Political responses to economic challenges in the next decade

8 january 2011

Fyodor Lukyanov is Editor-in-Chief of Russia in Global Affairs, Chairman of the Presidium of the Council on Foreign and Defense Policy, and Research Director of the Valdai International Discussion Club.

Resume: The world is preparing for the worst in the next decade, and indeed the next few years promise to be rocky.

The world is preparing for the worst in the next decade, and indeed the next few years promise to be rocky. The old world order has grown obsolete, and the leading countries have yet to forge a new order in its place.

Relations between the United States and China – which both define the global economy and are defined by it – will be the main collision point, determining the future trajectory of the world. 

The profound interdependence of these two countries – with the United States as borrower and consumer and China as lender and producer – has long been a burden on both nations. And as the global financial crisis has shown, an economic system based on U.S.-Chinese interdependence is unstable and capable of wreaking havoc around the world. Ideally, the two countries should join forces to diversify the sources of their growth and development, but first they must fundamentally change their economic policies.

China can do this, theoretically. Several years ago it initiated policies aimed at reducing its dependence on the U.S. market, but that goal cannot be achieved overnight and the risks involved are high. China needs to maintain the pace of its economic growth to ensure social and political stability. A major change in its economic policy could provoke the United States and the EU to take response measures that would not be in China’s interests.
The situation in the United States is even more complicated. There are deep political divides between the two political parties and in U.S. society at large, while a new economic strategy will require both national unity and substantial new investments. In this highly polarized political climate, there is little appetite for either. Washington will most likely have to search for a foreign policy solution to America’s economic challenges. In other words, it will have to wield its military and political influence to try to make China play by its rules.

Support for a hard-line approach to China could increase dramatically by the middle of the next decade, when a new political cycle puts a Republican back in the White House.

The difficulty for America is that its symbiotic relationship with China is more a domestic issue than a foreign issue for America, as it greatly affects both the unemployment level and the competitiveness of U.S. industry. 

The economic disagreements between the two countries are deep and global in nature, but it could very well be events in East Asia that cause an escalation. China, which has been acting cautiously on the international stage, has made its intentions in the region clear. China recently laid claim to almost the whole of the South China Sea, alarming its neighbors and Washington most of all, which sees this newfound Chinese assertiveness in the region as an unwelcome change. 

The countries in the region are looking on with concern. Most analysts agree that economically China has all but replaced the United States as the dominant power in East Asia. The question is: What will Washington do in response?

The United States has used the growing tension between the two Koreas as a pretext to build up its military presence in the region and to strengthen ties with its Asian allies: Japan, South Korea, the Philippines and Australia. However, if China continues to expand its influence in the region, some East and Southeast Asian countries may consider switching allegiance. To reverse this trend, the United States will have to flex its muscles. 

Territorial disputes, which China has with nearly all of its neighbors, could potentially lead to conflicts. The focal point is Taiwan, which could become an outpost of U.S. influence if U.S.-Chinese relations deteriorate significantly. Any U.S. actions regarding Taiwan could escalate tensions to the point of military conflict. An all-out war is unlikely, but a regional arms race and greater confrontation on all other issues are possible.
The United States and China have also started to butt heads in other parts of the world.

The Iranian nuclear problem will be resolved in the next decade, one way or another. If negotiations fail, the United States could use military force to neutralize Iran’s nuclear capabilities. But this show of strength will also be a message to China, the largest foreign investor in Iran, that the United States is not afraid to use force to reaffirm its authority. True, the outcome of a military strike on Iran is unpredictable, and it could very well backfire and weaken the United States, as was the case in Iraq.

U.S.-Chinese disagreements are unlikely to escalate to the point of armed conflict, if only because China is aware of its relative weaknesses. Washington could take measures to curtail China’s economic expansion across the world and to strengthen relations with its traditional allies in the region and with other countries that could be used to offset China, primarily the “neutral” Southeast Asian countries, India and, possibly, Russia.
Russia will have to review its international strategy if China’s role in global politics changes. The world is changing, and the era when the West was Russia’s reference point is coming to an end. The role of the West (and Europe in particular) in the world is decreasing, while China, with which Russia shares the longest land border, is surging to the fore.

It was believed before that Moscow would never accept the role of Beijing’s junior partner. But now things are not so black and white, and Russia may have to get used to the idea in the next decade. 

This, of course, is only one of many possible scenarios, and efforts could be made to prevent this from happening. One thing is clear, though: As the U.S.-Chinese confrontation grows, Russia will be forced to choose a side.

The underlying problem in today’s world is that the global economy has outgrown national policies. This fact is clearly seen in U.S.-Chinese relations, problems in the European Union, and the vastly different national responses to the global economic crisis. Initially, it was believed that this problem could be overcome if political processes were modeled after economic ones – through the trans-nationalization of politics, which is just what the EU intended. But there is another option: To return to more traditional economic processes, which would require gradually scaling back globalization.
The next decade of the 21st century will likely be a period of political responses to economic challenges. Globalization was once a beneficial process, especially for the leading economies that acted as its driving force. The West may now benefit from curtailing globalization, as China and India are becoming increasingly dependent on the global market. It is China and India, not the West, that stand to benefit most if globalization continues at the present pace.

Scaling back globalization would be no mere change in policy but rather a paradigm shift requiring great political will and skills and a clear understanding of the end goal. But the emerging powers will not sit idly by; they will try to maintain the current trajectory of the global economy.  
Neither politicians nor the public are ready for such a drastic change. But, if nothing else, the last 20 years have shown us that the improbable is far from impossible.

| RIA Novosti

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