We find ourselves in a new era of great power competition. The rivalry between the USA and China is systemic. It concerns economic prosperity, leadership in global technology, and success in overcoming social challenges and natural threats. The measure of success is “output legitimation.” Which system is better able to deliver on its promise of prosperity; which system can deal more effectively with the major challenges of today? CONVOCO! explores this topic in a two-part newsletter. Read the first part today:
Tensions between Great Powers: The Rise of China and its Consequences
- The struggle for economic and technological supremacy
- The competition between two fundamentally different ideological systems
- The geopolitical conflict for global supremacy between an established superpower and a new, rising superpower.
What has lead to China's economic rise?
China has achieved its extraordinary rise in blatant disregard for the very principles of freedom.
Joining the WTO
G. Felbermayr: The openness of many rich countries after the founding of the World Trade Organization (WTO) in 1995 created a situation that allowed China to import modern technologies from abroad and make use of them. So it was a conscious act of liberalization by the West that played a major part in enabling China’s resurgence.
Trade liberalization led to a convergence of per capita incomes in China and the West. While China’s accession to the WTO also brought overall gains in welfare in the US or Europe, the percentage increase was larger in China. China’s relative position improved.
China used the opportunities offered by the WTO very well to its own advantage. For example, for many years it has manipulated its own currency’s exchange rate relative to the dollar and Euro to generate export surpluses, which China has used to build up foreign exchange reserves and invest in other foreign assets. Even subsidizing companies using low-interest loans, for example, was almost impossible for the WTO to sanction.
If a country has no separation between the political and economic spheres, then the free movement of goods and capital with that country contains the risk that trading partners can be strategically outmaneuvered.
According to economic forecasts, China will catch up with the US as early as 2029.
B. Kahl: Today there are some powerful states in the world that support multilateralism only as long as it serves their aggressive interests.
We have to ask ourselves self-critically whether international cooperation should even be encouraged if individual states only use the undoubted advantages of multilateralism to pursue their own aggressive and autocratic policies at the expense of our free, democratic societies.
in May 2017, China succeeded in having its “One Belt, One Road Initiative” adopted as one of the United Nations’ Sustainable Development Goals. But at the same time China disregards the rulings of the Permanent Court of Arbitration regarding China’s claims to sovereignty in the South China Sea. And the 17 + 1 Summit is merely an ostensibly multilateral format, which in truth firstly divides the European Union and secondly serves to blackmail its Members.
The consequences of China's economic rise
G. Felbermayr: China’s productivity growth has primarily led to an improvement in its relative economic power.
As China has become richer, the world has become more equal, at least historically. Now, China is firmly middle income in the world, and as China becomes richer in general, the world is becoming less equal.
G. Felbermayr: When China’s economic power ist increasing just faster than that of a geo-strategic rival, it becomes increasingly possible that China will use its comparatively greater options to assert its interests—both political and economic—at the expense of the rival, thereby limiting the latter’s scope for independent action.
In recent years, it has become clear that China is using its increasing economic power for political ends and, conversely, using political pressure to achieve economic goals.
The global economy is more interconnected than ever in human history … However, this close interconnectedness means that changes in one part of the world can lead to distortions in another part. And when one part of the world uses political means to manipulate market activity in order to gain power, the other part of the world must respond in order not to lose power.
S. Simon: For over 300 years, the Western world has exerted its influence … All global economic standards, all institutions and organizations, the international legal system, human rights—they are all Western in character. This era is over.
What does the systemic conflict mean for the West?
G. Felbermayr: Chinese aggression towards Taiwan or Hong Kong would cost the West a certain amount of freedom; it is quite possible, however, that Beijing acting tough in its own backyard would result a loss of China’s reputation and influence in other regions of the world, and this would strengthen the West’s position in the game.
S. Simon: For societies based on freedom, a system conflict with authoritarian states such as China poses a particular challenge, because social resources are not simply at the disposal of their state authorities. The self-imposed limitations of democratic systems necessarily reduce their ability to take action.
P. Wittig: The growing Sino-American antagonism risks trapping Europe between a rock and a hard place.
S. Simon: [Europeans need the EU] in order to be able to assert themselves, as a European group, in a world of superpowers operating unilaterally, with which no European state on their own can compete … And above all, they need it to be able to defend the European model of freedom in the global system conflict … Either Europeans tackle these challenges together or not at all.
If you want to know more, stay tuned for the new CONVOCO! Edition “How much freedom must we forgo to be free?” (April/May 2022).