The Chinese Economic Threat

By Mathis Bitton

Wednesday, August 05, 2020

Over the past few months, the United States and China have clashed over technology, territory, economics, and political influence. The Trump administration has imposed a series of sanctions against the CCP’s mistreatment of the Uighurs in Xinjiang. The president has also signed the Hong Kong Autonomy Act, condemning the methodical dismemberment of Hong Kong’s democratic protests. When China responded with an oppressive “security” law, the White House proposed a bill punishing a long list of CCP officials and ending preferential trade treatment for Hong Kong. Last week, the Treasury Department’s Office of Foreign Assets Control prevented the Xinjiang Production and Construction Corps, an economic and paramilitary organization in charge of the Xinjiang region, from accessing American property and financial support. In a statement, Secretary Steve Mnuchin reaffirmed the administration’s desire to ban any economic transactions between CCP-adjacent companies and American citizens.

Overall, the power gap between China and the U.S. seems to close as the corresponding ideological gap widens. While the idea of a “new Cold War” has been dismissed by policymakers for decades, the possibility of another great power rivalry has resurfaced. Following Francis Fukuyama’s reading of the “end of history,” 20th-century commentators used to argue that our world had become too interconnected for geopolitical alignments to relapse into a fight between two opposing blocs. Assuming that free trade would facilitate the rise of liberal democratic norms, foreign-policy analysts operated under the assumption that, if given the chance, people would be attracted to the magnetic pull of Enlightenment values. This interpretation has proven mistaken, at least in China. With rising prosperity levels came more, not less, government control. For decades, the CCP has showcased an unwavering desire to strengthen its grip within and beyond China’s borders.

As long as distrust and animosity permeate Sino–American relations, a spiral of escalation appears inevitable. The two countries have fought over human-rights abuses in Xinjiang and Hong Kong, over trade and tariffs, over 5G technology, over the impact of TikTok, over the Taiwan Strait, over the South China Sea, and over the Persian Gulf. From territorial disputes to economic rivalry, a multitude of tensions have set the stage for a wider conflict between the two superpowers. These clashing interests could well become the foundations of a new Cold War.

Worse still, the formation of geopolitical blocs is well underway. At the United Nations Humans Rights Council in Geneva, 53 countries — most of which were African or Middle-Eastern — signed a statement in support of China’s “security” law. The only nations to stand against it were the U.S., a few EU member-states, the U.K., Japan, Australia, and New Zealand. In other words, everyone but a handful of democracies stood ready to support anti-liberal, repressive measures designed to crush peaceful and legitimate protests against Beijing. While we need not read these new political alignments as what Samuel Huntington called a “clash of civilizations,” this alarming state of affairs should make us wary of a growing opposition between, as historian Niall Ferguson put it, “the West and the rest.”

Where countries such as the U.K. have proven willing to join America’s efforts by banning Chinese 5G or offering refugee status to Hong Kong protesters, most non-European nation-states seem increasingly eager to allow — if not support — President Xi’s belligerent foreign policy. While their passivity need not mean that they applaud the CCP’s actions with enthusiasm, it may point to China’s growing economic influence — for instance, since China has invested billions in Africa, states whose survival depends upon Chinese investments are unlikely to challenge Xi Jinping’s geopolitical decisions. In fact, the CCP has shown itself capable of wielding its considerable economic power as an instrument of coercion. After threatening to impose disproportionate tariffs upon the EU if member-states refused to let Huawei control their 5G infrastructure, China cut off imports of beef from Australia because its government asked international institutions to investigate the origins of COVID-19 — thereby depriving Australians of a major source of export revenues.

So far, the U.S. and its allies have not been able to respond to these economic pressures with corresponding force. And this impotence should not surprise us. During the Cold War, America built a phenomenal array of institutions to combat the military threat posed by the Soviet Union. From NATO and intelligence partnerships to the CIA and the Air Force, America ensured that every threat would be met with a proportional — if not superior — response. This infrastructure is still in place today. After decades of rising defense spending, the U.S. is in a good position to respond to Chinese military threats with tact. However, when it comes to economic defense infrastructure, America has not yet formed appropriate coalitions to take collective action when the CCP uses economic power as an instrument of political coercion. When Australia legitimately demands an investigation into the origins of COVID-19, it should not face Beijing’s threats alone. Nor should Sweden when its government dares to give a literary award to Gui Minhai, a dissident Chinese publisher. Nor should Britain when Boris Johnson offers refugee status to Hong Kong protesters. Nor should any liberal democracy standing up for liberal democratic principles in an increasingly illiberal world.

Gone is the assumption that free trade and unchaperoned markets will somehow bring about the rise of freedom in every corner of the earth. Entering now is a new kind of realpolitik in which those who cherish the Westphalia order have to coalesce and respond to every economic threat with the appropriate amount of force — and caution.