Beyond the US-China Thaw, a Deeper Game

Beyond the US-China Thaw, a Deeper GamE

The idea of a thaw in US-China relations has begun to take hold in recent weeks as administration officials and now a group of senators have visited China. Chinese media portray these visits quite differently — as embassies from a major foreign power that is slowly being brought to reason. SIG’s view is that the thaw is not likely to amount to much because the two sides are talking past each other.

Senator Schumer is hopeful about Chinese cooperation in suppressing the production and export of fentanyl. He also suggests that the delegation influenced the Chinese to stiffen their language in criticizing Hamas. And yet these topics barely registered in the Chinese media or official announcements, which are now much the same thing. Instead, they described the senators being instructed that US-China relations should be based on objectivity, accurate perceptions of China, rational management of differences, and an acceptance that China is following its own distinct model of development. Put differently, the Chinese media and official statements about the talks not only stressed that American policy has been unobjective, inaccurate, and irrational, but also claimed that American ideas of economic development are irrelevant. China welcomed future exchanges on this basis. (See the invaluable trackingpeoplesdaily substack for more.)

The senators’ visit coincided with the release of a Chinese government white paper on the 10th anniversary of the Belt and Road Initiative (BRI), President Xi Jinping’s global project to repurpose excess manufacturing capacity, particularly in state-owned smokestack industries, and to undermine Western power in the capitals of less affluent countries by offering affordable infrastructure development projects. The results in cities such as Addis Ababa and Nairobi have been remarkable. As the BRI grew, however, the Chinese economy weakened, the average age rose, and the workforce peaked. BRI borrowing led some foreign governments into debt traps, although the real problem from a Chinese perspective was the government wasting money overseas. The off-loading of excess capacity at BRI prices became steadily less economical. At the same time, overseas Chinese workers crowded out local workers, which in turn undermined China’s diplomatic goal. The BRI turned out to be not much of a win-win.

These developments help to explain why the white paper so glaringly contradicts itself. On one hand, we are told that “many developing countries have benefited little from economic globalization and even lost their capacity for independent development, making it hard for them to access the track of modernization.” A few paragraphs later, we read that “China has not only benefited from economic globalization but also contributed to it” and that “China has been a firm advocate and defender of economic globalization.” It isn’t much of a defense of globalization to argue that it has exacerbated poverty in developing countries.

In a heavily ideological culture like that of the CCP, this kind of clear contradiction is a sign of real political stress. China undoubtedly benefitted from old-school globalization and its prosperity today is unimaginable without it. But that process also created vulnerabilities to shifts in foreign demand and supply. Xi’s Made in China 2025 policy was a companion and counterbalance to BRI, replacing foreign demand and supply with Chinese demand and supply. It was an openly, although not explicitly, anti-globalization policy: a massive hedge against the potential failure of Chinese industrial internationalization.

So now China, like the US, is seeking a way out of its political stress by trying to reshape globalization to suit its new needs. China’s rhetoric has changed and it now insists that countries have unique developmental paths. This sounds welcoming and inclusive and is meant to as China maneuvers to present an alternative to Western leadership in the development sphere. The problem is that it is all too true of China itself, whose own development model would be impossible for anyone else to follow except perhaps India. China arguably benefitted more from the old globalization than any other country, but there were a thousand reasons why. As Chinese officials constantly insist in other contexts, China is unique. The successes of the Asian Tigers were replicable; China’s is not. The emphasis on multiple paths to success in international markets is really another indication that China is increasingly on its own in the global economy. Policies in the US, Europe, Japan, and elsewhere have increased this isolation but are not the basis for it. The basis is in the Party’s desperate need to increase economic growth and maintain tight social control.

Globalization is being transformed as global supply chains heal themselves by working around China. The process will feed the protective isolation that China’s government wants but cannot afford. It might not be a bad thing for developing and mid-level countries, however. They will miss Chinese demand and in some cases Chinese investment, but they can also aspire to take market share from Chinese manufacturing in a way that they cannot from Western economies. Although China did break the spell of the Washington Consensus, the benefits will increasingly be reaped at China’s expense. With the next APEC summit only a month away, these are some of the dynamics that we may want to keep in mind.

The Ukraine War and EU “Strategic Autonomy”

The Ukraine War and EU “Strategic Autonomy”

The European Union has not yet been a significant actor in the Ukraine crisis. The EU’s hard-power defense capacity is exceedingly weak and focused mainly on defense-industrial policy. To the degree that “European defense” has a strong operational meaning, it is due to NATO, which is dominated by a non-European power (the US) and has several militarily significant non-EU members (the US again, Canada, and Turkey). Understandably, the consensus view has been that the EU is close to being a non-actor in the defense of Europe. However, various developments — the waning of American support for Ukraine, the chaos of British foreign policy, the political desperation of Emmanuel Macron, the sacrifice of Nagorno-Karabakh’s Armenians — may contribute, however unwittingly, to a strengthening of the EU’s security purpose, if only because they render the status quo less and less tenable.

Not long ago, the key question for the EU was whether it was evolving into a “two-speed” configuration, with “core Europe” leading or ignoring its periphery as it saw fit. The core-Europe idea, not surprisingly, had been associated principally with Germany — as Kernereuropa — since the end of the Cold War. Kernereuropa was a concept for fiscal rectitude, rather than centralized defense, and was revived in response to the eurozone crisis of 2009 and 2010. But the Brexit referendum of 2016, which removed Europe’s first- or second-ranked military from the EU table — a quick comparison of the British and French militaries is here — notably weakened Europe’s defenses in the absence of NATO. This brought further rounds of EU defense-policy rethinking amid an increase in German interest stimulated by the Russian annexation of Crimea in 2014. German interest inevitably brings French interest. French interest inevitably brings a conceptual framework of resistance to American power — at least, it has since De Gaulle, if not Clemenceau. After Emmanuel Macron was elected in 2017 and faced the neo-isolationism and unreliability of Donald Trump, he began to speak of European “strategic autonomy.” This meant autonomy from the US, which also meant autonomy from NATO. By 2019, Macron was speaking of “the brain-death of NATO.” Given Trump’s open questioning of the alliance, this was understandable. However, Germany and others still preferred to wait on events, even if Angela Merkel once spoke of Europe taking its fate “into our own hands.”

The accession to power of Joe Biden made the questioning of NATO less urgent for a French president. Biden promised a policy of friendliness toward allies, and toward democracies in particular. Strategic autonomy begin to lead a quieter life, with the focus shifting somewhat to cyber autonomy. In this comparatively mild environment, Macron was even able, after Russia invaded Ukraine at the end of February 2022, to attempt the role of mediator, insisting that Russia had its own perspective and Putin might be reasoned with. The US, Germany, and Britain ignored him.

By December 2022, Macron was shifting to the opposite view. By May 2023, he had fully transitioned, signing off on weapons transfers to Ukraine. Faced with a European policy on Ukraine that was being dominated by the US, Germany, and Britain, France presumably wanted a place among the actual decision-makers. Under Russian pressure, NATO itself was undergoing a strategic revival less than three years after being declared brain-dead. By the autumn, the French military and intelligence services were being humiliated by revolts in the Sahel and by the French, and European, inability to oppose the Azerbaijani offensive against the Armenians in Nagorno-Karabakh.

The cliché has been that Europe requires crises to move forward. Another way to put it is that the EU only learns from failures. As it is certainly experiencing an abundance of failures now, will they herald a period of learning and change? The growing American reluctance to spend on Ukrainian defense might well help force some strategic unity on aKernereuropathat has long resisted it. In a peculiarly European dynamic, the need for greater unity is being expressed, in part, by moves toward EU enlargement, which Germany’s defense minister has called “a necessary geopolitical consequence of Russia’s war.” Macron has also switched from opposing enlargement to backing it. When the Nobel Peace Prize committee gave the 2012 prize to the EU, it emphasized the union’s enlargement policy as a strategy for peace. It appears now to be part of a strategy for fighting a war, and a conflict on the periphery might give core Europe a security purpose it has always lacked.

Deliberate Speed: Morocco’s Earthquake Response

Deliberate Speed: Morocco’s Earthquake Response

Shortly after 11.00 pm on 8 September, a massive earthquake struck the High Atlas of Morocco, some 45 miles southwest of Marrakech. Its tremors were felt far to the north, in cities such as Fès and Taza, where people fled into the streets. In Marrakech, close to the epicenter, the impact was terrifying. In the villages of the High Atlas, however, it was devastating. Within ten days, official estimates were suggesting almost 3,000 dead and more than 5,500 injured.

Accusations and recriminations appeared almost immediately in the international press. The scale of death and suffering was due, it was claimed, to King Mohammed VI waiting at his residence in Paris before returning to his people, to his failure to issue an immediate statement, to the hesitation of the prime minister Aziz Akhannouch to respond without delay because protocol forbade him to act before the king had spoken, to a reluctance to accept international aid – especially from France – without hesitation, and to the inability of government rescue teams to reach mountain villages with the necessary speed.

But did the allegations acknowledge the fundamental problem? The period for saving the lives of anyone buried after buildings collapse during an earthquake is very short. Early reports from rescuers stated that many residents had extricated themselves or been rescued by their families or neighbours. At least where possible, the injured had been taken to seek medical assistance, but roads were often blocked, transport unavailable, and hospitals or clinics distant and soon overwhelmed. Remaining in a village without shelter could itself prove fatal. Nights in the High Atlas were already cold.

While the earthquake itself was a disaster, it occurred in a region that was not only remote but also impoverished and marginalized. Most of the inhabitants are not Arab but Amazigh, the indigenous “free people” who were pushed into the Rif and the Atlas by the arrival of Arab armies at the end of the seventh century. They were often known as “Berber,” because their speech was unintelligible to the conquerors, and they still possess a distinct culture, language, and alphabet. Although Mohammed VI has made a concerted attempt to reduce differences in status among the peoples of Morocco, and Tamazight is now widely seen alongside Arabic and French in official documents and public notices, life in regions such as the Rif or the Atlas remains difficult. The villages of the High Atlas have been described as “another Morocco” of which most foreign visitors and even many Moroccans have little knowledge.

News cycles are very short. Two days after the earthquake, massive floods in Libya provided an even more compelling version of a theme that many journalists find irresistible: desperate suffering in Africa where a state was failing to address a crisis and victims were in need of urgent help from the West to have any hope of surviving. Morocco is quite different from Libya, however. The state might have been slower than its critics might have liked, but it did exist and it did act.

It also had its own concerns. The government was clearly thinking of the political implications of accepting international aid. While the influence of France remains ubiquitous more than fifty years after independence in what was French North Africa and French West Africa, it is increasingly seen in the region as intrusive, arrogant, and not always effective. Official announcements from Rabat were clear about the sources from which assistance would be welcome. The countries that were chosen – Spain, the United Kingdom, Qatar, and the United Arab Emirates – have all favored Moroccan views about the status of the former Spanish colony in the Western Sahara and their involvement is not seen as compromising Moroccan sovereignty on this or other issues. Statements in the French press in particular suggest that Moroccan suspicion is not exaggerated.

Beyond the immediate concerns of the government itself, Moroccan society is still remarkably robust. Even before the machinery of state applied itself to the crisis, citizens and community organizations throughout the country were collecting food, medical supplies, clothing, and money and delivering them to the affected region. The scale of public involvement continues to be impressive. While foreign assistance will undoubtedly be important, Moroccans were in a very real sense saving themselves.

But will anyone be able to save the Amazigh villages of the High Atlas? Some villages have been completely destroyed, the cost of rebuilding is almost certain to exceed even the large amounts of money that are being promised, and younger Amazigh men in particular had already begun to leave the village in the hope of finding work in cities. A rich and distinctive culture is at risk of being lost.

This is not a problem unique to the High Atlas, of course, or to Morocco. Distinctive rural cultures with ancient ways of life are vanishing just as urban elites become more aware of the importance of preserving them. This “other Morocco” is far removed from the gleaming world of high-speed rail projects, international airports, digital technology, and renewable energy. Its value may be more difficult to calculate in purely economic terms, but its marginalization has meant that much of Morocco has never seen it and has not yet begun to consider its significance for the life of the nation. It has been suggested that Moroccan authorities might have moved slowly at first because the High Atlas seems so different from Morocco’s new identity as a bridge between Europe, Africa, and the Middle East.

The real task will therefore lie not so much in rebuilding but in ensuring a way of life that can be viable without compromising the traditions of local communities. If the people of the High Atlas leave their villages, what of importance will remain to be saved?

For corporations and investors, the attraction of Morocco remains undiminished by the earthquake. The resilience and ingenuity of the people and the diplomatic acumen of its leaders should be reassuring. The deliberation in selecting the countries from which Morocco would receive international aid can be seen as evidence of a sophisticated and measured approach to questions of sovereignty and international relations. In a part of Africa where military coups in the Sahel, the withdrawal of the French military, and the arrival of Russian mercenaries are unsettling, such careful calculation is not just impressive but essential.

Japan's Power Play

Japan’s Power Plays

Coverage of the US-China agon has become ubiquitous, especially in the United States, where politicians turn to China policy with relief as the only major area of bipartisan accord. Military and economic threats are always news, and China and the US are both generating plenty of them. Coverage of Japan, by contrast, is comparatively rare. This is a mistake, because Japan — the third-largest economy in the world by one measure — is undergoing a strategic transformation of great significance. And it is much more than a sideshow to the US-China drama.

There is a great deal going on in US-Japan relations right now — the Center for New American Security has an excellent report out this week on the subject — but in many ways the most interesting Japanese moves have to do with regional and European relations. Japan-Korea relations went into a deep freeze in 2018 after the Korean supreme court ruled that specific Japanese companies should compensate individuals who had endured forced labor during the Japanese occupation of the peninsula that ended in 1945. Only three of the original plaintiffs remain alive, but Japan reacted negatively, Korea responded, and the two nations nearly ceased to communicate. The conservative government of Yoon Suk-yeol broke the logjam earlier this year with a plan to have Korean companies pay the compensation. Japan responded positively, although the three plaintiffs refused to accept Korean money, and Japan-Korea relations have blossomed. Both countries have developed new security strategies — in response to China, in particular — based on the fundamental needs that they share, as trade-dependent economies with shrinking populations, for free navigation throughout the Indo-Pacific. The US encouraged the Japan-Korea rapprochement, including greater security roles for both countries and culminating in the trilateral meeting at Camp David in August. But greater strategic autonomy for both Asian nations means greater autonomy from the US.

Japan has also prioritized relations with the United Kingdom. The reciprocal defense agreement signed by prime ministers Kishida and Sunak in January was hailed by one British defense official as the most important British-Japanese agreement for “more than a century,” presumably referring to the Anglo-Japanese alliance of 1902. (Japan had earlier signed a similar agreement with Australia, which more than a century ago was the sworn enemy of the Anglo-Japanese pact.) Just as important was the announcement on 12 September of closer cooperation between Japan, Britain, and Italy on the Global Combat Air Programme (GCAP) to produce “sixth-generation” fighter planes. The project is at once a way for the United Kingdom and Italy to address their own non-participation in the Eurofighter program, while also evading dependence on the Americans’ Next Generation Air Dominance platform (NGAD).  GCAP is the largest defense project that Japan has ever undertaken with European partners.

It is worth noting that GCAP is an example of what might be called strategic software autonomy. The fifth-generation F-35 fighter tied the buyer to the manufacturer (Lockheed Martin), who kept the code proprietary along with necessary software updates. The Pentagon itself didn’t like this level of dependence and is determined to avoid it with NGAD. The F-35 software approach did have the advantage for the US of bringing F-35 buyers into dependence on the US, creating a form of digital alliance in the name of interoperability. It will be interesting to see how the GCAP fighter, which is meant for export as well as for the British, Italian, and Japanese air forces, will handle the question of software and data. What seems clear is that US policy and Lockheed Martin’s contracts pushed some major US allies into developing defense technology that will reduce their dependence on the US. Japan now intends to build its own missiles to arm the GCAP fighter. 

Japan has also emphasized better military relations with India. Kishida unveiled Japan’s Free and Open Indo-Pacific strategy in India earlier this year and returned to the theme on 10 September at the G-20 meeting in New Delhi. The Quad (India-Japan-Australia-US) may always look curious from a diplomatic perspective, but it is having real results. Historians will appreciate, as the British defense official did, that Japan is revisiting its period of collaboration with the British Empire from the 1890s to the 1920s. There has even been talk over the past two years of Japan joining the Five Eyes intelligence-sharing group (US, UK, Australia, New Zealand, and Canada), another body created in the long shadow of empire.

Japan still has a constitution that limits its military to self-defense. Japan (after 1945) and South Korea are therefore relative newcomers to this kind of global jockeying. Their prosperity, their front-line status against not only China but also North Korea and Russia, and their world-class tech sectors combine to make them instant major players — if they continue to want to be.  

For global investors, this means that the policies and foreign-relations strategies of Japan, in particular, are now significant for investment decisions and will remain so for the foreseeable future. This had previously not been the case when investors were assessing participation in the world’s third-largest economy. Japan is creating more space for itself under the American umbrella. This has consequences; the GCAP program is only one example.

Great Industrial Power Rivalry: Jake Sullivan’s Security Dilemma (I&W)

Great Industrial Power Rivalry: Jake Sullivan’s Security Dilemma

When scholars analyze the relative power of states, they tend to look first at military and economic power, especially industrial power, and perhaps adding resource endowments, demographics, and features such as warm-water ports at a later stage. The non-military aspects tend to be subordinated to the military ones: industrial production of warplanes is more important than production of toys; resources such as oil and iron are more important than timber now that warships are not made from wood; warm-water ports are important not for winter fishing but for the projection of naval power. This analytical tilt toward military power makes a rough sense. When great powers clash, the hard-power victory will come first, before the soft-power one.

But the US-China rivalry is upending the typical modern ways of understanding major-power conflict that emerged after 1800. The definition of “strategic” industry is expanding daily. In just a few years, it has come to include pretty much anything having to do with micro-electronics and digital communication. The crucial change has been that states no longer worry just about industries or technologies that have clear military applications. They now worry about industries that might possibly be relevant to military power and therefore to national security. The classic “security dilemma” taught at universities — that actions taken by a state to increase its own security cause reactions from other states, which in turn lead to a decrease rather than an increase in the original state’s security — is now being applied, in practical terms, to a growing share of certain national economies. More and more resources, from human capital to video apps to venture capital, are becoming “strategic.”

This is a new world, one that multinational businesses have begun to notice but are hardly ready to face.

If one wanted to ascribe this gradual “securitization” or “militarization” of major economies to the actions of individuals, two come to mind. The most obvious and the most important is the President of China, Xi Jinping. However, the National Security Advisor of the United States, Jake Sullivan, has also played a key role in shaping this fundamental change. 

Xi Jinping’s “Made in China 2025” program, which was launched in 2016, was and is an attempt to make China as self-sufficient as possible. The alliance-building of the “Belt and Road” Initiative, the weaponization of Chinese ethnicity outside China, the opportunistic use of non-Chinese intellectual property and foreign investment, the “nine-dash line” drawn to encompass resource-rich seas, and much else all point toward the same goal: a China self-sufficient enough that it can say no to the rest of the world if it likes, especially to the United States. Chinese autarky makes little sense in terms of the social science of economics, but then mainstream economics since Adam Smith has never known quite what to make of security-driven economies, except to say that they are inefficient and probably lead to war. Furthermore, China is run by Marxists, for whom mainstream economics is seen as at most a useful tool-kit for struggle rather than a gospel of human development.

China’s weaponization of its own economy under Xi Jinping has made the security dilemma economy-first rather than military-first. That choice has caused a security reaction from the United States, one that certainly does seem to be causing a decrease rather than an increase in the original state’s security.

The US reaction is where Jake Sullivan comes in. It is true that the hardening of US economic policy toward China began during the Trump years, mainly because of the Trump administration’s focus on national economic greatness. The theory of great-power conflict, rescued from history books by Trump’s security team as a framework to constrain an inexperienced and mercurial Commander in Chief, also preceded Biden’s presidency. But the Biden administration has developed its own theoretical framework for foreign policy that reconfigures, refines, and solidifies the tendencies first seen in the Trump years.

Jake Sullivan was the young and well-liked Director of Policy Planning at the State Department under Hillary Clinton and President Obama. In the Trump years he was head of a program at the Carnegie Endowment for International Peace that aimed at developing a “foreign policy for the middle class.”  

American political culture — for good reasons and with great success — has tended to see anything that benefits the middle class as positive. The nurturing of a middle class has been among the greatest achievements of American democracy. Nonetheless, the deliberate rooting of national security policy in the fortunes of a particular social and economic class is something rather new for a non-Marxist and non-aristocratic society.

The reasons for this shift are many. Probably the most important has been the perception that liberal or neoliberal policies, grounded in a theory of market fundamentalism and globalization, led to a hollowing out of the American middle class accompanied by the expansion of a global middle class, mainly in Asia. This in turn has led to an erosion in working-class and middle-class support for the Democratic Party, something that the Biden administration naturally hoped to reverse. A foreign policy for the middle class is part of that effort.

The results have been onshoring and friend-shoring and the leveraging of US market access and security guarantees in the service of creating a US-centered global economy that serves US interests first, but without the traditional prop of free trade. It is “Make America Great Again” in a Democratic key.

This is the context in which electric-vehicle manufacture, to mention just one example, with all the supply chains that feed into it, has become a national-security policy priority.

Whether this choice will, in the emerging logic of our 21st-century economic security dilemma, ultimately make the United States less secure is not an easy question to answer. What is clear is that multinational enterprises, or any enterprises dependent on globalized supply chains and open markets, need to look not only at policy manifestations — the Inflation Reduction Act or the Chips and Science Act — but also at the deeper political logic that drives them.