Macroscope by Anthony Rowley
Why US moves to contain China’s rise are having the opposite effect in Asia
- As
Washington takes steps to reroute supply chains and strengthen
strategic partnerships, China is systematically doing the same thing
- In
addition to pouring funds into home-grown tech, China is taking pains
to integrate economic and security frameworks across Asia – with the
support of Russia
6 Nov, 2022
The gloves are coming off in the US-China chip war as Washington announces sweeping trade and investment restrictions on semiconductors. There will be no winners and many losers in this bid for technological, economic and strategic supremacy between the world’s biggest economic powers.
There is far more at stake than just chips as the two economic giants enter their monumental struggle. For example, the International Monetary Fund (IMF) has noted that, “given its strong trade and supply chain links, Asia has a lot to lose in the event of fragmentation where the world divides into separate trading blocs”.
This is of course true, especially in the short to medium term. But what the Biden administration appears to be overlooking in its aggressive-defensive dash to prevent China drawing abreast of, or even overtaking, the US as an economic and strategic rival is that it risks provoking the very process that it wishes to avoid.
This is in fact precisely what is happening now as the Biden administration doubles down by first orchestrating a wave of economic sanctions against Russia and then by imposing unilateral “security” measures against China in the form of restrictions on key semiconductor exports and investment.
China is reacting by pouring financial and human resources into catching up with the US, as economist and associate professor at the London School of Economics Keyu Jin noted recently in The New York Times. But this is only one element of a much wider (Russo) Chinese initiative designed to counter Washington’s strategies.
Economists Diego Cerdeiro, Siddharth Kothari and Chris Redl at the IMF warned in a recent blog post that “geopolitical tensions have raised the prospect that strategic competition and national security concerns may trump the shared economic benefits of global trade”.
In its Regional Economic Outlook for Asia and the Pacific, the IMF has also noted “worrying early signs of fragmentation, with trade policy uncertainty spiking and countries imposing more trade restrictions”.
The US and China are being drawn into a zero-sum game to outdo each other. Blame lies partly with the combative tactics of the Trump and Biden administrations but apportioning blame does not alter the fact that the world is headed for economic confrontation, or worse, between the two powers.
Most people are well aware of the way in which the US has courted “allies” in Europe, Asia and beyond (many of them going along only reluctantly) to stem China’s rise as an economic and strategic rival. But they are less well aware of how successful China also has been in this regard.
As Ishtiaq Ahmed, a member of the Pakistan Planning Commission and a prominent academic, commented recently: “With Europe and the US facing a mounting economic crisis caused by the Ukraine war, China and Russia have geared up the process of economic and security integration across Asia.”
The latest illustration of Asian regionalism is the Conference on Interaction and Confidence Building Measures in Asia (CICA) which decided at its recent summit in Kazakhstan to transform itself into a full-fledged organisation for economic and security cooperation in Asia, according to Ahmed. Its 27 member states account for two-thirds of global GDP. China and Russia have steered its evolution to include countries from Southeast Asia and the Middle East. It has also concluded a partnership agreement with the Eurasian Economic Union (EAEU), which was created in 2015 by the founding members of Belarus, Kazakhstan and Russia.
The EAEU provides for free movement of goods, services, capital and labour among its member states. Though far from achieving the intended goals of an EU-like customs union and common market, it has enabled Russia to bypass Western sanctions and import restricted goods from Kazakhstan.
Meanwhile, the Shanghai Cooperation Organisation (SCO) has established a niche as an integrated intergovernmental body. Its summit in September consolidated economic, security and political cooperation among China, Russia, Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, India and Pakistan.
China has emerged also as a key player in the Regional Comprehensive Economic Partnership (RCEP) which in Ahmed’s view will “ultimately enable China to write trade rules for the region, at the expense [of] the ‘rules-based’ free trade regime being propounded by the US”.
East-versus-West rivalry is focused for the moment sharply upon the US-China semiconductor wars which make headlines almost daily in international media outlets. But what is happening in China’s, and to some extent Russia’s, economic hinterland could prove to be of greater long-term consequence.
Wang Huiyao, president of the Beijing think tank Centre for China and Globalisation, observes in his recent book The Ebb and Flow of Globalisation that the form that emerged after World War II has been dominated by institutions, norms and ideas shaped by a relatively small group of countries led by the US.
Wang asserts that in future “no single country or narrow alliance will be able to dictate global norms and rules by itself”. Yet nationalisms die hard and it is clear that US and China-led alliances are going to generate bitter conflicts before anything approaching true globalisation emerges. What state the world will be in by that time is anyone’s guess.
Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs