of all North America. Central and North America together measure some 9 million square miles, more than twice the area of Europe. Even without its ex-Soviet satellites, Russia is still by far the largest nation by land area. And together with China, Russia is nearly three times the size of the United States. Russia is the world’s largest single source of energy, commodities, and raw materials and as we now see can control the prices the West pays for them…With repeated failures in US foreign policy in the Middle East, North Africa, Ukraine, and most recently Afghanistan, the US can now count on nations representing only about 19% of the world’s population of 8 billion people, compared with 54% allied to the World Island”.
A major platform for Eurasian regional integration is the Shanghai Cooperation Organization (SCO). Simon Watkins notes “founded in 2001, although pre-dated by the Shanghai Five group established in 1996 (comprising China, Russia, Kazakhstan, Kyrgyzstan, and Tajikistan), the SCO is the world’s biggest regional organisation both in terms of geographic scope and of population. It covers 60 percent of the Eurasian continent (the biggest single landmass on Earth), 40 percent of the world’s population, and more than 20 percent of GDP”. The SCO is expanding its influence to the Middle East with Iran joining as a full member and “memoranda of understanding (MoUs) were signed granting Saudi Arabia, Qatar, and Egypt, among others, the status of SCO dialogue partners. Agreement was also reached on admitting, among others, Bahrain, the UAE, and Kuwait as upcoming SCO dialogue partners”. China’s Belt and Road Initiative (BRI) and related multilateral agencies provide the financial support for many infrastructure projects (roads, railways, ports, pipelines and telecommunications) in Eurasia and the Middle East. This has substantially reduced delivery times, lowered reliance on Western-dominated routes such as the Straits of Malacca and Suez Canal.
Matthew Ehret notes significant progress have been made on Eurasia’s “three corridors”. The most developed and utilized is the Northern Corridor consisting of railways and pipelines that run from China to Kazakhstan, Russia, and Europe. The Trans-Caspian International Transport Route (TITR), dubbed the Middle Corridor, features multimodal rail and sea transit of goods from China to Europe via Kyrgyzstan, Turkmenistan, Azerbaijan, Armenia, Georgia, and Turkey. These nations are also coordinating efforts to tap natural gas resources in the Caspian Sea and Turkey. On 30 March 2022, Azerbaijan, Kazakhstan, and Georgia signed an agreement to advance the construction of the Baku-Tbilisi-Kars railway system, the Baku-Tbilisi-Ceyhan pipeline, and the Trans Anatolian National Gas Pipeline (TANAP), which is already in operation. The TANAP is part of the larger Southern Gas Corridor, which involves seven countries and consists of 3500 km of pipelines worth $35 billion. The Southern Corridor involves the construction of rail connections from China to Pakistan, Afghanistan, Iran, Iraq, Syria, Lebanon, and potentially Turkey, before reaching Europe through ports in Lebanon and Syria, and via land-based connections in Turkey. This route could possibly be extended to integrate and industrialize the Persian Gulf states through large-scale high-speed railway projects like the 2000 km Persian Gulf-Red Sea high-speed railway, and hasten development prospects in the strategic Horn of Africa. Some key projects include the Shah Deniz 2 offshore gas and oil well operations; the expansion of natural gas processing plants at the Sangachal Terminal; the expansion of gas transmission networks in Italy; the development of new connections into the gas networks of southern and western Europe; and four major pipelines, including the South Caucasus Pipeline (SCPX) involving Azerbaijan and Georgia, the TANAP involving Turkey, the Trans Adriatic Pipeline (TAP) involving Greece, Albania, and Italy, and the Greece-Bulgaria Gas Interconnector. In addition, the Russia-Azerbaijan-Armenia-Iran-India International North-South Transport Corridor (INSTC) has expanded recently, with an additional eastern extension now stretching from Russia to Kazakhstan, Turkmenistan, Kyrgyzstan, Iran, and India. Once goods from Russia reach Iran via either the western or eastern branches of the INSTC, they can be delivered to markets in India, South Asia, and East Africa through the Ports of Chabahar and Bandar Abbas on the Indian Ocean. Pepe Escobar adds “the War of Economic Corridors is now proceeding full speed ahead, with the game-changing first cargo flow of goods from Russia to India via the INSTC…signals a powerful hallmark of Eurasian integration”. INSTC complements the “Northern Sea Route, which will shorten the trade and connectivity corridor from East Asia to Northern Europe from 11,200 nautical miles to only 6,500 nautical miles”.
Infrastructure development is complemented by initiatives to develop an alternative payment and financial system. Pepe Escobar notes “the Eurasia Economic Union (EAEU) is speeding up its design of a common payment system… just extended a very serious proposal to the BRICS… The system will include a single payment card – in direct competition with Visa and Mastercard – merging the already existing Russian MIR, China’s UnionPay, India’s RuPay, Brazil’s Elo, and others…substantial progress and now the work is focused on such sectors as banking, insurance, and the stock market…A new regulatory body for the proposed joint EEU-BRICS financial system will soon be established… Russian President Vladimir Putin is raising the stakes by calling for a new international payment system based on blockchain and digital currencies…At the 1st Eurasian Economic Forum, “the EAEU approved a draft agreement on cross-border placement and circulation of securities in member states, and amended technical regulations”.
- Middle East oil and China tech
The strategic importance of Eurasia is reinforced if it incorporates the Middle East[6]. Chas Freeman describes the Middle East as “a subregion of West Asia that occupies the strategic space where Africa, Asia, and Europe collide. It has seen geopolitical contests for dominance between Hittites and Egyptians; Greeks and Persians; Romans, Greco-Romans, and Parthians; Arabs and Persians; Arabs, Turks, and Greco-Romans; Europeans, Turks, and Arabs; Britons and Frenchmen; Americans and Soviets…Very little that now occurs in the region can be explained by either great power rivalry or ideological contests between democracy and authoritarianism. The great powers, notably including the United States, have lost their grip on the place. And no one is trying to impose new systems of governance on it anymore. It is striking that Washington has become, to one extent or another, estranged from all the key actors in the Middle East. With few exceptions, countries in the region now make their own decisions, without trying to sugarcoat them for American audiences. The United States has lost most of its influence in Turkey, it is at odds with Iran, and it now has strained relations with Saudi Arabia. Washington no longer has productive links to the Palestinian establishment. Its relations with Israel are increasingly complicated by diverging values, differing calculations of national interest with respect to dealings with Russia and China, and domestic American political polarization. Egypt is less deferential to U.S. views than it has been for four decades. The United Arab Emirates has emerged as a world-class practitioner of self-interested Realpolitik, ensuring that U.S. relations with it are nakedly transactional. And so it goes. It isn’t just America that has lost its clout in the region. Britain and France – former European imperialist powers – once called the shots in the Middle East. Now they feel obliged to defer to their former satrapies so they can sell enough weapons and ammunition to keep their armaments industries’ production lines open”.
Chas Freeman points out “while the focus of American policy in the region is now the exclusion of Chinese influence, China has yet to profess opposition to continuing American involvement. Instead, Beijing has suggested the formation of a multilateral dialogue on security issues and, when the time is ripe, a regionally managed collective security mechanism for the Gulf…Washington has worked overtime to curtail Israeli technological cooperation with China, as well as to block Chinese infrastructure projects there and elsewhere in the region. There is not a single country in the Middle East that sees the quasi-war the United States has initiated with China as in its interest”.
The changing geopolitical dynamics centers around Saudi Arabia and oil. A once-staunch US ally, Saudi Arabia’s relationship with the US has frayed. MK Bhadrakumar points out OPEC’s decision on 5 October 2022 to cut oil production by 2 million barrels a day “confirms the belief that Washington has lost its leverage with the cartel of oil-producing countries. This is being attributed to the deterioration of the US’ relations with Saudi Arabia during the presidency of Joe Biden. But, fundamentally, a contradiction has arisen between the US interests and the interests of the oil producing countries”.
Simon Watkins explains in 2014, the Saudis identified the then-nascent U.S. shale oil sector as the biggest threat to its oil-based finances and political power. “The Saudis believed that the U.S. intended to cease, or at least significantly scale back, its on-the-ground support for Saudi Arabia in the region as Washington’s principal bulwark there against the increasing influence of Iran, Russia, and China”. These fears were stoked by the Joint Comprehensive Plan of Action (JCPOA) which effectively brought Iran – Saudi Arabia’s longstanding nemesis – back into the geopolitical mainstream. The 2014-2016 Oil Price War triggered by OPEC overproduction, targeting the US shale industry, caused oil prices to fall substantially and “resulted in devastation for the economy of Saudi Arabia and for its brother states in OPEC. An additional negative result for Saudi Arabia was that it had lost its credibility as the de facto leader of OPEC and that OPEC had lost its credibility as the indomitable force in global oil markets. This meant that OPEC’s pronouncements on future oil supply and demand levels – and therefore, on pricing – had lost much of their potency to move markets in and of themselves and that their joint production deals were diminished in effectiveness”. “The U.S. did not trust Saudi Arabia anymore not to go after its shale oil sector. It also did not trust Saudi Arabia to try to keep oil prices within the US$35-75 per barrel (pb) of Brent price band that was ideal for Washington: the first number being the floor at which many U.S. shale producers could at least breakeven, if not make a slight profit, and the second number being the cap after which extremely serious negative economic and political threats begin to emerge”.
Simon Watkins notes “for Saudi Arabia in the immediate aftermath of the 2014-2016 Oil Price War, there appeared little choice but to stand by and watch as the U.S. inexorably increased its own shale oil and shale gas supplies and made new alliances in the Middle East, whilst all the while gradually reducing all elements of its support for the Kingdom. It is little wonder, then, that Saudi Arabia at the end of the 2014-2016 Oil Price War, grasped on to Russia’s offer of help. The Kremlin at that point was fully aware of the enormous economic and geopolitical possibilities that were available to it by becoming a core participant in the crude oil supply/demand/pricing nexus, so agreed to support the next OPEC production cut deal in what was to be called from then-on OPEC+”. This unholy alliance “served only to compound the growing feelings of distrust towards Saudi Arabia…exacerbated when the Kingdom launched yet another oil price war in 2020 with the same intention as 2014-2016 of hurting the U.S.’s shale oil and shale gas sectors, which Washington perceived as a hostile act”.
Simon Watkins notes when “OPEC+ was looking to push down oil prices to dangerous levels for the U.S. shale oil sector by launching the 2020 Oil Price War”, President Trump threatened to withdraw US military support for Saudi Arabia. “President Trump was able to establish the Trump Oil Price Range of US$40-75 per barrel of Brent for the vast majority of the time he was in office”. The US also then threatened “implementation of the No Oil Producing or Exporting Cartels (NOPEC) bill. This Damoclean Sword of legislation has a broad mandate, making it illegal to artificially cap oil (and gas) production or to set prices”. “The NOPEC Bill immediately removes all sovereign immunity that presently exists in U.S. courts for OPEC as a group and for its individual member states – including, Saudi Arabia…this would open up Saudi’s US$1 trillion or so of assets in the U.S. to be seized in lawsuits relating to a range of allegations, including Riyadh’s role in the 9/11 terrorist attacks on the U.S”. This also exposed Aramco, the prime vehicle to implement Saudi Arabia’s production and pricing strategies (and those of OPEC), to “anti-trust legislation of the U.S. and U.K….point to Aramco as being collusive in price-fixing through adjusting output to manage oil prices. If and when the Bill is enacted, then Saudi Aramco would either have to be broken up into much smaller constituent companies that are not capable of influencing the oil price, thus reducing the company’s net worth to zero overnight, or face the full force of the U.S.’s antitrust laws, and similar laws from all of the U.S.’s allies. In effect, Saudi Aramco’s products and services would face exactly the same net effect as Russian oil and gas companies are facing now. To wit: all U.S. dollar trading in all Aramco products and services would be liable for immediate suspension pending review of anti-trust regulations in the U.S. and all its allies, after which all such U.S. dollar-centric activities could be banned”. Hence, following the recent Saudi-led OPEC cut in oil production, the Biden administration is consulting “with Congress on potential measures that would strike at OPEC’s control over oil prices, and this would include a resuscitation of the (NOPEC) bill. The NOPEC bill already passed the Senate Judiciary Committee in May, having passed a House committee last year”.
Simon Watkins argues “NOPEC has long been considered the nuclear option. No one has answered what would happen next if the bill was passed. Would the US government ask for an antitrust investigation into OPEC? Would it actually go as far as suing the Saudis in federal court? And if a lawsuit is filed and the US does win, can it enforce any compensation? Would it be worth the potential retaliation?”. There is speculation that if NOPEC became law, OPEC nations may retaliate by dumping their official holdings of $246 billion in US Treasuries and a wide range of USD-denominated assets.
In my view, the NPOEC bill would have the same broad effects as the GEW and other sanctions. It would mark a point of no-return and harden the resolve of OPEC members to further reduce their dependence on OECD, accelerate de-dollarisation and push them into the arms of adversaries. In the meantime, the US would need to rally the support of its OECD allies but after the loss of Russian energy supplies, it is doubtful if US allies would also be willing to alienate their Middle East suppliers.
Middle East countries see China as an alternative source of investments and technology to hedge against over-reliance on OECD. Many noted the lavish reception accorded to President Xi Jinping during his visit to Saudi Arabia in December 2022. China and Saudi Arabia signed 34 investment agreements covering green energy, green hydrogen, photovoltaic energy, information technology, cloud services, transportation, logistics, medical industries, housing and construction factories; deals valued at USD30 billion while Huawei Technologies signed contracts to bring cloud computing, data centers, and high-tech complexes in Saudi cities. This reflects initiatives for China to play a major role to support Saudi Vision 2030 to develop a post-oil economy and for greater use of yuan for oil purchases. Saudi Arabia also hosted the first China-Arab States Summit organised by the China-Arab States Cooperation Forum (CASCF) and the China-GCC Summit in Riyadh.
China’s strategic relationships has grown to the point of displacing US and OECD. Loro Horta points out “Chinese companies have won major projects in the infrastructure sector…invested in real estate, renewable energy, healthcare and telecommunications. An estimated 180,000 Chinese nationals live in the UAE and the biggest Chinatown in the region is currently under construction”. They are “cooperating more in areas such as intelligence sharing, counter terrorism and maritime security”. “Unable to compete with China on the economic front, the US began to apply diplomatic pressure on the UAE…In November 2021 several media outlets reported that the UAE government stopped the construction of a port facility by China after Washington complained that the facility was for military purposes. However, evidence of such a claim remains vague…The UAE was unfazed by Washington’s refusal to sell armed drones; in fact, it turned to China and acquired dozens of them…The UAE Air Force intended to purchase 50 F35s from the US in a deal worth US$23 billion. However, the US raised several concerns over the UAE’s relations with China and Huawei in particular. While Washington may have thought these concerns legitimate, the UAE authorities saw it as arrogant intrusion and being disrespectful of its sovereignty. After several failed attempts at settling the matter, Abu Dhabi announced in December 2021 that it was pulling out of the F35 deal”.
Justin Dargin notes in December 2022, Qatar and China agreed to a $60 billion 27-year deal to export 4 million tons of LNG per year to China. This is notable not only because it demonstrates China’s growing importance in the global LNG market but also because it highlights the growing role of Chinese companies in the Middle East. “Chinese companies are increasingly edging out Western companies in equity stakes and production agreements in the Gulf and elsewhere. Previously, Western energy companies were the legacy partners of energy-rich Gulf countries, able to forge commercial ties upon the bilateral relations with their home governments. Chinese state-owned energy companies historically did not have the expertise to compete on an equal footing with Western energy companies. This contract highlights how the situation is rapidly evolving. The potential participation of China in Qatar’s North Field would give Chinese energy companies a foothold to gain access to the global best standards and quickly learn and incorporate the managerial and operational expertise that was the somewhat exclusive provenance of Western international oil companies”.
N Janardhan and Gedaliah Afterman observe that apart from China becoming GCC’s largest trading partner, “China is the principal partner to tap into technology, AI and data as the new oil” to help them achieve their goals of economic and generating 600,000 technology jobs by 2030. China’s “Digital Silk Road, introduced in 2015 as part of the Belt and Road Initiative, is a potent conduit” to provide both infrastructure and technology to the region. “Since 2019, most GCC telecom firms have signed 5G contracts with Huawei. With the UAE’s G42 launching a US$10 billion fund to invest in late-stage technology companies in 2022, its engagement with China will accelerate”. “In the defense arena, the UAE has purchased Chinese Wing Loong I drones in 2016 and Wing Loong II in 2018 after the United States refused to sell its latest weaponized drones, citing the impact of the war in Yemen. In 2017, Beijing and Riyadh struck a deal to manufacture CH-4 drones…Riyadh is developing ballistic missiles with China’s help and manufacturing them domestically”. Overall, the effect of China’s close relationship with the GCC is to neutralise the US veto on supply of arms and technology. And unlike the US, China seems to be on friendly terms with all the Middle East countries.
David P Goldman notes the complex dynamics of Middle East politics is highlighted by the “normalization of Israeli politics in a China-led era of fast-shifting geopolitical sands”. The negotiations to establish diplomatic relations with Saudi Arabia, Turkey’s realignment with Israel, the Gulf States and China and the possible marginalisation of Iran creates a new security architecture in the region. “This new alignment is the work of regional players, with China in a supporting role. The United States and other Western countries, meanwhile, have become bit players”.
Another possibility is for Russia and, to a lesser extent China, to assist Iran to unlock its vast resources despite US sanctions. Mk Bhadrakumar notes “Iran is a fabulously rich country endowed with mineral resources…proven natural-gas reserves exceed 1,200 trillion cubic feet, second only to Russia, and it is the third-largest producer of natural gas…accounts for close to 10% of the world’s total oil reserves…Iran’s zinc, copper and iron-ore reserves are some of the largest in the world…large reserves of a range of minerals such as chromium, lead, manganese, sulfur, gold, uranium and titanium – and it is also home to vast reserves of lithium”. “The incentive to reopen Iran’s economy is huge. Iran’s purchasing power is vast, as it will generate a huge income with the oil price hovering around US$90 per barrel. Statista ranks Iran as the fifth leading country worldwide based on natural-resources value ($27.3 trillion) as of 2021 – above China ($23 trillion) and way above India ($0.11 trillion).”
Mk Bhadrakumar notes Iran and Russia are “now connected through the Russian System for Transfer of Financial Messages (SPFS) and the SEPAM, Iran’s financial telecommunications system, to bypass US-controlled systems”. Iran has joined the EEU and recently signed a 25-year roadmap for economic cooperation envisaging Chinese investment in Iran to the tune of $400 billion. “The specifics of the agreement are largely in line with China’s ongoing BRI, spending billions in infrastructure investment with an eye on long-term influence and economic and security hegemony. Major sectors include oil, gas, petrochemical, renewables, nuclear power and energy infrastructure. The draft agreement also covered high-tech and military cooperation, as well as port construction to facilitate Iran’s integration in China’s BRI trade routes…one novel feature is that payments for all transactions will be in local currencies”.
The unique of position of Turkey adds complexity to Middle East geopolitics. Chas Freeman notes “having been rebuffed by the European Union (EU), Turkey has abandoned its two-century-long drive to redefine its identity as European. Ankara is pursuing an independent, if erratic, course in the former Ottoman space, with Russia and China, and in pursuit of pan-Islamism and pan-Turanianism. The deterioration in Turkish relations with the EU, NATO, and U.S. represents a very significant weakening of Western influence…Turkey is no longer aligned…on longstanding Western diplomatic objectives in the region. Turkish policies complicate the tasks of safeguarding Israel; excluding Russian influence in both the Middle East and Black Sea regions; and opposing Iran. Far from joining in the US/NATO proxy war with Russia in Ukraine, Turkey has self-interestedly played a mediating role and exploited Russian distress to boost its economy”.
Malek al-Khoury notes recently that Russia has managed to broker a Syrian-Turkish rapprochement which will likely pave the way for the unification of Syria. “For starters, Ankara plans to open the strategic M4 highway – which runs parallel to the Turkish border and connects all the vital Syrian cities and regions – as a prelude to opening the legal border crossings between Syria and Turkiye, which will re-establish trade routes between the two countries. This move, based on an understanding between Damascus and Ankara, will essentially close the door on any opposition fantasies of breaking Syria into statelets, and will undermine the Kurdish-American divisive ambition”.
- Global South is the core of the multipolar landscape
It is not just the rise of China but the overall growth of the Global South and the revival of the Non-aligned Movement (NAM) that underpins the transition to a multipolar landscape. Sarang Shidore explain “NAM was founded in 1961 by leaders of three key middle powers of the day – Josip Broz Tito of Yugoslavia, Gamal Abdel Nasser of Egypt, and Jawaharlal Nehru of India. It had its roots in a major conference of mainly African and Asian states in Bandung, Indonesia in 1955. NAM was at its most assertive when advocating against colonialism, apartheid, and nuclear weapons and pressing for economic concessions from wealthy states…Precisely because the new nonalignment is less ideological, it is likely to be more robust and sustainable. By the 1980s, however, NAM had become deeply divided and largely ineffective. The dawn of unipolarity and the end of Cold War blocs in the 1990s marked an existential crisis for the movement. The question was, nonaligned with respect to whom? The movement seemed all but dead”. “However the wheel is turning a full circle with the return of a Cold War–like environment in the global order. A new nonalignment is visible across the Global South. Unlike its previous version, however, it is a strategic orientation, emerging organically through the actions of individual states, rather than an organized movement or an attempt to create one. It is also much less ideological, rooted more in pragmatism and the national interest. This works to its advantage: Precisely because the new nonalignment is less ideological, it is likely to be more robust and sustainable. Not having a formal organization attempting to evolve an ideological consensus on every global issue actually enables states to strategize more effectively and deflates past criticisms of NAM. A national interest–centered nonalignment is also marked by dynamism. Many middle powers are more prosperous, and have learned the arts of realpolitik and ad hoc coalition–building to secure their interests. Their populations are less enamored of U.S. soft power compared to the 1980s and 90s and feel much less threatened by the rise of China and the reassertion of Russia than they did during the Cold War years. The Global South would rather see a multipolar world where power is more diffused, in order to expand its own strategic space. Thus key middle powers in the Global South will align with the United States when it suits their interests, but sharply depart from its line, and even align with China or Russia, in other circumstances. They are well aware that Russia and particularly China sometimes offer products and services (e.g., defense equipment, energy, infrastructure, financing) that are comparable or better value propositions than the United States and its core allies. The Global South generally seeks to leverage all major powers toward its developmental and strategic benefit. In this manner, it seeks to end both its economic and political marginalization. Their colonial history still matters to the states of the Global South. But historical memories now play an auxiliary role to furthering national interests and ending their economic and political marginalization”.
Cheng Yawen describes China’s perspective of a “three-ring international system to guarantee China’s national security and development: the first ring is China’s neighboring East Asia, Central Asia and the Middle East, where East Asia is connected to the world’s financial resources and China has formed a close industrial division of labor with the countries in this region, and Central Asia and the Middle East are connected to the world’s resources and China has to rely on the countries in this region for a stable energy supply and a reliable security barrier. The second ring is the vast number of developing countries in Asia, Africa and Latin America, with which China exchanges raw materials and industrial products, and China’s foreign aid should be mainly directed to these countries; the third ring extends to the traditional industrialized countries, mainly Europe and the United States, with which China exchanges industrial products, technology and knowledge. This three-ring structure is used to prioritize and redirect foreign contacts and to redefine the direction and content of foreign contacts…The basis of international relations for China’s promotion of a new three-ring international system is South-South cooperation, an old concept that emphasizes mutual cooperation and support among non-Western third world countries”.
Global South countries are no longer insignificant pawns in world affairs. Connor Echols notes “during the Cold War, the United States and the Soviet Union…sought to create a larger, more strategically useful bloc of allies than the other, sometimes going to great lengths to transform the internal politics of states they viewed as junior partners. When leaders resisted these efforts, Washington and Moscow would often resort to coups and strategically dubious proxy wars in order to secure their interests. The U.S. had a particular knack for covert operations, through which it helped bring friendly governments to power at least 26 times during the Cold War, according to Lindsay O’Rourke…America’s roughshod approach to the world’s smaller states continued well after the collapse of the USSR. Between 1990 and 2017 – the peak years of the so-called unipolar moment – the United States undertook more than 130 military interventions abroad, including numerous efforts to unseat unfriendly leaders in the Middle East”.
Connor Echols argues “decades of with-us-or-against-us policy by great powers have made leaders around the world skeptical of a bloc-based foreign policy. And, as the Global South has developed economically, coercion has gotten much harder…They’re becoming more assertive, I think, in choosing how and when to deploy that leverage in the international system.” The “most striking foreign policy shift of 2022: the geopolitical rise of the world’s so-called middle powers. In the past year, Turkey, India, Saudi Arabia, Indonesia, and numerous others have carefully expanded their influence in global affairs, taking advantage of great powers that are determined to shore up their support on the world stage. This might sound like a Cold War redux, but there’s one key difference: Unlike last century, middle powers now have enough economic and geopolitical clout to throw their weight around without lining up behind a single superpower sponsor…Though they can be remarkably effective at pursuing their interests within the international system, they have little if any ability to shape it. In other words, there is no reason to believe that Ankara will create new international institutions, but there is also no doubt that it will take advantage of its place in NATO to earn concessions from its fellow member states”.
Tim Sahay points out “today, a much richer India has the leverage to challenge the coercive underbelly of American hegemony. Brazil and Indonesia, too, are taking advantage of their new pull. Neither the United States nor Europe should underestimate postcolonial elites in their renewed efforts to chart an independent course…Countries like China, India, Indonesia, Brazil, South Africa, Mexico, Saudi Arabia, and the United Arab Emirates have refused to sacrifice their national interests to punish Russia. Most importantly, they believe their bargaining power in the new Cold War will result in sweeter trade, technology, and weapons deals from the West. These eight countries alone will account for three-fourths of the world’s population and 60 percent of its economy by 2030. They have aspirations for regional dominance and believe non-alignment better serves their interests…Little wonder, then, that these countries are adopting a stance of non-alignment to secure the same key technologies – fighter jets, green technology, chips, submarines, nuclear, advanced pharmaceuticals, 5G mobile networks – that could power their catch-up growth. The map of countries that remained neutral on Russia sanctions is no bleeding-heart protest for global justice, but a hard-nosed security play. Before signing up to the West’s new financial-technological-military regime, these countries intend to extract maximum concessions. They are also betting that the West will tolerate their foot-dragging on Russian sanctions, and refrain from imposing secondary sanctions (sanctions for breaking sanctions) on them. Threats to exit, as any bargainer knows, confer power”.
Tim Sahay thinks countries flirting with a new non-alignment want “Core technologies to power future growth; Advanced military hardware for enhanced security; The upper hand in trade negotiations with Europe, the US, and the new Russia-China bloc; Essential commodities like food, energy, metals and fertilizers from the new Russian-Chinese bloc; Better terms to restructure their debt to Western and Chinese creditors during a punishing global dollar debt crisis that threatens their sovereignty”. “Developing countries will use this decade’s violently shifting geoeconomic conditions to build on old growth models, including industrial policy and developmental-state capitalism. Expect states like India and Indonesia to keep imposing conditions on their increasingly coveted cooperation and access to growing consumer markets on hard infrastructure deals…The new non-aligned countries play the G7 powers off each other. Most exposed to this shifting terrain of economic and security relationships are Germany, Korea, and Japan whose industrial firms fear loss of their export markets. Thus far Germany is distancing itself from the decouplers in Washington…Chancellor Scholz…said new centers of power are emerging in a multipolar world, and we aim to establish and expand partnerships with all of them”.
Global South countries will bend under Western pressure but they will not break their relationships with Russia or China. The real difference is that today Global South countries are willing to walk away from the West for three reasons. The first reason is
Global South countries rank low in the existing world order. Hence, the downside is that their needs, no matter how pressing, will get neglected or short-changed. Recent examples include shortages of vaccines, medical supplies, energy, fertiliser and food. Related to this, the collateral damage suffered by Europe has been an eye-opener on the high costs of supporting Western sanctions. In addition, Global South countries face threats posed by rising OECD interest rates, currency volatility and reshoring.
The second reason is that it is too risky for Global South countries to be solely dependent on the West. The West is increasingly weaponising its “values” – security risks, human rights (labour, LGBT, feminist) and climate change (carbon tax) – to impose sanctions and tariffs that may override multilateral agreements and ignore national sovereignty. Hence, a range of Global South exports such as palm oil, timber, and industrial products (related to Xinjiang) have been affected. Global South countries are also mindful of the GEW on Russia; that Western countries could suddenly freeze your assets, withdraw access to SWIFT, cut off technology supplies and general access to the West unless the country complied with Western demands.
The third reason is that Global South countries now dare to break their dependency on OECD because China can step in as a substitute. As China redirects its economic resources from OECD to the Global South, the great migration of resources from the North to the South will finally materialise. In the process, several Global South countries are emerging as important players in their own right.
Russia-China have the advantage in that they endorse non-alignment and are willing to act as a fallback option rather than impose their agenda. In contrast to the West, they downplay the military and geopolitical elements and instead emphasise on a “no questions asked” relationship that focuses mostly on bilateral economic needs and connectivity. Russia and China can also follow separate paths to avoid geopolitical minefields such as the tense relationships between China and India and to leverage on their respective strengths. Hence, Russia is moving on strengthening its alliances with India, Iran and Turkey. China can build on its trade relationships within the Regional Comprehensive Economic Partnership (RCEP) and with ASEAN, the Gulf Cooperation Council (GCC), Mercosur and Africa. BRICS acts as the umbrella for multiple Global South groupings and there is increasing discussion of expanding BRICS+ into a G7 equivalent. Pepe Escobar notes “the speaker of the Duma, Vyacheslav Volodin, may have created the defining acronym for the emerging multipolar world: the new G8. This comprise BRICS members of Brazil, Russia, China and India plus Indonesia, Iran, Turkey and Mexico. The G8 is 24.4% ahead of the old one, which is in fact the G7, in terms of GDP in purchasing power parity (PPP)”.
Overall, it is in the interest of the Global South to ensure that neither the West nor China-Russia[7] becomes too powerful to the point where they can dictate terms. Many of the large developing countries like India, Saudi Arabia, South Africa, Brazil, Mexico and Indonesia currently have a foot in both spheres. The priority is to hedge their bets regardless of the pressure, mostly coming from the West, and to play the great powers against each other to extract concessions. Loyalties are fickle and countries have signalled their willingness to defect to the other camp if they are pushed too hard.
The battles for Global South alliances have far greater strategic importance today because the scope of the conflict have widened to cover trade, resources, currency, markets, logistics, information infrastructure (internet cables, telecommunication networks, satellites, data and finance) and voting rights at multilateral institutions. Ben Norton notes the West has consistently opposed Global South proposals for a New International Economic Order based on sovereign equality, sustainable development, and biological diversity at the United Nations General Assembly.
The West face a dilemma in competing for Global South alliances. If the West “concedes” the Global South to the China-Russia alliance, then its containment strategy would come to naught. It will operate at a disadvantage because Russia and China can use their Global South alliances to build counter-weights against NATO military forces and OECD soft power. But how is the West to compete for Global South alliances. The problem is that the West wants to reindustrialise and has increasingly become protectionist. Hence, they tend to rely on levers (such as sanctions, friendshoring) to force Global South countries to choose sides. The likelihood is that the “heavy-handed” approach would fail.
The ultimate question therefore is whether the US-led OECD alliance will countenance a more assertive Global South. After all, high growth in the Global South will hasten the decline in OECD market share. OECD MNCs will find themselves squeezed by intensifying supply chain competition and resource nationalism[8]. It is not clear how the West would respond as, unlike the colonial days, there is limited room for direct military and political intervention. As the competition for resources and markets heat up, Western militarism and reindustrialisation are triggering fears of an escalation of proxy battles as great powers jockey for their “candidates” to control the reins of power.
- Asian Century and India
Asians are enamoured by the coming of the Asian Century. Kishore Mahbubani explains “history has turned a corner. The era of Western domination is ending. The resurgence of Asia in world affairs and the global economy, which was happening before the emergence of Covid-19, will be cemented in a new world order after the crisis. The deference to Western societies, which was the norm in the nineteenth and twentieth centuries, will be replaced by growing respect and admiration for East Asian ones. The pandemic could thus mark the start of the Asian century…Today, Asia is home to three of the world’s top four economic powers (in purchasing power parity terms): China, India, and Japan. The region’s combined GDP exceeds that of the United States and of the European Union. The US is no longer even the most globalized power…Already a larger trading partner to more countries than the US, China is signing on to more free trade agreements as well, including potentially the largest in history, the Regional Comprehensive Economic Partnership. The US, by contrast, is abandoning FTAs such as the Trans-Pacific Partnership…The US share of global trade continues to shrink”.
If the Asian century materialises, it will overshadow the Cold War and the relevance of the West. But at the moment it is the US-China Cold War conflict that is dominant while the Asian Century has failed to gain traction because Asia lacks a coherent geopolitical identity. Russia occupies the North and, until recently, were more closely affiliated to Europe. The East Asian countries (China, Korea and Japan) fought many wars amongst themselves. The South East Asian countries were caught in the middle of the Cold War but has since transformed into a non-aligned and thriving regional bloc. Indian and religious politics dominate South Asia. Central Asia is only now slowly finding its feet after the Soviet Union break-up. The Middle East remains a juxtaposition of wealth and regime instability.
Historically, it should be noted that the largest empires did not belong to either China and India but to the Mongols who in fact ruled over both. The next was the Japanese that managed to conquer parts of China and most of South East Asia during World War 2. If centuries ago, China and India were the world’s largest economies, in the 1950s Burma and Philippines were among the most affluent countries in the region. By the 1990s, Japan was the inspiration for several newly industrialising Asian economies (South Korea, Taiwan, Malaysia, Thailand and Indonesia) while Hong Kong and Singapore had established themselves as international financial centers. It is only recently that China and India regained their pre-eminence both in Asia and in the world.
The Asian Century can thus be analysed based on its internal and external geopolitical dynamics. The internal dynamics revolve around the two Asian giants. Zhang Hui notes the “Asian Century was first used by former Chinese leader Deng Xiaoping. In 1988, when he met with then Indian prime minister Rajiv Gandhi, he pointed out that unless the two countries [China and India] are developed, there will be no Asian century”. Indian External Affairs Minister Subrahmanyam Jaishankar recently revived the debate, stating that “the Asian Century would happen when China and India came together, but it would be difficult for this to happen if India and China could not come together”. Tim Sahay notes “In March of this year, as Russia’s war in Ukraine intensified, China’s Foreign Minister Wang Yi made a trip to New Delhi to speak with his Indian counterpart S. Jaishankar. If China and India spoke with one voice, the whole world would listen Wang argued. If China and India joined hands, the whole world would pay attention.
While China’s position is well known, there is less familiarity with India. Swagato Ganguly notes “17th-century India was – relative to global norms – urbanized, commercialized and an export superpower. According to British economic historian Angus Maddison, India’s share of the world economy declined from 24.4 percent in 1700 to 4.2 percent in 1950. Its share of global industrial output dipped from 25 percent in 1750 to 2 percent by 1900. China showed similar declines, but over the last four decades has transformed itself into the world’s factory hub and regained its former historical position more powerfully than India has. More broadly speaking, the Indo-Pacific region, currently estimated to account for 60 percent of global GDP and two-thirds of global growth, may be reverting to its historical mean. It may make sense, therefore, to speak of India not so much as an emerging economy but as a re-emerging economy, in the midst of a high-growth region that it is re-discovering”.
Prior to its colonisation, “India had been a great trading power. Her most intimate contacts were with Asian, Arab and African neighbors, through the old silk route or across the Indian Ocean rim”. However, under British rule, “these contacts were broken off, and India was almost completely isolated from the rest of Asia…while passage to and from India came to be yoked to Britain”. “Seventy-five years after India’s independence…South Asia…is among the least economically integrated regions in the world, having crawled backward, in some respects, since 1947. Part of this can be attributed to the poisoned chalice of Partition”; a reference to the chaotic post-independence carving out of India’s Muslim-populated territories into Pakistan.
Swagato Ganguly relates some blame was levied on Jawaharlal Nehru whose pan-Asianist vision caused him to pass “over the offer of a permanent UN Security Council seat for India when the Americans and then the Soviets proposed it during the 1950s, because Nehru thought that including communist China’s representatives was more important. Such acts of noblesse oblige have few rewards in geopolitics, as India was to discover repeatedly. Indeed, a permanent seat on the UN Security Council is something for which the Indian establishment would give an arm and a leg today – but it remains out of reach, not least because of China’s stonewalling”. He notes “Nehru’s view of non-alignment and renunciation of geopolitics did not resonate because many delegates represented nations already aligned to one or another of the Cold War blocs” But the ending of the Cold War ended and Soviet Union dissolution “made the rationale for non-alignment ring hollow. As Inder Kumal Gujral, then foreign minister and later to be India’s prime minister, remarked in November 1990: We all know non-alignment is meaningless today. After all, who are you going to be non-aligned against?”
Swagato Ganguly explains India’s economy was held back because “independent India stressed self-reliance, autarky and import substitution, and it leaned toward state control of the economy’s commanding heights…India was locked out of a region that enjoyed rapid export-led growth and development, spurred by Japanese investment, during the 1970s and 1980s. By the end of the Cold War, India’s maritime and trade linkages across much of the Indo-Pacific region had degraded considerably”. It was after realigning its foreign and economic policies that India was able to strengthen its trade and investment relationships with ASEAN and North Asia. However, economic integration in its South Asia backyard has been hampered by troubled relationships with its neighbours.
Given this background, could China and India join hands to work towards realisation of the Asian Century. China is keen but India instead chose to spurn China’s advances. The Galwan Valley military clash in June 2020 re-opened old wounds of India’s defeat by China in the 1962 border war[9]. But this is a catalyst rather than a cause. There are geopolitical and economic motives underlying India’s pivot to the West.
From a geopolitical perspective, India perceives China as its rival rather than its partner for Asian supremacy. Rivalry with China is consistent with its desire for strategic autonomy, Indian primacy in its subcontinent and to promote great power multipolarity in the world. Happymon Jacob notes “India’s desire for a multipolar world is due to its inherent unease with the balance of power, arms race and subsequent complications. India did not want to be playing second fiddle to either of the two superpowers in a bipolar world. After the end of the Cold War, India’s unease with unipolarity (or US dominance) was due to US behavior in the international system. Today, New Delhi believes that the world is moving toward a multipolar international system explaining its allusion to multi-alignment…The underlying belief is that bloc rivalry can be harmful to its interests and that as a country with economic and other needs, it requires all the help it can get from various major powers”. In this regard, even India’s relationship with Russia may not be ironclad. “China and Russia are today closer than ever; it is a matter of time before China raises objections to a war-fatigued Russia’s (so far) strong strategic partnership with India especially if skirmishes between Indian and Chinese forces recur on the LAC, and/or if New Delhi gets too close to the US”. “The Ukraine war will quicken the fundamental transformations already seen within Asian geopolitics. It is only a matter of time before the rest of Asia becomes China-centric. The US withdrawal from Afghanistan, its current focus on Russia and Ukraine, the further weakening of Russia, and Beijing’s proactive outreach in the region with money and muscle will eventually lead to the end of Indian primacy in the region, accelerating a China-centric Asian geopolitical order. As a result, it is possible that when the Ukraine war is over, India will be relegated to a weaker position in the region than it was prior to the war. Ideally, in the longer run, India would like to have both the West and Russia on its side. But given how this war is unfolding, and the way Beijing is acting, New Delhi may indeed find it harder than ever to manage the growing contradictions between the West and Russia”.
Thus, “India traditionally shied away from the global balance of power games – both to ensure that its periphery, South Asia, remains free of Cold War politics, and due to lack of capacity. And yet, there were times when India did engage in balancing: against China by reaching out to the US after the 1962 Sino-Indian war and signing a treaty of peace and friendship with the USSR during the Bangladesh liberation war in 1971. Put differently, India engages in contingent balancing”. Happymon Jacob notes “India’s view of the current world order can be summed up in three words: unequal, discriminatory and unrepresentative”. “India’s External Affairs Minister Subrahmanyam Jaishankar stated in 2019, If you have a United Nations where the most populous country in the world – may be in 15 years – with the third largest economy is not in the decision-making process, I grant you, it affects the country concerned. But I would also suggest it affects the United Nations’ credibility. References by Western states about a rules-based order never fail to ignite a debate within the Indian strategic community: whose rules?, whose order?, are the often-repeated questions that one hears. As a result, growing concerns in the US and the West about the breaking down of the rules-based global order do not register much sympathy in India, as it finds itself on the margins of such an order”.
Jerri-Lynn Scofield points out Subrahmanyam Jaishankar’s book The India Way “provides a primer for understanding India’s current approach to managing its international affairs. “This is a time for us to engage America, manage China, cultivate Europe, reassure Russia, bring Japan into play, draw neighbours in, extend the neighbourhood, and expand traditional constituencies of support. The mix of opportunities and risks presented by a more uncertain and volatile world is not easy to evaluate”. Hence, India must prepare for “severe strains in its network of foreign relationships: In a world of more naked self-interest, nations will do what they have to do with less pretence”. “It has to prepare itself for assertions of influence that will exploit power differentials, economic advantages, and dependency of connectivity. The bottom line: India cannot give any other nation a veto on its policy options”.
India views China’s militarisation of the disputed Himalayan border and its close relationship with Pakistan and other northern states in the Indian sub-continent as a strategic threat and roadblock into the Asian hinterland. Thus, the US concept of Indo-Pacific and QUAD appeals to India because it allows India to tap into maritime routes to bypass land-based roadblocks.
There are also substantial economic motives to oppose China. India’s economy has lagged China in many aspects. China and India took different routes with China succeeding in becoming the world’s “factory” and India its “back office”. In my view, India probably sees itself competing in the same “supply chain” space as China and fears its economy will be over-run by Chinese companies. Hence, blocking Chinese participation and allying with OECD geopolitically creates space for the Indian economy and MNCs to grow. Indeed, India is tapping into Western desires for a new market to replace China and to act as a counter-weight to China in Asia.
Tim Sahay notes “the geopolitical scales soon started to tilt India’s way. By April, European Commission President Ursula von der Leyen had made her first trip to Delhi, where she laid the groundwork for several weeks of frenetic EU-India dealmaking for a sweeping agenda ranging from defense to green manufacturing. The following month, in a whirlwind three-day tour of Germany, Denmark and France, Prime Minister Narendra Modi won concessions that Indian policymakers have coveted for well over two decades, ranging green-energy investments, tech transfers, and weapons deals, putting flesh on the bones of a moribund EU-India strategic partnership. In Berlin, Chancellor Olaf Scholz announced a €10 billion green partnership to help India achieve its 2030 climate targets and high-tech transfers. The next day in Copenhagen, Nordic countries signed wind and solar deals, alongside green shipping and green cities investments. In Paris, Macron signed deals to invest in India’s green hydrogen hubs as well as increase sales of French military aircraft and ships; for its part, Électricité de France confirmed a long-pending deal to build six EPR-1650 nuclear power reactors in Jaitapur. This followed India’s momentous $42 billion investment deal with Japan for electric vehicles (EVs), green hydrogen/ammonia, and heavy industry transition”.
The question is whether India can achieve the breakthroughs to replicate China’s success as an industrial and export powerhouse. India is not short on talent and diaspora relationships. Indians manage some of the world’s top companies and occupy prominent political positions in several countries. The government has recently offered attractive incentives to attract foreign investments. These initiatives appear to be working as OECD investments and supply chain relocation to India is rising.
But India’s economic and business[10] track record is patchy. They were early in the car industry but were overtaken by the Koreans and Chinese. They haven’t made an impact in the global internet industry despite their IT strengths. They generally missed out on opportunities during the golden period of globalisation. India also chose to walk out on the Regional Comprehensive Economic Partnership (RCEP) and is instead adopting a bilateral approach to trade agreements. India still needs to overcome its disadvantages in infrastructure, administration and legal system and global connectivity if it is to build an industrial system comparable to China and to emerge as an important cog in global supply chains. What is also unproven is whether India’s clampdown on Chinese MNCs – based on the calculation India has more to gain from producing and exporting to OECD than to lose from shutting down access to China’s market and supply chain – will prove to be the right decision.
Nonetheless, India approaches its budding alliance with the West with caution. It has maintained its alliance with Russia despite threats of secondary sanctions. Simon Watkins notes India recently signed 28 investment deals with Russia covering oil, gas, and petrochemicals, steel, shipbuilding and the manufacture of Kalashnikov assault rifles and proceeded with the implementation of a 2018 contract for S-400 air defence missile systems.
India is critical of the West’s condescending attitude. Jerri-Lynn Scofield notes “first, the surprise announcement of a new Australia-United Kingdom-United States (AUKUS) security arrangement in August shocked India, to say the least. India was excluded from this new accord, which unceremoniously superseded the previous QUAD. Recall that under AUKUS, Australia will now be the recipient of new U.S. nuclear submarines – which India had long coveted and been told it couldn’t have”. “Second, American policymakers don’t seem to comprehend fully the impact the shambles the U.S. made of its Afghanistan pullout had on the thinking of leading Indian foreign policy figures”.
Overall, India is unique in being able to hedge its geopolitical position by remaining friendly with Russia, keeping an eye on Eurasia and the Global South through its membership in SCO and BRICs, cooperating with the US[11] to strengthen its presence in East Asia and tapping its Anglo-Saxon heritage. While straddling the different camps could backfire, India will not be keen to follow Europe’s example of suffering collateral damage by giving up strategic autonomy. Instead, India can flirt with the West, knowing they have a fallback as Russia and China will keep the door open. This upsets the West because it weakens their sanction regimes, yet it cannot afford to alienate India and allow it to defect to the other side. The largest challenge is for India to build its regional connectivity and influence.
Thus, the Asian Century foretells the rise of the densely-populated hinterland; namely China, India, Eurasia and possibly Vietnam, Thailand and Indonesia. This implies a break with the Western-led development patterns in Asia and augurs the fading importance of North Asia and former English colonies such as Hong Kong, Singapore and Malaysia.
In particular, the North Asian US allies such as Japan, South Korea and Taiwan face a dilemma similar to that of Europe. They are under pressure to retreat from China which is a huge market to them. Yet, they are likely to lose out in the matured OECD markets and be squeezed by US reshoring and the migration of supply chain activities to outside Asia. Their major hope is to collaborate and expand in India except that a vibrant India will diminish their influence further. Outside of this, Japanese MNCs will face the full brunt of Chinese competition in Europe and the Global South markets.
How the Asian Century actually pans out depends on the external dynamics driven by the impact of Asia’s rise on the rest of the world. Does a rising Asia imply, by definition, the decline of Europe and US? The shift of economic power has already taken place and new growth centers continue to sprout within Asia. In this context, decoupling, the regionalisation and reshoring of supply chains appears to be a defensive measure intended to weaken not only China but Asia’s manufacturing dominance and to stem or even reverse the Western decline. While the restructuring of global supply chains has picked up pace, it is too early to assess the impact of decoupling and reindustrialisation on the different continents. But we should also consider that tandem with supply chain decoupling, Asian economies are generally diversifying their currency and asset exposure. This will impose restraints on the ability of OECD countries to finance their deficits, weaken the efficiency and liquidity, and give rise to instability of the OECD financial networks. Ultimately, the Asian Century reflects changing roles, shifting patterns for global trade, technology, resources, finance and military and security arrangements with massive geopolitical implications.
While the Asian Century is taking shape economically, it requires geopolitical and cultural cohesion to achieve Asian soft power. The difficulty of uniting a continent is highlighted by Europe’s experience. Can an Asian Century be feasible if its largest powers of China, India and Japan are at odds with each other. Maybe Asia needs a vision or a dream of how it would function as a continent that is destined to lead the multipolar world.
- Europe’s dilemma
In previous decades, Europe was a clear second to the US in relation to the economy, currency, technology and military capabilities. The EU pursued its vision of economic integration and strategic autonomy. However, since the global financial crisis of 2008,
China has surpassed Europe in terms of economic and military capabilities. Coming out of Brexit, Europe has struggled to cope with the combined effects of decoupling with China, the pandemic, and Russian sanctions. In the meantime, India is fast closing the economic gap.
With NATO casting its shadow over the EU, Europe seems to have abandoned its goal of strategic autonomy in favour of security alignment. Where is this leading Europe to? On security grounds, EU is enlarging its membership but this makes for a rather more incoherent economic union at a time of extreme stress. Europe remains committed to large fiscal expenditures on Ukraine, upgrading its military and industries, and on reducing dependence on Russia and China. But it is not prepared for economic sacrifices arising from corporate exits, supply disruptions and higher operating costs. In the meantime, its financial markets and institutions (UK pension funds and European banks) are experiencing considerable stress with euro and sterling among the weakest currencies in the world.
One crucial aspect of security alignment is the transatlantic relationship between Europe and the US. Henry Kissinger[12] points out “the EU has not yet managed to create a political identity and a political consciousness as an organic unit. The decisions are made by balancing political preferences in an essentially administrative manner on a case by case basis. So, at least from my perspective, there is no vision that can be described as a specifically or uniquely European vision…For hundreds of years, Europe has contributed ideas about political structure and political vision. Many of the great ideas about freedom and democracy originated in Europe. At that time on the philosophical level, Europe was largely unified. Now, it seems the EU has a greater ability to concentrate on economic and technical issues than on historic issues. But if Europe is to participate in some unified sense in international affairs, it needs to develop the capacity to generate ideas that are at the same time specifically applicable to European circumstances and also of relevance to the rest of the world. My vision and dream of the European-American relationship has always been that we will manage to establish a unique conceptual relationship within which tactical differences can exist – and should and will exist – but in which they do not become the anchor point of the policy on each side of the Atlantic”. However, “I don’t think we’ve found our way yet to a new practice of the Atlantic relationship. The nature of that linkage is often defined as a return to American leadership. But it may turn out that what Europe seeks is collaborative autonomy, not guidance…But it proved difficult to develop an Atlantic Charter of political objectives…a reluctance by Europe to define an organic relationship. Now this problem will reappear in relation to the fact that the challenges of the world have become global. There is no localized threat to European identity. So, in defining our global roles, I could foresee a possible temptation on the part of Europe to pursue a kind of separate policy from the United States”.
Henry Kissinger cautions that “in the long run, my fear is that an emphasis of both sides on autonomy will do two things. It will reduce Europe to an appendage of Eurasia. And through this, Europe will become preoccupied by the tensions that derive from the competition of Asian and Near Eastern countries with each other. And Europe could become exhausted by these efforts. At the same time, if that happens, America could strategically become an island at the conjunction of the Pacific and the Atlantic. It would then conduct the foreign policies typical for island countries vis-à-vis continental land masses, that is to play off the weaker against the stronger, which means there will be more focus on divisions than on the construction of the world. And even if that separation between Europe and America is very friendly, we and Europe should not exhaust our energies in a struggle about how to define common purposes. We don’t have to agree on every economic policy on every local issue, but we should have a common concept of the direction we want the Atlantic regions to go, historically and strategically”.
Europe thus faces a dilemma of defining its place in the world – whether it remains tied to the US unipolar agenda or whether it charts an “autonomous” path in a multipolar environment. None of Europe’s three strongest economies – Germany, France and UK – seem capable of providing geopolitical or economic leadership for the continent. At the moment, this role has been usurped by the NATO and EU bureaucracies that seem intent waging war on Russia (until its capitulation) and on participating in the Indo-Pacific containment of China. But security alignment provides little assurance on Europe’s future security. Europe’s ultimate security requires a resolution of the Ukraine war and an amicable settlement with Russia. Similarly, Europe’s economic future is clouded if it follows the US path of decoupling with China. In the meantime, its disputes with the US over electric vehicle subsidies, EU’s Carbon Border Adjustment Mechanism, regulation of platforms, content, AI and data[13] are unresolved. Europe also has to address internal challenges within its economic union such as the gap between the rich and poor member states.
There are some signs of growing European uneasiness with its US alignment. Thorsten Benner reports German Chancellor Olaf Scholz recently described “a total makeover of the world that Europeans were used to in which almost everything that was decided or became economically relevant was centered on Europe and North America. There were many countries in Asia, Africa and Latin America…that would gain clout in coming decades. Scholz said it was key for Germany to here and now develop a policy that enables us to not just deal with these changing circumstances globally but to use them as an opportunity for improvement. What is remarkable about this is that the chancellor chose not to describe the world as predominantly one of great power competition or a block confrontation between the US and China. In fact, Scholz is convinced that many countries will refuse to be neatly separated into a US or China camp. That is an accurate reading of the position of many countries in Asia and beyond”.
In this regard, Europe’s transformation from an economic and monetary union into a geopolitical and military one is widening the disconnect between government policies, businesses, financial markets and the economy. In the battle on interdependencies, European businesses are neither getting the policy support or guidance they need. Europe’s economy, sandwiched between a reshoring US and a recalcitrant Russia and China, is stranded as deindustrialisation risks are outweighing reindustrialisation opportunities.
In contrast, the gains from strengthening the economic relationship with China are tempting. For example, Global Times reports German and Swiss regulators and exchanges are collaborating with their Chinese counterparts to facilitate Chinese companies to tap European markets for fundraising through stock connects and the issue of global depositary receipts (GDRs). Five Shanghai-traded firms have issued GDRs in the UK, three have issued GDRs in Switzerland, with a combined financing amount of $7.1 billion. Dealogic data indicates “Europe unseated the US for the first time for Chinese listings”. this regard, EU’s positive relationship with China will be at the expense of its Anglo-Saxon and North Asian allies. At some point, Europe would need to clarify the ambiguity as to its stance and direction in a multipolar world. The US should be mindful though that if Europe’s economy is allowed to decline further, this would undermine the geopolitical relevance of G7 and reduce its own power.
- Africa and Latin America
China and Russia have made substantial inroads into Africa and Latin America. Matt Ferchen notes “for the last two decades, Africa has been at the heart of China’s approach to developing countries, including since 2013 with a central role in the BRI. China’s development-themed economic diplomacy in Africa includes elements of direct or indirect competition with the United States and the West, in particular by claiming that its primary method of development cooperation is based on enhanced trade, investment, and financial links as opposed to a paternalistic development-as-aid models preferred by the United States and OECD countries”. He adds in recent years China has de-emphasised some types of state-led loans-for-infrastructure deals to focus more on technology, energy and healthcare.
Olayinka Ajala points out “in the last decade, several African countries such as Libya, Ethiopia, Mali and Nigeria have developed significant military alliances with Russia. Several African countries have depended on Russia to combat insurgencies. This has ranged from hiring private military contractors from Russia such as the Wagner group to direct arms imports”. “ In 2021, Russia signed military cooperation agreements with Nigeria and Ethiopia, the two most populous countries in Africa. The Stockholm International Peace Research Institute estimates that Russia sold 18% of the total arms it produced to Africa between 2016 and 2020. Some of these military alliances have been in existence since the Soviet era and are deeply entrenched…several African countries depend on Russia for wheat and fertilisers…African countries imported wheat from Russia and Ukraine worth about US$5.1 billion between 2018 and 2020. A quarter of African countries depend on the two countries for a third of their wheat consumption. Russia accounts for 16% of global wheat production, and 13% of fertiliser production…In addition, the perceived lack of support from the west during the COVID-19 pandemic has shifted many African countries further away from their traditional western allies in Europe and America”.
Hippolyte Fofack notes “as in the past, Africa has emerged as the ring in which the world’s largest economies wrestle for global leadership and control of strategic trade routes, as well as for natural resources to power old and frontier industries in an accelerated shift towards more climate-resilient growth models post-COVID19. The global race in the new scramble for Africa has been on full display in several areas, including economics and finance, technology, military, intelligence and power projection. Most recently, this trend has been illustrated by the weaponization of foreign investment and lending, the proliferation of foreign military bases within the continent, with China upping the ante by significantly raising its number of military attachés across Africa, increasing the number of officers participating in U.N. peacekeeping missions in the region. This risk of a second Cold War was plainly articulated in the new Africa strategy proffered in 2019 by the Trump administration, which said: Great-power competitors, namely China and Russia, are rapidly expanding their financial and political influence across Africa. They are deliberately and aggressively targeting their investments in the region to gain a competitive advantage over the U.S.” “As geopolitical and economic tensions escalate and the return of great-power proxy wars sustains and accelerates the internationalization of conflicts, Africa could, once again, suffer major collateral damages beyond fiscal costs and growth deceleration…The proxy wars already raging in Central, East, and West Africa, including in Ethiopia, the host of the African Union and a recent battleground for foreign powers. These proxy wars are increasing uncertainty, undermining long-term investment and growth, and destabilizing cross-border trade”.
Hippolyte Fofack notes “the number of countries with a known military base in the region has increased significantly over the last decade, evidence of what we might call the new scramble for Africa. Across all continents, Africa now has the largest number of foreign countries carrying out military operations on its soil – no fewer than 13, of which most have several military bases spread throughout the region. In addition to the traditional colonial powers (Belgium, France, Italy and the U.K.) along with the U.S. and Russia, which were very active in the region during the first Cold War, the list now includes nations like Japan, India, Saudi Arabia, Turkey, the United Arab Emirates and China, to name a few. The mushrooming of foreign military bases across the region – especially at a time when most citizens increasingly see such establishments as major violations of national sovereignty – reveals how disinclined the powers establishing these footholds throughout Africa are to accepting foreign military bases in their own countries and threatens to amplify the risk of a second Cold War…Already, the risks of heightened geopolitical tensions between the leading powers in their quest for natural resources and in the race for global hegemony have been increasing, as illustrated by the sharp rise in the number of conflicts, and especially of internationalized conflicts”.
Hippolyte Fofack notes the African Union Peace and Security Council (AU-PSC) has expressed concern on the risks the foreign military bases pose “to security, the promotion of democracy, and economic integration. The AU-PSC has identified some of these hazards, including: external interference in African peace and security issues; foreign interference in national politics either to promote leadership that is sympathetic to their causes or to ensure political continuity with the view to preserving economic and strategic interests; and the illicit inflow of arms, particularly of small arms and light weapons. According to the AU-PSC, the flow of illicit arms to non-state actors has exacerbated violence in various parts of Africa. The continued supply of these arms is partly responsible for the persistence of protracted conflicts that have undermined social cohesion, economic development, and the effective functioning of state institutions. The presence of foreign military bases may also undermine the process of regional integration and economic transformation through other channels. African governments hosting foreign military bases face the difficult balancing act of remaining a reliable ally to each of the rival superpowers. Besides concerns around national security and sovereignty, the presence of foreign bases controlled by world powers that are focused primarily on guarding of their own interests can run against host countries’ long-term development objectives and may partly explain the stickiness of the colonial development model of resource extraction, which has been a major risk sustaining the unhealthy correlation between growth and commodity price cycles”.
The US has also called on EU and Japan to join efforts to counter China’s growing presence in Africa. Matt Ferchen notes the Prosper Africa trade and investment policy proposed in 2018 and the Biden administration’s B3W infrastructure cooperation scheme were meant as a competitive alternative to the BRI. The US is also wary of China’s growing presence in digital technology and communications and its military presence; particularly in port facilities. For Europe, “due to geographic proximity and to strong, historic trade and people-to-people ties to the region. Through its Global Gateway strategy, the EU can build on these factors to develop its commitments to sustainable and trusted partnerships there. The Global Gateway’s focus on digital, climate and energy, transport, health, and education and research cooperation provides a strong starting point for reinvigorated links to Africa”.
Conor Gallagher notes the West is trying to recoup lost ground and erect roadblocks to China’s supply line from Africa. “For more than a decade, Chinese companies have spent billions of dollars buying out U.S. and European miners in the DRC’s Cobalt belt, leading to control of 15 of 19 of the primary cobalt mines in the country. China sources 60 percent of its cobalt needs from the DRC, and about 80 percent of the world’s cobalt processing occurs in China before being incorporated into lithium-ion batteries. The DRC-China relationship is on the rocks, however, and Chinese mining is starting to encounter an increasing amount of bumps in the road. In July the DRC halted exports from the world’s second biggest cobalt mine amid an ongoing dispute between the Chinese mining company and the DRC state mining company…With US encouragement, last year DRC President Felix Tshisekedi began accusing his predecessors of signing lopsided contracts with Chinese mining companies and is now attempting to renegotiate them. In a rare sign of DRC bipartisanship, opposition politician Adolphe Muzito who was prime minister at the time the deals were signed with China, has also come out in support of renegotiating the deals with Beijing”. “According to the South China Morning Post, the DRC is also under pressure from the IMF to clean up lopsided mining agreements granted to foreign firms (i.e., China) as a precondition for a new $1.5 billion credit line”. China is “increasingly getting involved in multilateral talks that include US-backed institutions like the IMF. China (and the borrowing country) are often getting the short end of the stick”.
Conor Gallagher adds the US recently signed deals with DRC (producing roughly 70 percent of the world’s cobalt and coltan, and is Africa’s largest copper producer) and Zambia (the world’s sixth-largest copper producer and second-largest cobalt producer in Africa) “that will see the US support the two countries in developing an electric vehicle value chain…the US Export-Import Bank and the International Development Finance Corporation will explore financing and support mechanisms, and the US Agency for International Development, commerce department and Trade and Development Agency will provide technical assistance”.
China started making economic and diplomatic inroads into South America beginning from 2003. Matt Ferchen notes “within a few years, China became the largest trade partner for a growing number of South American countries, based on its rapidly expanding demand for Chilean copper, Argentine soya beans, Brazilian iron ore, and Venezuelan and Ecuadorean oil. At the same time, high-level diplomacy increased as Chinese delegations to the region touted rapidly expanding trade ties, promised hundreds of millions of dollars in direct investment, and offered an economic and diplomatic alternative to US and Western leadership, including through the BRICS group…The global financial crisis of 2008/09 strengthened China’s role in Latin America due to its continuing strong demand for the region’s commodities. However, the end of the global commodity boom in 2013/14 ushered in a new, more difficult phase in the relationship. Just as China’s growth model, including a rapid increase in demand for minerals like iron ore and copper to fuel the country’s massive property and infrastructure buildup, had fueled the boom, changing patterns of Chinese demand also played a role in the end of the boom…These fluctuations and their associated economic and political volatility have played into Chinese perceptions of Latin America as a region less predictable and riskier than Africa or Southeast Asia. The end of the commodity-boom period overlapped with China’s push to finance and build more infrastructure (in transport, energy, and digital) in the region, including under the BRI. This had the greatest impact in Central America and Caribbean countries, where China signed a large number of memorandums of understanding linked, for example, to port and investment zones. The expansion of the BRI to these countries was in some cases also associated with a change in their diplomatic recognition from Taiwan to the PRC, which raised the ire of the United States. With the creation of the forum between China and the Community of Latin American and Caribbean States (CELAC) in 2010…China’s economic and diplomatic position in the region has transformed from what it was in the commodity-boom honeymoon into a more mature and in some ways less state-driven relationship. State-backed lending to the region has decreased while political and economic crises in some of China’s closest regional partners (such as Brazil and Venezuela) have left Chinese officials more sensitive to perceived political risk in the region. For example, Chinese policy-bank finance, once flowing in the tens of billions of dollars a year, has practically dried up…due to the sense in China that official financial flows were an inefficient use of public funds and to growing clampdowns on capital outflows…as Beijing has prioritized the policy banks’ role in domestic economic recovery and emphasized health and digital cooperation”.
Nick Corbishley notes “China’s trade with the region grew 26-fold between 2000 and 2020, from $12 billion to $315 billion, and is expected to more than double by 2035, to more than $700 billion….China has moved from an almost negligible position as a source of imports and destination of exports within the region to become its second trade partner, at the expense not just of the US but also Europe and certain Latin American countries such as Brazil whose share of inter-regional trade has fallen. According to the World Economic Forum, China will approach – and could even surpass – the US as LAC’s top trading partner. In 2000, Chinese participation accounted for less than 2% of LAC’s total trade. In 2035, it could reach 25%.” Russia also has strong economic ties. “Latin America is hugely dependent on Russia for fertilizer components. According to Statista, nitrogenous, potassium and mixed fertilizers together accounted for almost 40% of all Latin American imports from Russia in 2019. Other key imports include semi-finished steel (15%) and petrol (12%)”. Russia is also a large importer of products such as bananas, shrimp, flowers, fish, coffee, beef, soybean and poultry from Latin America. He adds while the US “is still Latin America and the Caribbean’s largest trading partner. But that is predominantly due to its huge trade flows with Mexico, which account for a whopping 71% of all US-LatAm trade…take Mexico out of the equation, China has already overtaken the US as Latin America’s largest trading partner”.
Ryan C. Berg notes China is “challenging U.S. strategic interests in the region. What began as the pursuit of economic interest and an insatiable appetite for commodities has scaled rapidly to include security engagement, technological exchange, and of course, the building of critical infrastructure”. Starting with Panama in November 2017, the BRI now has 21 signatories in Latin America. “The BRI, and China’s geoeconomic strategy more broadly, has helped secure favorable terms of access to LAC’s commodities. For instance, Ecuador recently found itself constrained by debt-servicing requirements to sell oil to China, even as domestic (and global) prices skyrocketed. And while raw materials and foodstuffs flow into China, Beijing assiduously promotes its own exports, especially electronics and telecommunications, as well as infrastructure development, throughout LAC”.
Ryan C. Berg points out there are about “40 port-building or upgrading projects in Latin America and the Caribbean, almost all of them handled by Chinese state-owned enterprises”. Some projects are geographically proximate to the US while others sit at key supply routes and strategic chokepoints. “When combined with nearly a dozen satellite installations in the Western Hemisphere and burgeoning space capabilities, the PRC already has a strong forward defense presence in the Western Hemisphere”. There are fears that these facilities could be used by China’s military in the future.
Ryan C. Berg concludes “the serious challenge posed by China’s multifaceted engagement in LAC means that the United States can no longer take for granted everything from the sizable influence it historically enjoyed in LAC to the continued democratic character of the region. In short, the last five years have witnessed the return of strategic rivalry. In order to address its vulnerabilities, the United States should begin to take stock of China’s full toolkit of influence and economic coercion”.
The US is actively countering the Chinese initiatives. Matt Ferchen notes “in the waning days of the Trump administration, the newly created US Development Finance Corporation (DFC) orchestrated a deal with Ecuador to swap Chinese oil-backed loans for US ones in return for the country keeping Huawei out of its 5G telecommunications network. The Biden administration has toned down US criticism of China’s role in Latin America and the region may increasingly feature as a test case for its B3W scheme. For example, officials have recently traveled to Ecuador and Panama to sound out options for US-backed infrastructure projects in these two countries that in recent years have had increasing cooperation with China on energy (hydroelectric dams) and transport projects (the Panama Canal). Commercial competition, including in technology infrastructure (5G and future telecommunications infrastructure) and green-energy resources (like lithium) and electricity transmission, are new arenas of US-China competition in Latin America. While the Trump administration’s deal with Ecuador highlighted the growing tech competition at the government level in the region, access to minerals critical for the transition to greener technologies are likely to involve more private-sector competition…Other developments to watch include whether countries like Honduras switch their diplomatic recognition from Taiwan to the PRC and if Beijing is able to deepen its links with strategically important countries, like Panama with its transportation infrastructure”. Jeff Pao notes recently inter-government high-level teams were established to increase cooperation in the chip sector with a view to building a new hub for Taiwanese semiconductor makers in southern Mexico with support from the US and Mexican governments.
Nick Corbishley notes that a battle is looming in the “lithium triangle” – with Bolivia (21 million tons), (14.8 million tons) and Chile (8.3 million tons) accounting for a staggering 63% of the global reserves. “According to Bloomberg, Argentina has the world’s largest pipeline of lithium projects with an estimated 19 million metric tons of resources yet to be tapped, over which Chinese and US companies have been locked in bidding wars”. The world’s largest lithium miner, Ganfeng Lithium Co, which owns the rights to the world’s largest lithium deposit in Sonora (Mexico) recently “announced plans to buy up the Argentinean company Lithea Inc…which has salt lake assets…in northern Argentina. Lithea’s first phase of production is expected to reach annual capacity of 30,000 tons of lithium carbonate”.
Nick Corbishley notes Alfredo Jalife-Rahme’s view of the political turmoil in Peru: “We are seeing a surreptitious clash, a war that no one dares name, between China and the United States for Peru’s soul”. While there are internal factors, “according to Jalife, Peru is also a proxy for a much larger struggle between the world’s two geopolitical rivals, the US and China, for the control of vital strategic resources in Latin America”. “For the moment, this war of which Jalife speaks is rather one-sided, given that China, unlike the US, does not tend to meddle in internal politics in the region, or at least hasn’t until now”. “China is already Peru’s largest trading partner…32% of Peru’s exports go to China, compared with just 12% to the US…Peru is the second largest destination for Chinese investment in Latin America, behind only Brazil. It is home to the only port in Latin America that is managed entirely by Chinese capital. An alliance of Chinese state-owned companies…invested $3 billion in the recently finished Chancay Port…expected to become a vital hub for trade between East Asia and South America. Peru is also one of just three countries in the region, along with Chile and Costa Rica, that have free trade agreements (FTAs) with China, though another five, including Colombia, Panama and Uruguay, are in the process of negotiating FTAs with the Asian giant…the Andean country must take advantage of the fact that we are the most Chinese country in South America”.
Nick Corbishley notes the recently-appointed US ambassador to Peru, Lisa Kenna, was prominent during the recent turmoil and “the US government has lent its full support to the Boluarte regime, which from the get-go declared a nationwide state of emergency”. “By contrast, many governments in Latin America have criticized or even refused to recognize Peru’s unelected coup regime, including Mexico, Argentina, Bolivia, Colombia, Honduras, Venezuela, Cuba, and various Caribbean nations…suspicions of US involvement in the coup”.
Conclusions
The likelihood is that no single country will be dominant in a multipolar future and therefore alliances will have a critical role. The competition for allies will intensify on two fronts; the military and economic. On the military front, the trend is towards militarisation and this is increasing the likelihood of war. We can only hope that recognition of the mutually destructive consequences will be sufficient to avert this pessimistic scenario and that, at some point, military de-escalation will be possible.
On the economic front, the weaponisation of interdependencies is leading to a reconfiguration of dependencies or economic relationships among countries. This augurs a high degree of regionalisation based on the logic that geography is the key factor determining the security of supply lines in the event a war breaks out. Hence, US will likely solidify its supply chain relationships within North America while China and Russia will seek to strengthen infrastructure connectivity and trade within Eurasia and reach out to the Middle East.
The role of US and China in the world economy will undoubtedly change as they reengineer and divert trade, financial and information flows away from each other. In this regard, decoupling can be viewed as a race for self-sufficiency with the great powers likely to become more aggressive as they draw nearer their finishing line. Where does it leave the other countries? When the logic of decoupling (including concepts such as clean networks and self-sufficiency) is extrapolated, this suggests that countries will probably be forced to make a choice.
Short-term, the thematic focus is mainly on Ukraine and Taiwan as the drivers of fragmentation. But over a decade, the considerations may be different. For example, how long will Europe be able to stomach the economic sacrifices without giving consideration to their own economic needs? China is rapidly building its trade, investment, financial and technology relationships with the Global South and this is reducing China and the Global South dependence on OECD. How will Europe and North Asia respond if China decouples from them? Will India be able to substitute China’s role for the OECD economies? In this regard, Chinese MNCs are threatening OECD dominance in many industry segments – platforms, cars, electronics, electrical products and the oil industry. Are OECD MNCs able to fight back and recover lost ground? The loss of global public goods and lack of policy coordination would leave t world governments badly positioned to cope with economic stagnation, financial crises or a global depression.
Looking forward, competition for allies creates opportunities for the “middle powers” to play a greater role in rebalancing global power. They should use this as an opportunity to keep the great powers in check, and lead the way in designing international rules that facilitate amicable co-existence and promote global economic stability in a multipolar future; and thereby to avoid the worst possible outcomes.
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[1] See Bruno Tertrais for background and theories on alliances.
[2] See David Ignatius.
[3] See Chad P. Bown and Barbara Weisel.
[4] See Government of Canada’s Indo-Pacific strategy.
[5] See Alfred McCoy’s analysis on the historical significance of Eurasia.
[6] See Anthony H. Cordesman on key data and trends shaping the strategic importance of the Middle East and North Africa through 2050.
[7] See MERICS Paper (Jacob Gunter, et al) views from Bangladesh, Chile, Indonesia, Kazakhstan, Kenya, Nigeria, Saudi Arabia, and Turkey on their relationships with China and on Russia’s invasion of Ukraine.
[8] See Joseph Dana on efforts by Zimbabwe and other countries to control the exploitation of valuable commodities such as lithium.
[9] See Ivan Lidarev on the background to the China-Indian rivalry stemming from the 1962 border war.
[10] See Jairus Banaji on the evolution of India’s corporate sector.
[11] See Euijin Jung, Arvind Subramanian and Steven R. Weisman on the complex economic relationship between India and US.
[12] See Mathias Döpfner.
[13] See Chad P. Bown and Kristin Dziczek on transatlantic disputes on the US Inflation Reduction Act.