West Peak? | interest.co.nz

By David Skilling*

There has been a striking consistency in the Western-led response to Russia’s invasion of Ukraine. Economic sanctions against Russia and military/financial support for Ukraine have been constant across the West (and its cronies); NATO is expanding and strengthening; and there’s been a collective stiffening of the Western spine vis-à-vis China, from technology to Taiwan.

Countries have made more specific choices about alignment. However, the emerging world will be messier than a binary framing of a Western-led bloc and a China-led bloc. A multipolar world of overlapping blocks is more likely.

Indeed, recent political developments in the United States and elsewhere suggest limits to Western coherence. 2022 may be the highest point in the West: the “peak of the West”.

America first

The US midterm elections this week saw a better-than-expected performance for Democrats and a poor night for Mr Trump’s MAGA wing of GOP. I still think Mr. Trump won’t run again; and certainly he won’t get the Republican nomination. But although two years is a very long time in politics and polls have overestimated Republican strength this week, the available polls – and Mr Biden’s low popularity – suggest that a Republican presidential candidate has every chance of winning. in 2024.

But for the rest of the world, broad continuity is likely in both directions. The withdrawal of the United States in recent years is structural, not limited to a particular administration. Indeed, there has been a great deal of consistency on external and economic policy between the Trump and Biden administrations, despite the calmer demeanor and rhetoric. There is bipartisan support for a more disciplined version of the Trump administration’s America First agenda.

Emerging fault lines

There are at least three areas where this political trajectory is creating tension across the West.

First, US industrial policy activism has crossed the line into protectionism, with extensive local content requirements (semiconductors, electric vehicles and other green technologies). The provisions of the Inflation Reduction Act and the Chips and Science Act disadvantage non-US companies.

This creates a decline in European and Asian countries (Japan, South Korea) whose companies have built positions of competitive strength in these areas. President Macron has proposed a Buy European Act; and discussions are underway on a more aggressive European industrial policy in response. Some form of trade war is increasingly possible (or perhaps subsidy war).

High-level talks are underway between the US and the EU, but US domestic politics make significant progress unlikely.

Second, the US hawkish stance on China will continue to intensify – with widening gaps on China policy between the US and others.. For example, the United States imposed sweeping economic sanctions and restrictions on China (most recently on semiconductors) and is now pressuring other countries to move in this direction (from the Netherlands to South Korea).

An increasingly tough US stance on China, which demands more of its partners, will create friction between the US and others. Although many Western-affiliated countries in Europe and Asia have toughened their policies and rhetoric towards China, and public opinion is hardening, there are concerns of a full decoupling. The much higher levels of economic exposure to China in Asia and Europe explain why their hawkishness on China is less “comprehensive” than the United States (‘follow the money).

Although an outlier example, Chancellor Scholz met President Xi in Beijing last week, accompanied by a large German business delegation, after signing China’s acquisition of a port facility in Hamburg. Mr Scholz said decoupling was not an option. This is essentially a continuation of Ms Merkel’s policy settings (although this week Germany rejected a proposed Chinese acquisition of a semiconductor company). But more broadly, there is light between the United States and Europe on China.

And many Asian countries are cautious about signing US sanctions on China, especially when the US continues to show no appetite for opening its markets to Asian companies. In effect, Singapore signed 19 agreements with China this week. And in a very interesting speech on WednesdaySingapore’s foreign minister has floated the idea of ​​a “non-aligned movement” in science, technology and supply chains to avoid the “chasm” of bifurcation.

Third, there is an increasingly “America first” stance, with less support for allies and partners (or “tangled alliances”). For example, differences in support for Ukraine are already evident among Republican leaders. I expect continued US support for Ukraine, but that will be more contested. This is important because the United States is – by far – the main provider of support.

There has been sustained nervousness across Asia and Europe over the reliability of the United States. The willingness of the United States to engage with its allies – especially economically – has been limited: it has withdrawn from the TPP and has not been ready to offer market access. And that is expected to weaken further after the Biden administration. As a result, countries affiliated with the West and heavily exposed to China seek to keep options open where they can. Of course, hedging in this way isn’t always possible (or free).

Attitudes toward American leadership in many advanced economies have picked up thanks to the Biden administration, but remain below those of a decade ago — and are vulnerable to another reduction.

Peak China too

However, China may not be able to take advantage of any Western consistency. Along with fractures across the West, there are increasingly obvious weaknesses and contradictions in China. China’s growth potential – and its ability to project economic and geopolitical power – is facing constraints. Its ability to overtake the United States as the world’s largest economy is uncertain.

As I noted recently, China’s growth is slowing both in the short term (Covid lockdowns, property markets) and structurally (poor capital allocation, high debt levels, shrinking working-age population). And Western sanctions will limit its growth potential. China is also an increasingly closed economy and is actively reducing its exposures to the West. Current leaders focus on security and political goals rather than economic ones.

China will continue to be a dominant part of the Asia-Pacific economy and a key market for many economies. But its world domination is not assured. And while his transactional diplomacy appeals to some, his ability to develop deep and broad relationships is limited (and some of his friends, like Russia, are out of shape).

A multipolar world

The fragmented global economic and political system is likely to be a complex, multipolar world with overlapping groupings – open for some purposes, closed for others. We should not take for granted the Western consistency seen in the first half of 2022.

Of course, there are strong shared interests and values ​​within the Western group – as evidenced by the response to the Russian invasion of Ukraine. Another similar crisis – perhaps the most obvious, a Chinese invasion of Taiwan – would also likely bolster the Western group. But without such an existential crisis, the differences in posture risk leading to increasingly obvious flaws.

Countries will increasingly be called upon to make choices about strategic positioning and alignment. But geography shapes the options and incentives countries face, and we should expect a more regionally organized global economic and political system. In a world where geography is back“vertical alignment” (longitudes) will matter more than “horizontal alignment” (latitudes).

In the real world, all politics is local. But the West – and especially the United States – must ensure that domestic politics takes relations with its allies and partners seriously; and that it does not undermine the coalition that supports the rules-based system. Particularly for smaller economies, there are risks – and these dynamics require careful monitoring and reflection.

*David Skilling (@dskilling) is a director of an economic consulting firm Landing Strategy Group. The original is here. You can subscribe to receive notes from David Skilling by email here.

Carol N. Valencia