In 2001, the US was set on dealing with the rising power of China, but China was saved by the events of 9/11. The threat of Muslim terrorism diverted American attention from China for almost two decades. It was very costly to America.
The US’s plan to take control of Afghanistan (the Eurasian Heartland) and Iraq (the core of the Middle East) could have changed everything for the world and China.
If the US had taken effective charge of these two places, it would have had a hold over both continental land routes and oil production costs.
Iraqi oil, some of the cheapest to extract worldwide, thus acts as a price setter for this crucial commodity. If the US had achieved that, China might have been forced to bend toward America and adopt sweeping political and economic reforms. Such a turn by China might also have influenced Russia.
However, the failure to achieve these aims due to poor implementation, unrealistic goals and the ensuing 2008 financial crisis proved to China, and possibly also to Russia that America was declining and could not perform the post-WWII European and Asian feats – effectively rebuilding countries from the ashes. This assessment set China, and possibly also Russia, on a different path, ignoring and challenging the US-led world.
The new Chinese path refocused American attention on Beijing, which, in the meantime, had become confident about its bright destiny.
Things turned around with Covid and the invasion of Ukraine. The US produced an effective vaccine that saved the world from the epidemic and correctly predicted Russia’s intentions and Ukraine’s determination to resist. These events shook Beijing’s confidence. At the same time, its growth model showed deep fissures.
The real estate sector, the main driver of domestic development, crashed, sapping all confidence. Abroad, the slow motion of de-risking and decoupling the Chinese economy from the US shrank foreign trade. Moreover, during Covid, many businesses went bust.
The surviving ones all had enough cash saved up. Therefore, after Covid, nobody spends; everybody saves more than before because there is widespread fear of possible unexpected incidents.
The official alarm about possible wars with unspoken enemies reinforces this sense of fear and the necessity to save. This all conspires to further shrink consumption, and thus growth, in a vicious circle.
Battle for time
In these conditions, China is gaining time with a war that not only is not ending in Ukraine but is spreading in Gaza and Yemen. The war in Gaza might end sometime in March or April and that would refocus Israeli attention on the whole Middle East. Surely, it will not end the time of confusion.
North Korea could create more threats and a situation of confusion could last at least until the US presidential elections in November. Then, if Joe Biden is re-elected, things could quickly move back to normal. If Donald Trump is elected, there could be a longer period of chaos, coinciding with his plans to replace all US top officials.
In any case, in a few months or a couple of years, the US might tighten again its vise on China. Beijing is apparently already preparing for it with a series of moves:
- It is developing third-world markets as an alternative to G7 exports (making up all of its surplus) or as a bridge to circumvent direct or indirect US sanctions.
- Practice what Italians call a “two-stoves policy” – deal with everybody without demanding absolute loyalty from anybody. This approach is amenable to many countries not eager to align themselves exclusively with America and is also easy for some US businessmen keen on making money in any possible way. US demands for economically unrewarded (and perhaps unrewarding) loyalty can become weaker.
- Continue exporting some essential technologies and capital goods to produce cash. These measures, plus unresolved global tensions, should give time for Beijing to gear up some more fundamental domestic changes.
- Politically shut down to foreign influence.
- Rekindle the domestic market by boosting political confidence.
- Create a basic welfare system to provide enough market confidence to boost domestic consumption. It could help China steer through a few difficult years. But if confusion abroad and in America and Europe keeps on stirring things up, China could eventually emerge better off than the US.
The apparent weakness in this plan is that, on average, Chinese people will grow poorer. But they are meek and don’t rebel. Moreover, they have something to lose and won’t start a revolution for fear of losing the little they have.
Paradoxically, a poorer, more frightened China could be easier to rule and could be more stable. Chinese officials are disgruntled but they too fear losing their small privileges. It’s an open game; Americans know about the situation and are reacting to it fast, binding together all loose knots and bolts of alliances and agreements around the world.
The problem is that the US has forgotten about cultural and political reach for over 30 years. This is important not only outside of the US but also within it. America is bitterly divided at a cultural level, squandering its main capital – its soft power –that won most of the Cold War. Conversely, in the past decade, China has put its structure together and is in better shape politically to face the challenge.
Plus, in a situation of widespread chaos, Chinese entrenchment is easier to implement than America trying to bring order to the whole world, where it stands in the middle. Therefore, the US temptation, voiced by Donald Trump, to leave everything outside to their own devices and close up, in theory, makes sense. But this idea fails to see that America is not just a country; it is a global system. If it abandons its global reach, it’ll stop existing.
China now is trying to build itself conversely as a global system. If the US gives up, China could replace it almost effortlessly, creating more trouble for the US and its allies.
On the other hand, short of a complex strategy, seeking easy solutions and feeling under siege, Trump’s America might push for a tough confrontation with China, escalating to a destructive war. A war could solve Trump’s possible pressing problem of ruling a divided America.
True weakness
China’s true weakness is that everything hangs by a thread. Almost no one is really happy but everybody has something to lose and won’t act. The two odd possibilities are an internal armed uprising or an external war. Either case, no matter what the result, could send shockwaves through the domestic structure, triggering further shocks.
Beijing is aware of this and preventing insurgency is a priority. But for this, it needs to increase repression and ramp up propaganda. All of this will increase entropy. It needs to prevent a war, and to do this, it needs to be more defensive and aggressive, and this again engenders entropy and external panic.
China needs to break the vicious circle, but for this, it needs a plan that apparently is not there.
Conversely, the US as a country (not only a few Washington pundits) needs a moment to realize it is in a broad conflict. This could trigger a 1950s McCarthy-style panic difficult to manage. But it’s not impossible; Washington eventually found the right balance in the Cold War and could find it again.
Surely, the American machinery is more difficult to manage, while the top-down Chinese structure looks more efficient. Still, the Covid experience is an interesting precedent. China, with its competent bureaucracy, accomplished full control at first but then market-oriented America produced a vaccine and bounced back its economy well ahead of China. It’s unclear whether it’ll be different in the existing complex scenario.
Still, it’s not just a bilateral game. If the US doesn’t get its act together, will Europe and Asia simply buckle under Chinese pressure, or will they stand up to it? So far, Europe is divided on Ukraine, and so is Asia.
Will Russia, no matter what the result in Ukraine, continue being on good terms with China or will it turn around? Chances are that if America were to decide to withdraw, the rest of Asia could form a new, more aggressive alliance against China, as could Europe against Russia. That means the forces of chaos could exponentially grow out of control.
This essay first appeared on Settimana News and is republished with permission. The original article can be read here.