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The new era of decoupling, deglobalisation and economic war

Posted By on November 7, 2022 @ 10:00

The Covid-19 pandemic marks the end of the great era of globalisation. Now the troubled times of decoupling arrive.

We are at a Matthew Arnold [1] moment:

Wandering between two worlds, one dead,
The other powerless to be born,
With nowhere yet to rest my head,
Like these, on earth I wait forlorn.

China’s President Xi Jinping and US President Joe Biden give fresh shoves to the decoupling that will define this new world. Decoupling of trade and tech shapes the contours of strategic competition.

Biden last month lunged at Beijing’s throat by banning [2]the sale of semiconductors and chip-making technology to China.

‘A superpower declared war on a great power and nobody noticed,’ was Edward Luce’s comment [3] in the Financial Times. Biden had launched a ‘full-blown economic war on China—all but committing the US to stopping its rise—and for the most part, Americans did not react’.

America’s reaction was relatively low key because elements of the world being born are already the established reality. Given the reality, US policy responses follow.

The ‘dramatic escalation [4] of the technology war,’ Carl Bildt writes, is bound to have equally dramatic economic and political consequences: ‘The new chips war eliminates any remaining doubt that we are witnessing a broader Sino-American decoupling. That development will have far-reaching implications—only some of them foreseeable—for the rest of the global economy.’

Computer chips are to this century what oil was to the 20th century. Thus, the economic war/technology war discussion summons a dark echo: the US imposed a total oil embargo on Japan in 1940 because of its invasion of French Indochina; Japan’s response was delivered at Pearl Harbor. Tokyo’s dire choice on 7 December 1941 was to risk national suicide rather than suffer loss of face.

Economic war has a violent and unpredictable twin.

China’s thinking on Taiwan—and any unification timetable—has a semiconductor dimension that’s now red hot, perhaps a new red line.

The chips ban and the new national security strategy [5] show the transformation of US policy toward China, Brad Glosserman [6] writes:

Previously, the US, along with allies and partners, focused on preventing China from acquiring technology that would improve its military capabilities. The ambition is now much grander: The goal is to constrain the development of China’s high-tech economy, to thwart its rise as a challenger to US (and Western) technological supremacy. It is a risky strategy and may instead accelerate developments it seeks to thwart.

The Washington debate on the semiconductor ban goes in two directions. One school laments that the US is abandoning the huge China market while forcing China to redouble its tech ambitions. The other view is that the US has finally got serious about outcompeting China.

Either perspective, however, shares the US understanding that globalisation has crested and begun to recede [7]. ‘Free trade’ is dismissed as a naive faith and ‘neoliberalism’ becomes a swear word.

The Washington consensus is that China has spent decades looting tech know-how. Unable to unite on almost anything else, the US political class speaks with one voice as it turns to Beijing to proclaim: ‘Enough!’

In the New York Times, Thomas Friedman [8] points to ‘Chexit’ [9] (the idea that China will exit the multilateral order) ending China’s four decades of steady economic integration with the West: ‘[W]e will miss that era now that it’s gone, because our world will be less prosperous, less integrated and less geopolitically stable. But gone it is.’

US exports to China this year have been ‘strangled’ [10], prompting commentary that decoupling ‘may go too fast or too far’.

China’s conclusions about decoupling come wrapped in its own ideological language.

In a two-hour address, Xi told the 20th congress of the Chinese Communist Party they were ‘confronted with drastic changes in the international landscape [11], especially external attempts to blackmail, contain, blockade and exert maximum pressure on China’.

The US was never named in Xi’s speech, but was constantly attacked:

[T[he hegemonic, high-handed and bullying acts of using strength to intimidate the weak, taking from others by force and subterfuge, and playing zero-sum games are exerting grave harm. The deficit in peace, development, security and governance is growing. All of this is posing unprecedented challenges for human society. The world has once again reached a crossroads in history.

The dramatic and sinister [12] image from the congress was the former leader Hu Jintao being led away from his seat next to Xi.

One of Australia’s journalist sages, Rowan Callick [13], wrote that Xi’s steely, dismissive demeanour as his confused predecessor was ejected was that of a mafia boss (appropriate since Xi has ‘listed The Godfather [14] among his favourite films’).

Callick searched Xi’s written report for the key words: ‘The word for “security” is used 91 times in the work report, and “economy” 60 times. “Battle” gets 46 mentions. “Political reform”, once given a special section, has gone altogether.’

In a chat last week, Callick told me that Xi’s key message to the comrades is that ‘the world has turned sour’. And the most striking image he offered was that Xi has ‘doubled down and doubled speed’.

The danger also doubles. Xi’s coronation means he’s the unrestrained leader of the most powerful dictatorship in history.

China’s belligerent dictator faces off against a US determined to achieve supremacy in the technology that will drive this century. What could go wrong?

Decoupling and deglobalisation mean geography is back. So is protectionism. One sign of the world that’s fading is the damage inflicted on the World Trade Organization and the crisis [15] in its dispute settlement system.

The US and the EU join to support Ukraine in the war with Russia; the West unites to fight a proxy war. Yet in this perilous moment, the US and Europe argue themselves towards a new trade war [16] because of the subsidies America is giving its electric car industry. Biden geostrategy can push against ‘Bidenomics [17]’ and the effort to overhaul [18] America’s economy.

What we’re losing in the world that’s passing is painfully clear. As for the world struggling to be born, over to Matthew Arnold:

Years hence, perhaps, may dawn an age,
More fortunate, alas! than we,
Which without hardness will be sage,
And gay without frivolity.
Sons of the world, oh, speed those years;
But, while we wait, allow our tears!



Article printed from The Strategist: https://www.aspistrategist.org.au

URL to article: https://www.aspistrategist.org.au/the-new-era-of-decoupling-deglobalisation-and-economic-war/

URLs in this post:

[1] Matthew Arnold: https://www.poetryfoundation.org/poems/43605/stanzas-from-the-grande-chartreuse

[2] banning : https://www.washingtonpost.com/technology/2022/10/07/china-high-tech-chips-restrictions/

[3] Edward Luce’s comment: https://www.ft.com/content/398f0d4e-906e-479b-a9a7-e4023c298f39

[4] dramatic escalation: https://www.aspistrategist.org.au/the-great-chips-war/

[5] national security strategy: https://www.whitehouse.gov/wp-content/uploads/2022/10/Biden-Harris-Administrations-National-Security-Strategy-10.2022.pdf

[6] Brad Glosserman: https://pacforum.org/publication/pacnet-59-how-the-new-national-security-strategy-transforms-us-china-policy

[7] crested and begun to recede: https://www.foreignaffairs.com/united-states/after-neoliberalism-all-economics-is-local-rana-foroohar

[8] Thomas Friedman: https://www.nytimes.com/2022/11/01/opinion/china-united-states-trade-economy.html?campaign_id=225&emc=edit_nttf_20221101&instance_id=76277&nl=thomas-friedman&regi_id=73405219&segment_id=111733&te=1&user_id=dff56734d4df784248f63058b7b6900a

[9] ‘Chexit’: https://www.scmp.com/comment/opinion/article/3022121/chexit-china-might-just-exit-multilateral-order-if-us-pushes-it-too

[10] ‘strangled’: https://www.piie.com/blogs/realtime-economics/first-trade-war-now-russias-real-war-why-us-exports-china-continue-suffer

[11] drastic changes in the international landscape: https://asia.nikkei.com/Politics/China-s-party-congress/Transcript-President-Xi-Jinping-s-report-to-China-s-2022-party-congress

[12] dramatic and sinister: https://www.aspistrategist.org.au/was-xi-behind-hus-dramatic-exit-from-the-20th-ccp-congress/

[13] Rowan Callick: https://www.theaustralian.com.au/author/rowan-callick

[14] listed The Godfather: https://www.theaustralian.com.au/inquirer/party-of-one-chinas-godfather-moment-as-he-achieves-xiplomatic-immunity/news-story/1141ab663c2d1e8372aed6b0f22498fa

[15] crisis: https://www.iisd.org/articles/united-states-must-propose-solutions-end-wto-dispute-settlement-crisis

[16] trade war: https://www.politico.eu/article/france-us-eu-transatlantic-trade-tension/

[17] Bidenomics: https://www.economist.com/leaders/2022/10/27/the-risks-of-bidenomics-go-beyond-inflation

[18] overhaul: https://www.economist.com/briefing/2022/10/27/joe-biden-attempts-the-biggest-overhaul-of-americas-economy-in-decades

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