Economic disengagement is war by other means. That is the one thing on which the world’s two largest economies agree. It is America’s chosen weapon in its war with communist China, and the communist regime’s chosen weapon to rid itself of economic reliance on the United States and diminish America’s economic and geopolitical role in world affairs. Globalization, R.I.P
U.S. Policy And Its Costs
American policy is clear to all and unsettling to some. It is to unravel decades of economic integration of the world’s two largest economies by restricting exports of technology and capital to China, meeting its protectionist policies with made-in-America subsidies, tariffs, and whatever it takes to reduce China’s incursions into U.S. markets. This policy is not unpleasing to President Biden’s trade union and green supporters, but that should not detract from the credit he deserves for confronting China on these fronts.
This will not be costless. As Michael Spence, a Nobel laureate in economics and a former dean of the Graduate School of Business at Stanford recently pointed out, “the economic consequences of this lurch towards confrontation are as far-reaching as they are severe.” Supply changes will be less efficient and less able to respond to inflationary pressures. The “free and frictionless flow of technology” needed to contain climate change will be no more. “Decoupling is a distinctly suboptimal and perilous course,” Spence warns.
Biden’s EVs Need China
Nevertheless, decoupling it is to be. Along with a nod to the President’s green left not entirely consistent with his desire to rid America of dependence on China. The administration last week announced a major regulatory push to require that two-thirds of new car sales be electric vehicles by 2032. These vehicles will rely on a non-existent system of charging stations receiving power from a domestic grid incapable of meeting existing demands for electricity, and on an ample supply of materials largely controlled by China, which refines 68, 40, 59 and 70 per cent of the world’s nickel, copper, lithium and cobalt. If America is to develop its domestic reserves of such minerals, miners will have to overcome the opposition to such dirty mining from environmentalists when they are not busy opposing expansion of the grid.
Unfortunately, the battle with China is not going well for America. Xi Jinping is on a roll, and not only because his economy is recovering, with consumer sentiment and exports rising, and capitalists beating a path to his door with rope for sale, as Lenin put it.
Lula Signs On To Xi’s New World Order
Xi has forged alliances of various sorts with Russia, Saudi Arabia, and Iran, and achieved effective control of key ports and trade routes. Hat in hand, Brazil’s president Luiz Inácio Lula da Silva, seeking aid for his ailing economy, travelled to Beijing and signed fifteen agreements for satellite monitoring and other high tech equipment. He brushed off U.S. concerns, “No one will prohibit Brazil from improving its relationship with China.” The Chinese side “expressed great appreciation” for Lula’s support for respect for China’s territorial integrity in Taiwan, and was undoubtedly pleased to hear Lula join Macron’s assault on the dollar’s role as an international reserve currency, “Every night I ask myself why every country needs to trade in the dollar. Who decided it was the dollar after disappearance of the gold standard?” Brazil and Argentina are now preparing a common currency, to be called the “sur”, for “south, and will invite other Latin American nations to join in what would be the world’s second largest currency union, covering 5 per cent of world GDP – the EU is the largest with 15 per cent.
President Biden, meanwhile, chanting the phrase he learned at his grandparents’ knee, “Erin go bragh”, made a personal visit to his ancestral homeland, fresh from
· trumpeting his successful withdrawal from Afghanistan;
· attacking his old enemy, Prime Minister Netanyahu, leader of America’s remaining ally in the region, over an internal Israeli political matter;
· dismissing a major security breach by a 21-year old as “nothing contemporaneous that I’m aware of that is of great consequence,” a unique characterization of Ukraine plans for a counter-offensive and C.I.A. reports on events in foreign capitals around the world. When last seen, Biden’s team was scrambling to repair what everyone concedes is serious damage to American prestige and security;
· solidifying his personal, age-old relationship with Ireland with a visit while declining to attend the coronation of King Charles III and stalling a proposed trade agreement with our most important ally, Great Britain.[1]
Gaullism Redux
Enter an opportunist par excellence, seeking to add to America’s woes and find fellow travelers to accompany him. French President Emmanuel Macron, his anti-American Gaullism on full display, used the world stage provided by his visit to Beijing to announce that as far as France and Europe are concerned, Taiwan is a far-away island about which France knows very little (among the missing knowledge in Macron’s case is that Taiwan provides most of the semiconductors that keep the EU functioning). Macron told interviewers that “We Europeans” must not “take our cue from the U.S. agenda” in its confrontation with China, but “relaunch a strategic and global partnership with China”. Xi smiled.
Europe’s decision to have Macron speak for it has not yet been publicly announced, leading one wag to dub Macron, who is having difficulty leading taxi drivers in his own country, “the self-appointed leader of Europe.”
Macron also called for reduced reliance on the “extraterritoriality of the U.S. dollar”, one of the People’s Republic’s fondest wishes. Should the new coalition succeed in displacing the dollar as the world’s reserve currency, America’s power to sanction opponents would be reduced. Russia already accepts Indian rupees, Chinese yuan and United Arab Emirates dirhams in payment for its for oil, partially shielding it from the full force of America’s sanctions. Dollarless trading on a large scale removes a major weapon from the U.S. arsenal.
Worse Is Yet To Come — Perhaps
We aren’t there yet, but then again it wasn’t so long ago that China and Russia had a frosty relationship, and Saudi Arabia was an American ally, rather than the leader of the Opec cartel’s decision to responded to Biden’s plea for more oil by cutting production just as the summer driving season starts.
Still greater problems might be in store for the existing world order and its institutions. It is not inconceivable that a Chinese-led group could capture the world’s institutions – the World Trade Organization or World Bank, for example – with the votes and backing of countries fearful of the new coalition. Confident policymakers here scoff, as did their predecessors when warned China would militarize the islands that control South China Sea trade routes.
Some Good News
Meanwhile, all is not bleak for America. The new trilateral UK-US-Australia partnership will eventually provide Australia with nuclear-powered submarines. Japan’s adoption of a five-year, $320 billion plan makes it the third-largest military spender in the world after the U.S. and China, and presents China with a formidable foe should it decide to move against Japanese islands near Taiwan or disrupt the island’s export of semiconductors. And the Philippine government has granted America four new military bases in the hope of reining in Chinese belligerence in disputed waters.
Looking for A Leader in 2024
Missing is a leader capable of delivering to Taiwan the weapons it purchased three years ago and able to shift resources from expanding the entitlement state to bolstering a long-underfunded military. Worse, the emergence of an American leader capable of reversing recent trends is nowhere in sight, as voters face the prospect of a 2024 return bout with the ageing winner of the 2020 engagement, and an opponent less suited than ever for the task of calming and uniting America, and presenting a reassuring face to its remaining nervous allies.
Meanwhile, Macron’s disassociation from America in Asia has many Americans wondering why we don’t devote our resources to protecting our interests the Asia-Pacific region, and allow France and Europe to cope with Putin uninhibited by American meddling.
[1]The Guardian reported last year that Biden claims his mother so hated England that she chose to sleep on the floor in an English hotel rather than risk sleeping on a bed Queen Elizabeth had slept in, and that Biden has hundreds of poems his mother wrote calling on God to “rain blood” on the English.