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The Future: China's Rise, America's Decline

The new grand chessboard isn't Western capitalism versus Soviet communism; it's the West versus the East and China is in the pole position

December 24

20:13
2017

London , United Kingdom of Great Britain & Northern Ireland - 24 Dec 2017 - Ghassan Matar

It has become something of a cliché to say that no relationship will matter more when it comes to defining the twenty-first century than the one between the United States and China.
 
Like many clichés, this statement is true but not terribly useful, as it tells us little or nothing about the nature of the relationship in question. Some point to history and argue that strategic rivalry is highly likely if not inevitable between the existing major power of the day and the principal rising power. Others challenge such a prediction, emphasizing more the impact of domestic political, economic, and social developments within the two countries as well as the potential constructive influence of diplomacy and statecraft.
 
China represents and will remain the most significant competitor to the United States for decades to come. In the eyes of the United States and its allies, China has not evolved into the “responsible stakeholder” that many in the United States hoped it would. To the contrary, China has adopted a grand strategy for itself that is meant to increase state control over Chinese society and, beyond its borders, to pacify its periphery, cement its status in the international system, and replace the United States as the most important power in Asia.
 
What flows from this assessment is that the United States will try to come up with a new grand strategy toward China that centers on balancing the rise of Chinese power rather than continuing to assist its ascendancy.
 
Whatever policy the US decides to pursue, it will not be built on a bedrock of containment nor jettisoning of the prevailing policy of integration, but will focus on limiting the dangers that China’s economic and military expansion poses to U.S. interests in Asia and globally.
 
A number of policy prescriptions will follow, including the adoption of policies designed to produce more robust economic growth in the United States; new trade arrangements in Asia that exclude China; a stricter technology-control regime affecting exports to China; a larger, more capable, and more active U.S. air and naval presence in the Asia-Pacific region; more intimate U.S. strategic ties with Japan, Australia, the Republic of Korea, India, the countries of southeast Asia, and Taiwan; and a considerably tougher set of measures to counter Chinese behavior in the cyber realm.

In a classic work published at the height of the Second World War, Makers of Modern Strategy: Military Thought from Machiavelli to Hitler, the definition of grand strategy is defined as “the art of controlling and utilizing the resources of a nation…to the end that its vital interests shall be effectively promoted and secured against enemies, actual, potential, or merely presumed.”

Elaborating on this idea, one can argue that this “highest type of strategy” is precisely such because it “so integrates the policies and armaments of the nation that the resort to war is either rendered unnecessary or is undertaken with the maximum chance of victory.”

With these considerations in mind, one can conclude that “[grand] strategy…is not merely a concept of wartime, but is an inherent element of statecraft at all times.” Though many others have subsequently offered variations on this concept, a wiser or more comprehensive definition of grand strategy has not been better articulated.

Since its founding, the United States has consistently pursued a grand strategy focused on acquiring and maintaining preeminent power over various rivals, first on the North American continent, then in the Western hemisphere, and finally globally. During the Cold War, this strategy was manifested in the form of “containment,” which provided a unifying vision of how the United States could protect its systemic primacy as well as its security, ensure the safety of its allies, and eventually enable the defeat of its adversary, the Soviet Union.

In the aftermath of the American victory in the Cold War and the dissolution of containment, U.S. policymakers have struggled to conceptualize a grand strategy that would prove adequate to the nation’s new circumstances beyond the generic desire to protect the liberal international order underwritten by American power in the postwar era.

Though the Department of Defense during the George H.W. Bush administration presciently contended that it’s “strategy (PNAC) must now refocus on precluding the emergence of any potential future global competitor”, no administration in Washington has either consciously or consistently pursued such an approach. To the contrary, a series of administrations have continued to implement policies that have actually enabled the rise of new competitors, such as China and Russia, despite the fact that the original impulse for these policies—the successful containment of the Soviet Union—lost their justification with the demise of Soviet power.

The United States is solely to blame for the dire situation it finds itself mired in. Corporate greed in conjunction with a spoilt American consumer coupled with falling shipping costs and improvements in logistics, forced companies to first outsource and eventually tear down the U.S. manufacturing base and ship them in their entirety to China. Companies like Wallmart betrayed the ‘Made in America’ principles and promoted cheap and low costs products manufactured in thousands of factories across China.

As the Walton and other prominent American family’s fortunes grew, the U.S. began slowly shedding its preeminent power as it traded future prosperity for short-term profits and inflated bonuses. As if the destruction of the US manufacturing base was not bad enough, corporate greed extended to the reduction of quality of goods, increased prices and deceitful promotional campaigns.

The American consumer is just as guilty, ignorant of the consequences of abundant credit, persistent advertising and the growth of the welfare state as well as the inability to reason; deliberately ignored the deceptive practices and continued to trade their future prosperity for an insatiable appetite to consume in the present. As a result, the past 30 years, have seen a consistent trade deficit with China averaging around $400 billion annually or a cumulative deficit of $12 trillion dollars.

In effect, the American effort to “integrate” China into the liberal international order has now generated new threats to U.S. primacy in Asia—and could eventually result in a consequential challenge to American power globally—Washington needs a new grand strategy toward China.

However, this option is no longer viable for the United States given its current economic weakness. The U.S’s ability to implement this ‘Grand Strategy’ over the last century was predominately facilitated by the pre-eminence of the US dollar, which gave the United States formidable power across the world. The dollar; while still the preeminent world reserve currency, is losing its status at an alarming rate. This year saw 8 major pillars of the dollar eroded including the rejection of the US Dollar by Venezuela & Iran for trade, the de-dollarization of trade between Russia & China, the emergence of a Yuan/Gold energy contract, the rise of Crypto currencies, the US withdrawal from the TTIP, the Yuan entry into the SDR, China’s ascendency as the world’s largest economy by purchasing power parity and the lackluster performance of the US Economy.

The Chinese Belt & Road initiative is also likely to accelerate this trend by moving more and more countries into the Yuan denominated trades; accelerating the demise of the US dollars hegemony.

2018 will surely be remembered as the firing shot of the showdown between the United States and China.

The year will be shaped by geopolitics, momentum from robust economic growth, and a host of policies aimed a preventing China from rising any further.


With so many new leaders put in position over the last six months by President Xi, an overall leader secure in his position and clear on his objectives, 2018 is likely to see much more activity to implement policies, economic and social, that move China in the direction that Xi wants. The world will need to worry more about overenthusiastic implementation of policy than the inaction we have often seen in 2017.

2018 will be shaped by geopolitical discontinuities. Opportunities for Chinese companies to invest overseas have diminished in a number of markets, but as of yet, opportunities for trade have not been materially restricted by the governments of importing countries. Relations with Japan and the United States remain volatile, with the potential for damaging discontinuities in trade and investment.

Yet China enters 2018 with robust economic-growth momentum. Despite stresses that were highlighted last year, which have only grown—regional disparities, an aging population, declining heavy-industrial sectors, property bubbles, growth in debt levels, and continuing environmental pollution—China remains slightly ahead of track of its goal to double GDP between 2010 and 2020 and to realize its self-declared ambition to become a “moderately prosperous” country.

What to expect in 2018?
China Inc.’s outbound investment will resume its upward trajectory in 2018, with a focus on Manufacturing 2025 sectors and Internet-enabled businesses, such as artificial intelligence (AI) and the Internet of Things. Many global-scale Chinese companies are still mostly focused in China, and they are impatient to scale elsewhere.

Many of these more mature investors already have businesses outside China of the scale of a Fortune 500 company, with the ability to raise cash where they need it for investment. Geographically, Brazil, Japan, and the United Kingdom in particular saw increased interest. In 2018, investment in these sectors will continue with a particular emphasis on the service sectors—healthcare, tourism, education, gaming, and similar.

In 2018, a lot more attention will be paid to global Chinese investment in these fin-, med-, and edtech and AI start-ups, with political pushback in the United States, leading them to focus more heavily on Israel, Scandinavia, and the United Kingdom. De facto, many Chinese investors will simply assume that they could not get approval for investment in the United States and so won’t try. If US–China economic relations deteriorate significantly, we even might see real pressure to break up deals consummated in years past.

Belt and Road will remain the flagship international state-to-state collaboration program for building China-sponsored infrastructure around the world. In 2018, there will be more scrutiny of projects, potentially leading to delays (as with the high-speed rail links in Eastern Europe) but also more projects under way. While in part this will be a result of rebranding existing work under Belt Road, clearly the heads of relevant state-owned infrastructure companies are under strong pressure to deliver real projects as central government in Beijing has become frustrated at the slow pace of project realization. In 2018, multinationals will focus more on what business opportunities result from a port in Kenya, railroad in Hungary, or industrial free-trade zone in Kazakhstan than on gaining a major slice of the construction work.

Beyond supporting its businesses to expand internationally, China’s government will grow its soft-power initiatives in 2018, investing more in its Chinese culture centers at universities around the world, in its international media projection online and on traditional TV, and through its official overseas development-aid budget, the largest recipient of which in recent years has been Cuba.

This is in sharp contrast to the approach by the United States whose belligerence will see it destroying more defenseless nations; while slowly rendering itself bankrupt in all but name.

China-Russia Relations
The Chinese-Russian relationship will remain a stable strategic partnership and by no means a marriage of convenience: it is complex, sturdy, and deeply rooted. Changes in international relations since the end of the Cold War have only brought the two countries closer together. Some Western analysts and officials have speculated (and perhaps even hoped) that the ongoing conflicts in Syria and Ukraine, in which Russia has become heavily involved, would lead to tensions between Beijing and Moscow—or even a rupture, but that has not happened. China, if pushed too far by the United States will formalize an alliance with Russia , but for the time being, Beijing will hope that China and Russia can maintain their relationship in a way that will provide a safe environment for the two big neighbors to achieve their development goals and to support each other

China-North Korea Relations
The Sino-North Korean relationship will deteriorate as China tires of North Korea’s insolent behavior and reassess its own interests on the peninsula. China is no longer wedded to North Korea’s survival. In the event of a conflict or the regime’s collapse, Chinese forces would intervene to a degree not previously expected—not to protect Beijing’s supposed ally but to secure its own interests.

China-British Relations
The Sino-British relations are likely to strengthen in light of Brexit, which will see the United Kingdom rekindle long established ties to China. The UK will position itself as the gateway between Asia and the West; even though the UK will lose its position as the ‘back door’ to the EU after Brexit is finalized. China will continue to see the United Kingdom as the more mature Anglo political partner, which will further fuel inward investments into the UK.

China-EU Relations
As Trump alienates his Western allies, and the United Kingdom begins its departure from the EU, China has been quietly reaching out to Western nations. Both Beijing and Brussels hope to move ahead with economic globalization, and during the annual EU-China Summit held in Brussels, the two sides forged a new green alliance to combat global warming, a clear nose thumbing at Trump. With the EU and the United States increasingly divided, 2018 may mark the beginning of a new China-EU axis in global politics.

The EU does have "differences" with China on some issues, however this is normal between two major economies. Even when trade and economic relations between the EU and the United States were at their peak, the two sides didn't see eye to eye on many issues.
New breakthrough between China and the EU will be achieved if they turn their diplomatic courtesy into real actions by following Zhang's formula of focusing on cooperation.

All in all, China’s influence around the world will continue to grow on the back of the United States which will continue to shed influence and clout around the world. China will experience slower growth, with wider variations across provinces and cities than ever, driven by increased consumer spending skewed to wealthier cities and higher government social spending.
 
The speed of the growth of both its economy and influence will in part, be determined by whatever actions the United States may initiate, perhaps initially on Chinese exports of tech goods, which could roll into multiple other sectors in a gradual escalation.

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