By Dragan Vitorovic
According to Financial Times, the recently signed tech-trade war truce between the USA and China can hardly deliver more than a weak hope that things will not get worse. The average tariff levels, seen on both sides, has reached 20 percent, compared to 2018, when the US tariff on Chinese goods was 3 percent (Chinese tariff on good coming from the USA were 8 percent).
This development not only adversely influenced the domestic economic performance, but has also alleviated uncertainty, and has modified the expectations.
This episode, no matter how important in the short to medium run is, can signal that challenges for the United States of America are much more complex, and that challengers may even question global dominance at some point in future. Succinctly put. the rise of China is the bigger geopolitical event than the collapse of the USSR.
The technological and trade decoupling of China and the US disrupted the global intellectual flow and economic activity in various sectors. Despite the relative importance of this process, challenges that could surface soon are having much deeper roots, namely:
The geopolitical developments used to influence the performance of globally exposed companies. Given the increased interdependency levels nowadays, adverse geopolitical events shift the pressure to small and medium enterprises, that are the backbone of the economy of the industrialized countries. Industrialized countries, heavily influenced by secular stagnation, are in search for talent and viable start-ups that would reinvigorate their economies, in five to ten years.
So far things might look grim, and the juncture of geopolitics and technology carries too many unknown risks (as proposed by the last year’s KPMG report, enterprises may soon introduce the separate role of geopolitical executives, given the scale of (un)expected events.
China, unlikely the West, does not have to worry significantly about the internal political situation and the inner dissent, at least not in the short to medium run.
Second, Chinese technological development provides China the possibility to project power globally. In 2019, amongst 50 smart cities in the world, 6 were from China (including city-state Hong Kong), according to the Future Today Institute.
Some analysts claim that the new high-tech Berlin Wall may be invisible and that alliances could be traced to cyberspace, drawing the lines that are blurry and ideologically confusing. Chinese ambitious plan “Made in China 2025”, in combination to achieve AI leadership in 2030 seems to be feasible, by having in mind that five years ago China was not a tech superpower. Now it surely is.
China is relying on the technology to tip the geopolitical balance, since it is still far away from the creation of a broad coalition of countries, unlike in the US case. The technological aspect in geopolitics is still malleable and cyberspace is not fully regulated (yet).
Third, the USA cannot fully contain China, similarly as the United Kingdom could not contain Germany before World War I, due to interconnectedness in trade and finance. Before World War I, the UK developed well-detailed policy plans that were based on the concept of cutting Germany off from the markets. Eventually, plans were discarded after the realization that such a policy move would impose great damage to the United Kingdom.
The US could contain the USSR since the global trade system was not integrated and the official trade volume between two superpowers per annum was rather insignificant.
China is aware that it is “too big to fail” and it opens more space to geopolitical moral hazard that can be used as a tool on behalf of Chinese political leadership.
Fourth, China is building an alternative system, in politics, in technology, in finance, so it can promote its interests in a more effective and appealing way. It should not be forgotten that many Eastern European countries look to China in the absence of concrete development proposals coming from the EU or the USA.
Geopolitically sensitive areas, such as the Balkans, the Middle East, and even the Mediterranean, without the global leadership, are more responsive to unspecified policies designed on behalf of Great Powers. Chinese investments in the Balkans may become debt traps.
The collapse of the USSR happened 30 years ago, marking the beginning of the newest Konradtieff wave, which generally lasts 45 to 60 years. While geopolitical cycles are even slower, reputable analysts claim that the cycles are becoming synchronized, slowly and persistently introducing irreversible macro-changes.
Sigmar Gabriel, former Vice-Chancellor of Germany, and the moderator of Handelsblatt Global Challenges podcast, claimed recently that global order is falling apart. While it might be true, the magnitude of a disorder still has a role to play, and scenario planning could become the most applied tool when trying to address both geopolitical and business developments.
The dominance of the USA is here to stay, even in the long-run, but it is unclear to what extent it will have to share the global leadership with other geopolitical power-players.
Image Credit: Lintao Zhang/GETTY
(The opinions expressed in this article are solely those of the author and do not necessarily reflect the views of World Geostrategic Insights).