© REUTERS/Umit Bektas

1. At its core, systemic competition with China consists of rival visions of human nature. The European ideal of the autonomous individual, responsible for its own actions, has come under severe threat by digitally-driven behavioral conditioning. However, from a Chinese point of view, the Enlightenment view of human nature is a transient historical phenomenon, a luxury that only a few wealthy societies can afford.

In our epoch of interactive digital media, gamification and artificial intelligence, the autonomous individual—capable of thinking, deciding and acting for itself—has been increasingly called into question. That individualistic figure had underpinned the Enlightenment’s optimistic vision of human nature. But today, vast quantities of data amassed by digital platforms and the gaming and advertising industries have proven the extent to which human desires and preferences can in fact be exploited and manipulated, as well as analyzed for their supra-individual properties. It is also increasingly clear how easily most “netizens” can be influenced by the targeted manipulation of information and human emotions. Networks of influencers and followers—in other words, digital thought leaders and acolytes—are by now a powerful vehicle to steer collective mimetic behavior.

To use a rather pointed metaphor: the ecosystems of interactive apps are a playground for modern herd behavior among humans. This herd behavior can be observed in the imitation of prefabricated lifestyles, fashions and looks, but it also extends to individual positions taken on divisive, in-or-out questions, and to forms of collective online denunciation, aggression, and hatred. What confronts us in social media, the gaming industry, and digital advertising are not images of self-aware, mature individuals. We are witnesses to a pandemic of herd behavior.

In a vast number of experimental studies, neuroscience and behavioral economics have demonstrated that herd and mimetic behavior remains a determining element of human nature, notwithstanding the great efforts made by state and society toward individual education, freedom of decision, and self-responsibility. The reestablishment of authoritarian and totalitarian modes of social order has its basis in collective needs for security and order and in herd behavior that is prompted by sheer terror or mass fear. In this way, the digital proliferation of herd behavior benefits the social engineering of the Chinese Communist Party, which it is now deploying with ever greater confidence and championing elsewhere in the world.

2. The CCP’s design for social order is based on a vision of human nature compatible with both Leninist principles and the digital age. Human beings are understood as herd creatures requiring guidance and steering. Under the guidance of a wise, strong Great Herdsman, the herd can be formed into a placid, productive, and technologically innovative society, but only as long as it is protected by vigilant herding dogs and has its agility maintained by loyal junior herdsmen.

China’s communist revolutionaries and the founders of the People’s Republic always rejected Western individualism as a bourgeois smokescreen; they thought close control of the “masses” by a political avantgarde to be essential. However, Mao Zedong and Deng Xiaoping never had access to the digital technologies of power that Xi Jinping relies on today. China’s model for digital civilization consists of an agile hierarchical order, deploying targeted, seamless digital control technologies in order to steer a conflict-prone mass society down well-defined political paths. As it currently stands, this Chinese model offers a worryingly productive combination of political and commercial conditioning with economic and technological agility. This sort of social order appears particularly compatible with the possibilities inherent to our emerging digital civilization. It can potentially serve as an example for other governments and societies also in search of political stability and economic prosperity.

3. Platform corporations like Alibaba or Tencent and innovation champions like Huawei function as authorized “junior herdsmen.” Under close observation by central political authorities, they must pass on unlimited quantities of data to state bodies for evaluation and control.

The metaphor of herd behavior also applies to other specificities of the Chinese context. The system of herd control, which China quite deliberately brought into being, is led by wise herdsmen: the party leader and the central governing ranks of the CCP. For controlling the herd, the central authorities rely on a division of labor between “junior herdsmen” and “herding dogs.” This is necessary since herd society requires carefully-supported pioneers and role models, who for their part remain agile and innovative. Individual pioneering acts of innovation, in particular in the economy, technology, and science, are publicized in so far as they are socially and politically useful within officially-established parameters. In this context, popular online idols created by the system serve to popularize overarching regime goals, including unquestioned nationalism and unconstrained enthusiasm for technology.

From the perspective central authorities, China’s pioneers should on no account be independent, freewheeling thinkers. Instead, they should desire to emerge from the herd, ascending to high-ranking positions in the official order, while never calling political hierarchies into question. Status and rank within the herd are acceptable values; individual power or even political freedom are not. Jack Ma, founder of Alibaba and a model member of the Communist Party, exemplifies this behavioral pattern: a loyal idol for the digital age.

All of this takes place under the watchful eyes of powerful herding dogs (cyber-administrations at every governmental level, digitally-upgraded state security bodies, state-run cloud operating companies, etc.). When in doubt, the authorities will bite quickly and hard to enforce subordination and discipline. The overall guardians are under instruction to allow considerable freedom of action to junior herdsmen who function as pioneers. The search for new grazing grounds (markets) and new nutritional sources (raw materials, products, business models) is of paramount importance to the highest-ranking herders to make the herd system prosper and expand.

4. The Chinese state, well-equipped with digital technologies, is becoming an agile conditioning apparatus impacting both society and the economy.

The Communist Party has powerful instruments at its disposal: AI-based facial, voice and gait recognition and analytic cameras in public spaces, as well as the ubiquitous smartphone, providing a constant supply of data on individual mobility, communications, and transactions. In part, this can be seen as a matter of surveillance and of early recognition of actual or presumed aberrant behavior. This entails an ongoing analysis of the unending data streams produced by all human interactions. On this basis, individual and collective behavior is regulated. Incentives and sanctions are used to shift overall behavior in the desired direction. All individuals and all legal entities, including official bodies, generate permanently updated data sets, which can in turn be used to evaluate and regulate their conduct. Political, social, and economic trustworthiness is no longer generated through human interaction or formal laws and contracts. Rather it emerges from the data streams and evaluations of trustworthiness apps—in other words through state-organized “social scoring.”

“Big Brother” or “Sauron’s Eye” are inadequate metaphors for this system of control. China’s rulers are aiming to have people internalize the system to such a degree that they no longer even perceive how much the Party controls them. Thereafter, inner resistance will no longer exist. External regulation and control at a distance are meant to become a self-evident and accepted part of life. So if the planners in Beijing have their way, a self-operating surveillance system may come into being, eventually meaning almost no need for police. Breaches of the rules will be socially proscribed, with no active participation on the part of state authorities. Each and every person in society must conform and practice self-discipline, otherwise they lose their trustworthiness ranking and are automatically forced out of society. Used in China’s unconstrained way, digital technology allows for constantly intensifying and granular behavioral control not imposed by a superior authority, but rather anchored and executed within the social fabric.

5. AI is a perfect instrument in the hands of a communist party.

Artificial Intelligence offers the possibility of centralized analysis of huge quantities of data, allowing the recognition of patterns and deviations, and systems of centralized regulation, all without active human participation. The particular strength of AI consists of producing optimized regulatory results for the largest possible population—in other words, it can overcome the chaotic, self-seeking individual pursuit of happiness. These ambitions have been among the central goals of communist revolutionaries since the early 20th century. This is why the IT investor Peter Thiel has accurately characterized AI as “communist.”

But after an initial phase of testing and optimization, AI will also be able to function without the deficient human organization of a communist party. For this reason, China can arrange to have its model of social order installed in other countries and societies without having first to develop a local party-state machine. In its enhanced, 21st-century form, AI will reconstitute the communist agenda of a collectivized, conflict-free society, a vision that was an utter failure during the 20th century. Moreover, it will do so much more effectively than any authoritarian party-state, past or present. Thanks to AI, the original vision of early 20th-century communist revolutionaries will at last come within reach: centralized planning, control, and programming of economy and society, aimed at overcoming all social defects and conflicts, both contemporary and historical.

6. The Chinese panopticon currently emerging arose as the realization of a Leninist dream: at any time, anyone can be observed by the central authorities. This will make possible the formation of a “New Human Being.”
Jeremy Bentham first described the idea of the “panopticon,” a method for enabling the perfect surveillance of large numbers of people by a single overseer. In the industrial age, as a result of cumbersome, large organizations, mass deviance from the norm, and many observational blind spots, this vision could never be consistently realized. However, the fusion of new digital technologies with the more traditional control instruments of Communist Party rule is preparing the way for a substantially more effective Digital Leninism that is currently taking shape in China. In the Chinese system of surveillance and conditioning, the individual cannot know with certainty whether he is actually under observation. But he knows that he is visible at all times, always observable: he thus will have to adapt his behavior in a kind of preemptive obedience.

Behind the ambitions of the Chinese social credit system, we can discern the idea of the “New Human Being”: the dream of a civilization in which human behavior is changed to such an extent that it becomes a lasting collective form, entirely compatible with the broader aims of those in charge. The new trustworthiness system—unlike traditional power instruments like mass mobilization and state terror —is being sold to the Chinese people as technological progress, purported to make the individual’s life easier, safer, and more transparent. In fact, the new developments have been hailed by many, who wish to use, for example, a scoring app to find out whether the person they are meeting or the delivery company they are contracting is worthy of trust. In this assessment, however, one’s own judgment plays no further role. The grounds for evaluation now consist of ostensibly objective data profiles.

7. If we do not oppose the penetration of digital manipulation of preferences and behaviors more effectively than hitherto, time will bring the essence of Chinese developments to our own society: a politically and commercially fabricated and regulated herd organization.

With the pandemic of herd behavior in the digital age, the Chinese government’s vision of human nature has concrete potential to gain ground in many other societies. Systemic competition between China and the West—which first played out mainly in economic and technological realms—is now escalating in politics and ideology. That particular conflict focuses on fundamentally differing conceptions of human nature.
If, in the medium term, China turns out to be the superior economic and technological system, with China’s economy possibly double the size of the United States by 2050, it will have undoubted global consequences for 21st-century governance. Chinese views of society and economy as a herd order in need of surveillance and regulation may prove victorious around the world. And China will reveal itself to be the political and economic system that can make use of the whole range of possibilities within digital civilization the most effectively.

For these reasons, systemic competition with China turns on questions that are even more fundamental than political institutions, technological competition, and security threats. It is a question of the roles and rights of human beings in a future society. China is offering an alternative form of social order, aiming at omnipresent digital conditioning and granular behavioral control. This stands in radical contradiction to the vision of human nature dominant in liberal democracies and market economies.
However, the Chinese conception of ordering human beings, society, markets, and government is gaining attractiveness in many developing countries and emerging markets. China can promise comprehensive technological solutions for politically unstable, economically less productive and conflict-ridden societies, in particular in order to reorganize the wildly proliferating metropolitan areas, now often housing more than 15 million people. The tried and tested systemic solutions that China offers for managing megacities can address infrastructure, living conditions, mobility, energy, environment, and security. Chinese surveillance techniques for public spaces and for online communication have already been deployed in at least 18 separate countries.

Europeans criminally underestimate the strength of demand in many countries for Chinese “smart city” models, including infrastructure and security technology. We cannot rule out in advance that the Chinese-designed systems of authority may allow for peace, wellbeing, and even environmental sustainability in an increasingly densely populated and conflict-prone planet. But if current Chinese conceptions and practices of social engineering come to proliferate globally, the ideas of human freedom and self-determination will head for their digital demise.

8. What can freedom-loving societies do to counter the global advance of Chinese-style digital social engineering?

If we Europeans want to defend what we have struggled to achieve over centuries—individual freedom and choice—the digital transformation will prove an obstacle in many areas of life. European data protection regulations are an expression of this conflict. China’s social scoring system and surveillance state offer a counter-model. Even in China, it is not at all certain that social and political conformity can be implemented without resistance, as suggested by Chinese planners. The large-scale technical systems on which Digital Leninism is based are highly vulnerable. And the social reactions to omnipresent surveillance systems and behavior control will likely become manifest only when systems extend over all areas of life and offer no escape, not even within the most mundane scenes of daily life.
But it would be irresponsible to rely on a stumble, even a collapse, of the Chinese system. In the past, the CCP has repeatedly startled us with its capacity for learning and adaptation. For this reason, we cannot pin our hopes on a Chinese collapse. Rather, what we need to work hard at is a purposive and consistent separation between European and Chinese models of digital control in spite of possible economic costs and political conflicts in relations with China. The discussion on the role of Huawei, the Chinese telecoms equipment supplier, in the development of European 5G networks is only the beginning. Subsequently, we must address the worldwide communications, transactions, and data analysis that are enabled in particular by Tencent’s app “WeChat” and Alibaba’s e-commerce empire. Alibaba and Tencent are dominant ecosystems, not only within China itself, but also for the million-strong Chinese diaspora who all send enormous quantities of data to state-controlled server systems in China.

The fight, however, must not only be fought against manipulative uses of data coming from abroad. On the domestic front, we need to take on the predominantly US-based platform enterprises and targeted data services that have come to dominate the markets. Europe can only achieve its much invoked “digital sovereignty” if it prevents unacceptable practices of data collection and behavior manipulation by suppliers inside and outside Europe. Perhaps most importantly, as a precondition to even think about “digital sovereignty,” Europe needs to nourish the emergence of digital business models for its large domestic market that offers competitive services without destroying free societies.

The decisive question is whether European people, societies, and political institutions can find the strength to at least defend and preserve the core areas of freedom of decision in the manipulative world of digital platforms. Many concrete practical measures are on offer and are ready for implementation. Parts of European society and official regulators are pushing back hard against behavioral conditioning and herd behavior. Because why would any rational person want to be reduced to the human equivalent of sheep, lemmings, or even insects?

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© REUTERS/David Gray

“The AI Arms Race,” “Information Iron Curtain”, or even a new “Tech Cold War”: there’s apparently no shortage of hyperbolic headlines harking back to pre-1989 times, when it comes to describing the now fierce competition between the United States and China over influence in global affairs that is progressively waged also over technologies. The current fight in Western countries about allowing the Chinese telecoms giant Huawei a role in the build-up of their 5G networks is just one example of this.

At the first glance, one could perhaps argue that the re-emergence of two superpowers clashing over global dominance is reminiscent of the old Cold War days when the US battled it out with the Soviet Union. However, appearances are often deceptive, especially in light of the mounting importance of technologies for global competition, and analogies that are leftovers of a bygone era are misleading.

“Brave” New World

The probably most obvious fundamental difference from Cold War times—as trivial it might sound—is the absence of an unequivocal political block confrontation. The “Western world” is not engaged in an official system and military contest with China, in contrast to the much more ideologically charged conflict between NATO members and the Warsaw Pact countries prior to 1989. With the present structure of international politics, the US, for instance, cannot take for granted that its organizational or like-minded “allies” will automatically join it in banning Huawei from their own 5G networks.

This is closely connected to the ever-growing economic interdependence on a global scale. China’s state-capitalistic system is much more integrated into the world economy than the rather old Soviet closed-off system and—as can be seen in the current trade conflict—is also deeply intertwined with the US economy. Moreover, this increasing economic entanglement has been propelled by digitalization itself, as technological systems are often shaped by individual modular components with different countries of origin. And within these global supply chains, the US and China are―to some extent― dependent on each other.

In several areas, including tech-related ones, it seems that Washington is forced into competition with Beijing over who offers the better (and perhaps cheaper) products and services, including to some longstanding US allies. Given this political and economic setting, these allies often don’t feel obliged to choose one side. This is due to the lack of two closed blocks. This is for example shown in the way some NATO members have simultaneously “signed up” for China´s Belt and Road Initiative or the 17+1 format. Hence, calling the ongoing dispute between China and the US a “Cold War”—even without considering the increasing impact of digitalization—would already barely reflect the current realities.

“General-Purpose” Technologies

Often overlooked, but no less important, are the new technologies themselves, which also mean the Cold War analogies do not work. Since the inception of the internet age, the sheer quantity and nature of emerging technologies have led to a rapid and structural transformation. During the Cold War, the number of technologies with relevance for the US-Soviet power battle was comparatively limited. Nowadays, the list of relevant innovations with important implications for various sectors seems to be getting longer by the day. Hence, data-driven technologies, for instance, have a much bigger impact on a country´s GDP today than say, nuclear production, did before.

Many of those technologies don’t just have a dual-use nature, but rather a “general-purpose” one. For instance, the application of artificial intelligence systems is often compared with the invention and use of electricity by pointing to the range of application possibilities. Furthermore, AI innovations can now be developed and shared without the huge industrial effort that, for instance, building intercontinental ballistic missiles meant. Today’s innovations have few parallels with the Cold War ones, which were characterized by huge logistics requirements and complex and lengthy manufacturing phases. However, this also means that countries like the US can no longer control them the way they did in the early days.

The Innovation Edge

This is boosted by the fact that—in contrast to the Soviet Union—China is heavily investing in all of these technologies and genuinely challenging the US innovation edge, especially by pushing forward with the “military-civilian fusion” to fully leverage the general-purpose applicability.
Also, the sources of major technological advances have shifted from the public sector (or the “military-industrial complex”) to commercial companies, most notably illustrated by the tech giants both in the US and in China. This growing reliance on the private sector requires much more sophisticated long-term strategies: while the US has to find ways to ensure that the access to those innovations stemming from US-based “multinational companies” will not be impeded, China will attempt to use its state-capitalistic companies without stifling innovation; in both cases, permanent readjustments are needed.

And last but not least, nowadays there is the contradictory development of digitalization connecting people across borders via information and communication technologies and leading to a democratization of interaction, but at the same time also handing nation states the tools that allow them to put into practice totalitarian visions to an unprecedented degree. China´s application and export of surveillance technologies or internet censorship are cases in point. Hence, technologies and its usage have much more impact on the ideological battlefield internationally.

New Parameters

These are just some of the profound differences from the Cold War period. At the same time, it is telling that within both the US and China, some are pushing for technological decoupling and thus showing a longing for the old Cold War structures. However, such a process would be messy and expensive, if doable at all.

The analogy of a “Tech Cold War” suggests parameters that are far too static and structured to describe the current situation. Conversely, Washington and Beijing find themselves in a perpetual mode of competition and negotiation vis-à-vis third countries, and even with actors in their own countries. If they want to avoid harming themselves, they will need a much more nuanced strategy and a better understanding of the impact of technologies in various areas including economic and military competitiveness and the international order.

It is of utmost importance that those dynamics are understood as precisely as possible—not only for the two main competitors, but also for countries and regions like Europe, who run the risk of becoming of pawns caught between the two fronts.

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© REUTERS/Edgar Su

We live in troubled times. Compared to the rather static geopolitics of the Cold War, today’s geo-economic confrontation between the United States, China and Europe is a far more dynamic phenomenon. What is at stake is securing influence outside of one’s own territory by using geo-economic instruments to reinforce one’s own power position. To this end, governments are attempting to control data streams, financial and energy flows, and trade in industrial goods and other technologies. Asymmetries in the international system are increasing. To maintain or to regain the capacity to act, Germany and Europe must engage in comprehensive strategic rethinking.

Change in Four Dimensions

Economic power has always been a decisive element in the international power system. Economic strength, combined with state monetary policy, represents the material basis on which to develop military capacities. At present, however, the relation between economic strength, state power and influence in the global system is being transformed along at least four dimensions.

First, reciprocal dependencies—“interdependencies” —were long regarded as a stabilizing factor within the international system. Now, however, they are seen as contributing to growing uncertainty. Entanglements of trade and investment, along with ever longer supply and value chains, have considerably increased the vulnerability of many states, as well as their susceptibility to blackmail in foreign economic activities. The trend has affected weaker developing markets but also highly-developed open economies.

Second, we can observe increasing shifts in power and greater asymmetries in the international economic and financial system. This is partly driven by the return of protectionism, but the systemic conflict between the Western world and authoritarian regimes also plays a role. Another factor is the extremely heterogeneous adoption of digitalization and technological revolutions across different regions and countries: this has also fueled shifts and imbalances in economic power.

A Tool of Political Strategy

Competition to control crucial new technologies—artificial intelligence, cloud computing, quantum internet, 5G—has long been under way. Strength in innovation and technological advantage are directly relevant to security questions. Even in the energy sector, technical know-how and market leadership have a strongly political component, as well as an economic one: this is particularly the case with low-carbon technologies. Battery manufacturing and intelligent electricity networks are also good cases in point.

Third, the interdependence of economic, technological and security dimensions now determines states’ scope for action in traditional foreign policy areas and in foreign economic policy. Take the global extension of supply chains and systems of value-creation. These originally received political support, since they were regarded as a development opportunity for countries with low price levels. If components were produced in low-cost locations, or so went the idea, it was certain to benefit the manufacturing companies, the countries where production was located, and consumers in importing countries.

Fourth, inter-state conflicts are less and less a question of military action. This is primarily due to decreasing social acceptance, above all in Western societies, of traditional patterns of military conflict. The shift means that events like Russia’s violent takeover of the Crimea or the war in Syria are now the exception and not the rule. By contrast, we are seeing a sharp increase in countries’ deployment of economic and financial instruments to strengthen their power base, including outside their own territory.

The overall picture changes, however, when foreign direct investment increasingly becomes a tool of political strategy. This could lead to a debate in which implications for security policy overshadow questions of the social impact of globalization.

Parmesan and Irish Butter

A striking example of a simultaneous pursuit of economic and foreign policy interests is US foreign policy under president Donald Trump. The revised US National Security Strategy, published in 2017, equates economic security with national security, and makes the former an explicit element of foreign policy. This has formed the basis for legislation limiting foreign direct investment, like the 2018 Foreign Investment Risk Review Modernization Act. Takeovers of American companies can now be selectively prevented on national security grounds, as in March 2018, when the US government blocked an attempted takeover of semi-conductor maker Qualcomm by a Singaporean firm.

To correct its vast trade deficits, the US has imposed tariffs on imported goods. Restricting flows of imports is intended to force compliance on the part of the foreign country in question. This is why the Trump administration has gradually racked up tariffs on Chinese goods, now totaling almost $550 billion, affecting a large proportion of all US imports from China. Against the EU, the US government imposed special import duties on steel and aluminum. Since October, new US tariffs have also hit a further range of European products, including German and French wine, parmesan cheese from Italy, Spanish olive oil, and Irish butter.

These sort of trade disputes can quickly have an effect on other economic flows, including relations between currencies. In response to punitive US tariffs, China is allowing the renminbi to weaken against the dollar. This aims to negate, or at least minimize, the effects of the new US tariff policy. As a result, the euro has considerably strengthened against the renminbi since April 2019, a trend which already has a negative effect on exports to China from eurozone countries, above all Germany.

China’s Power over States and Companies

China is also pursuing another model of geo-economic power projection. Its Belt and Road Initiative (BRI) creates economic dependency that can then be turned to political purposes. The means China uses to this end are many and various: investment, agreements on raw materials and trade, energy, and infrastructure projects in Europe, Asia, Africa, and Latin America. The strategy is already working: in the UN Security Council in June 2017, Greece blocked an EU motion condemning human rights abuses in China. The previous year, Cosco, a semi-state Chinese shipping firm, had taken a majority holding in the important Greek port of Piraeus.

And there is another emerging theme for German firms to come to grips with. China not only tightly controls and spies on its own society and economy, its social credit systems and lack of data protection are forcing foreign companies to adhere to standards at odds with Western ideas of good governance and data protection.

Of course, the US and China are not the only powers using economic means to achieve political goals. Russia, for example, makes very precise use of its energy resources and infrastructure to stabilize its own political alliances and to drive wedges into other groupings. The Nord Stream 2 project is one prominent instance. The undersea gas pipeline between Russia and Germany, now at an advanced stage of development, has given rise to substantial tensions within the EU and NATO. Germany insists on its sovereign right in economic policy, emphasizing the importance of good relations with Russia. Berlin’s allies, however, continue to warn of probable German overdependence on Russian natural gas, while also criticizing how Nord Stream 2 routes gas supplies around Ukraine, depriving that country of its most important bargaining chip.

Globalizing the Power Struggle

This is a clear example of how the use of geo-economic instruments can make it difficult for Western countries to support reform processes in non-democratic or non-market-oriented states. Other examples include the founding of the Asia Infrastructure Investment Bank, largely at the behest of China, and the creation of the New Development Bank, established by the BRICS states. Both banks were created by non-Western states as counterweights to the still-dominant Bretton Woods system. Since their credit-granting decisions are no longer subject to the conditions imposed by the West, the new supranational banks undermine the norms and standards established under the old financial order.

In addition, Brazil and South Africa are using state-owned banks and companies to develop asymmetrical relations with neighboring countries. In the Middle East, oil-rich states like Qatar and Saudi Arabia use direct financial transfers to expand their regional influence.

For decades, economic relations underwent steadily intensifying globalization. However, today it is possible to discern new and contrary trends. If great powers like China and the United States weaponize economic instruments such as tariffs, investments, sanctions, currency manipulation, and energy and data flows, there will be far-reaching consequences for the international economic system. The same is true of new control mechanisms like the screening of foreign direct investment, the partial unbundling of global supply and production chains, and new interventionist state industrial strategies, functioning on both regional and national scales.

This change is all taking place in a world economy currently experiencing weak growth, with central banks playing an ever larger role, and with debt continuing to rise. All of these developments create increasing interdependency, and also a larger number of potential targets. Geo-economic instruments are deployed in this way to bolster states’ power positions, in turn changing the basic framework of both the world and regional economies. These changes demand a substantial rethinking of states’ scope for action and the effectiveness of classical foreign and security policy.

Open and Vulnerable

Of all countries, Germany is particularly badly hit by these trends. According to the Federal Economics Ministry, the German economy has an openness index of 87.2 percent, making it the most open of all the G7 states. Around 28 percent of German jobs are directly or indirectly dependent on exports. For manufacturing industry, the figure is as high as 56 percent. Moreover, in 2017 German direct foreign investment reached a new high, at €1167 billion, with the United States its largest recipient.

In the other direction, direct foreign investment into Germany also hit a new record that year, totaling €741 billion. In this new geo-economic context, the openness which once served as Germany’s growth guarantee and the basis of its prosperity now puts the country in a particularly vulnerable situation. Moreover, this fact now sets new limits on its foreign policy options.

In 2018, Germany’s most important export partners were the United States, France, China, the Netherlands and the UK. Its most significant import partners were China, the Netherlands, France, the United States and Italy. This constellation demonstrates the difficulty confronting Germany in any escalating Chinese-American rivalry. China is a key guarantor of Germany’s economic model, but despite severe differences of opinion between Berlin and the current US administration, close trans-Atlantic relations remain crucial for Germany, in security cooperation, economic and financial relations, and in the confrontation between democratic and autocratic systems.

In other words, the political and economic aspects of geo-economic “statecraft” have to be considered alongside strategic factors. Germany’s “National Industrial Strategy 2030,” recently unveiled by the Federal Economics Minister, is a step in this direction. But the ensuing debate has revealed deep-seated instinctive reactions, with divisions between supporters and opponents of state economic aid.

The discussion about Huawei’s access to the German 5G market suggests that the intersection between economic and security policies and the debate on fundamental values has seen only limited progress, doing little to reconcile short-term economic considerations with long-term strategic questions. In addition, the significance of geo-economics is still not widely appreciated in the German public sphere. According to a Forsa survey in April 2019, 60 percent of Germans are opposed to using the country’s economic power to achieve foreign policy goals.

Making Europe Competitive

In order to successfully assert itself within the new framework of geo-economic competition, Germany must contribute towards making Europe more capable of concerted action. The new European Commission has taken the first steps in this direction, by giving responsibility for a host of central geo-economic portfolios – economy, trade, the EU’s internal market, climate, competition and digitalization, as well as foreign relations – to a new set of Commission vice-presidents. The guidelines for the new Commissioners envisage Europe exerting greater sovereignty with regard to these issues.

However, concretely implementing this new policy, while also cooperating with member state governments, will present a serious challenge. As a prerequisite for any stronger stance toward the rest of the world, the EU and the eurozone must consolidate their internal relations and strengthen their own competitiveness. Thus, for example, to ensure that the euro can play a stronger international role as an investment and trade currency, EU countries must deepen the banking union, move toward a capital market union, and create a shared safe European financial asset.

To reduce dependency on technology from non-EU states, Europeans must improve overall conditions to encourage greater competitive capacity in high-tech fields. Europe must develop its own technological strengths, a prerequisite if the EU wants to establish worldwide norms in future technologies. Achieving this will require investment in research and development, using funds both from the EU itself and from the European Investment Bank.

Some welcome initiatives are already in their early stages, for example, the development of a European data cloud and the establishment of an overarching authority on security-critical technology infrastructure, analogous to the European Medicines Agency. The European Battery Alliance, established in 2017, brings together stakeholders from every part of the battery value-creation chain, and its voice will be listened to in negotiations on next Multiannual Financial Framework.

Two Trump Cards

Attention must be paid to protective measures as well as increasing competitiveness. Protection here could, for example, include more robust screening of foreign direct investment and skepticism when foreign state-controlled investors seek to acquire a stake in key German or European companies. In order to defend against secondary sanctions, like those imposed by the United States in relation to Iran, the European Council on Foreign Relations has suggested an EU-specific agency which could implement counter-measures to protect European industry.

The shaping of economic relations with important players in the new geo-economic world goes far beyond implementing shared trade policies. The European Union needs a clear strategy on which relationships should be cultivated in trade, investment, development, energy, climate, and security: specifically, with whom should it have close partnerships, with whom competitive relations and with whom good neighborly prosperity? To determine this, security interests and economic interests must be considered at the same time.

In this context, the EU can rely on two trump cards. First, the euro, which in spite of all its crises has never seriously had its value as a currency put into doubt. Second, the EU’s internal market, which can easily keep pace with the United States and China. Meanwhile, the current challenge for the EU is to activate the effectiveness of its market power, along with the political and military strength of the Union and its member states, while strategically protecting and developing its own geo-economic advantages.

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© Murat Cetinmuhurdar/Presidential Press Office/Handout via REUTERS

Helmut Kohl once described Germany as “only surrounded by friends.” The re-unified country, had “found its international place,” the former chancellor reckoned, “without breaks (…) with the foreign policy tradition of the old Federal Republic.” That is very hard to argue today. Rather, Germany is seeking its place again. The international order is crisscrossed by fault lines, and the foreign policy tradition of the Federal Republic must prove itself in an environment full of old-new great power rivalries.

Ambivalence permeates almost all foreign policy relationships. US President Donald Trump, of course, comes to mind first. But he is only the most flagrant case. German diplomacy moves in a world full of two-faced frenemies, as a cursory glance at (some of) the most important opponents shows.

Janus-Heads Everywhere

China is Germany’s most important future market, but its technology-driven authoritarianism also poses the greatest threat to freedom worldwide. The United States is urging Germany to decouple itself from the People’s Republic: this is the background to the dispute over Huawei. “Decoupling” is out of the question for Germany because of the density of economic interdependence, but the protests in Hong Kong and the revelations about the Gulag system in Xinjiang make it seem advisable to reduce economic and political dependence on Beijing wherever possible—especially with such a crucial infrastructure as 5G.

India offers itself as an alternative, democratically governed growth market, but under Prime Minister Narendra Modi it is also drifting dangerously toward authoritarian nationalism, with repressive, Islamophobic domestic politics and an aggressive, revisionist foreign policy—as recently demonstrated by the brutal suppression of autonomy in Kashmir.

Thanks to its geopolitical gains in zones of disorder (Syria, Ukraine), Russia is back in the geopolitical game. German policy on Russia, however, flitters helplessly between pipeline construction and sanctions. Moscow will gain even more influence over Germany’s energy supply through the Nord Stream 2 gas pipeline, while Putin is arming his country more and more aggressively against Germany’s eastern neighbors and is quite openly positioning himself as a champion of an illiberal global movement. The new pipeline also weakens Ukraine’s negotiating position vis-à-vis Russia, which Germany is actually trying to strengthen with sanctions against Russia.

Turkey, Poland, the UK

Since the refugee deal, Turkey has been Europe’s de facto border guard, caring for millions of Syrian refugees and keeping them comfortably far away from the Europeans. President Recep Tayyip Erdogan believes, of course, that he can blackmail the EU with these refugees, whom he keeps threatening to “send”—just as he puts NATO under pressure with his overtures to Putin. His intervention in northern Syria, which violated international law, triggered a debate about Turkish NATO membership and has led to a far-reaching ban on arms exports to a country that is still a NATO ally.

Poland—twice as important for German foreign trade as Russia—has been courted by Berlin for years, and yet the PiS government regularly threatens to demand reparations for German crimes during World War II. Warsaw is pushing ahead with its efforts to dismantle the separation of powers and is subordinating Holocaust remembrance to an all-dominant national narrative of victimhood in a troubling way (which Germany criticizes only cautiously for fear of further fueling demands for reparations).

The United Kingdom is leaving the EU, reducing its geopolitical heft and indirectly exacerbating the problem of burden sharing within Europe because Britain has always made an above-average contribution to collective defense (spending constantly more than 2 percent of GDP for defense). If in the future more than 80 percent of NATO spending comes from non-EU countries, Germany in particular will be singled out for its shortcomings. Keeping the breakaway UK as a partner after Brexit will be one of the most difficult tasks in the coming years.

The Cost of Moral Clarity

The list could go on. As different as these cases are: politics in a world full of frenemies demands a high tolerance for ambiguity. It must do without grand gestures and pseudo-radical proposals that suggest “moral clarity” but often achieve the opposite of what is desired.

Unfortunately, there are plenty of them in the German debate, such as the idea that cutting Poland’s EU agricultural subsidies because of the PiS government’s controversial justice system reforms would somehow bring PiS back on the path to the rule of law. Similarly, pushing Turkey out of NATO (fortunately almost impossible according to the statutes) would be against the interests of Germany and the alliance. Erdogan would simply tie himself to Putin even more closely.

And capping defense spending on the grounds that more should not be given because “a racist sits in the White House” (SPD parliamentary group leader in the Bundestag, Rolf Mützenich) would confirm Trump’s prejudice that the US is exploited by its unappreciative NATO partners, who despise their protector. Equally short-sighted are the widespread fantasies of punishing the renegade British―some Germans would love to see them feel the negative effects of their exit from the EU club.

Such proposals serve more to set moral boundaries than to achieve a strategic goal. As Jan Techau of the German Marshall Fund has argued, the overriding need for self-affirmation in the German foreign policy debate leads to a paralyzing uncertainty of action: “Moral insecurity leads to a compensatory, self-centered moralism, which in turn produces the feeling of moral superiority.” But this psychological need is not the only explanation for the German foreign policy paralysis.

Three Shocks

Three shock-like experiences have provoked confessions by leading German politicians that they want to assume “more responsibility:” the Ukraine crisis (2014), the double blow of the Brexit referendum and the Trump election (2016), and finally the alienation between Paris and Berlin (2019). The sacred vows that Germany would become more involved had barely been made before they were overtaken by the next crisis.

The first shock was seeing how Putin’s Russia has gone from being an unwilling partner to an open opponent and has forcibly redrawn borders within Europe. The US and the UK, the two founding nations of the Atlantic system, the two nations that first reeducated Germany as a model pupil of the liberal world order, are taking a nationalistic turn. They see the EU—the decisive medium for Germany’s political and economic resurgence—as “a foe” (Trump).

And now France, Germany’s most important remaining partner in Europe, is going its own way. French President Emmanuel Macron single-handedly blocked the accession process for the Western Balkans and launched a new Ostpolitik with Vladimir Putin, also without discussion. He also declared NATO to be “brain dead,” thus confronting Berlin with the impossible choice between an Atlantic alliance or European defense. An ancient dilemma from the 1950s has returned: Germany is supposed to decide between Washington and Paris.

Catch-22 of German Security Policy

This calls into question Germany’s preference for not taking sides but rather striving for European cohesion and the expansion of NATO at the same time. This has been a constant of German foreign policy since the failure of the European Defense Community in 1954 and Germany’s subsequent accession to NATO.

For a long time, it seemed not only that the two weren’t mutually exclusive, but that they were almost conditional on each other: NATO was the security policy framework that made European unification possible. Trump and Macron are now questioning this, and their attacks complement each other in this respect. Trump (like his predecessor Barack Obama) no longer accepts that the US should forever be Europe’s guarantor of security, while the Europeans (in his eyes) are fleecing the US economically and at the same time building new gas pipelines to Russia. Macron, on the other hand, has concluded from Trump’s unpredictability that it is an imperative of European sovereignty to build an alternative to NATO as soon as possible.

This results in a kind of catch-22 of German security policy: if Germany were to reach out to Macron over his project, Trump would have another reason to question the alliance. And the Eastern Europeans do not trust Germany and France to defend them against Russia. So they would try to bind themselves even more closely, bilaterally, to the US. In terms of defense policy, Europe would be divided into different zones of (in)security—the opposite of the desired European sovereignty.

The Fragile Munich Consensus

Although key German interests are at stake here, Berlin is purely reactive in this debate. While Trump, Macron, Putin, and Erdogan drive the action, the German government largely limits itself to reviewing the initiatives of others.

Why? It was only six years ago that the “Munich Consensus” was reached at the Security Conference in January 2014—when Germany’s federal president (Joachim Gauck), foreign minister (Frank-Walter Steinmeier) and defense minister (Ursula von der Leyen) made almost identical speeches that all saw Germany taking “greater responsibility” in the world. They encouraged the country to face these challenges self-confidently. Gauck conjured up a “good Germany,” an adult, widely respected country. It had something to give back to the world, he said; Germany had to change from a consumer of order to a producer of order.

Shortly after those Munich speeches, Putin began a hybrid attack on eastern Ukraine, occupying the Crimea with “Green Men” without badges. The Russian leader to whom only six years earlier Steinmeier had offered a “modernization partnership” was waging war to move borders in Europe.
The world of “new responsibility” was not supposed to be this rough. When Berlin foreign policy-makers are asked when the latest uncertainty about Germany’s role in the world began, they mention the Crimean invasion more often than any other event.

Wooing Berlin, Disrupting Europe

According to the Munich Consensus, Germans had to do more to maintain the existing order. But the notion that this world order could be questioned not only by its opponents, but from within—by its previous guarantor, the US—was beyond the power of foreign policy imagination at the time.
That’s why the Brexit decision and Trump’s choice were so shocking. Angela Merkel’s lapidary remark in a Trudering beer tent in May 2017 summed up the new situation in a nutshell: “The times when we could rely on others completely are to some extent over.” The situation didn’t seem hopeless at the time, however: a few weeks before Merkel’s campaign speech, Emmanuel Macron had defeated Marine Le Pen. That September, Macron gave his great Sorbonne speech, in which he set out the program for a sovereign “Europe that protects.” He had deliberately scheduled the speech with Germany in mind, right after the Bundestag elections.

After Chancellor Angela Merkel’s failure to build a coalition with the Liberals and the Greens, her third “grand coalition” with Germany’s Social Democrats started in March 2018 on the basis of a coalition agreement including a passionate chapter on Europe that called for a “breakthrough.” But little action followed these noble words. Macron did not receive a concrete response from Berlin to his numerous proposals. How could it have done so? The coalition was always divided on crucial issues such as European defense, migration, or the European budget and was therefore unable to speak or act.

The deafening German silence on Macron’s European sovereignty initiative leads directly into the recent crisis. After his enthusiastic proposals for reform were rebuffed, the French president switched over to disruption and questioned the EU accession process for Northern Macedonia and Albania, EU Russia policy, and finally NATO.

Now, he is getting his reaction: German politicians haven’t for many years talked about NATO as enthusiastically for many years as they did after that “brain death” remark. Defense Minister Annegret Kramp-Karrenbauer tried in several speeches to revive the Munich Consensus: Germany must do more for common defense, she said, not just as a partner but with its own initiatives, perhaps even northern Syria, Africa, or East Asia. After some hesitation, both the chancellor and Foreign Minister Heiko Maas also made a passionate case for NATO as Germany’s only reliable life insurance. The 2-percent promise would certainly be fulfilled—around 2030.

Twilight Period

It would be very bold to make forecasts about this crucial year of 2020. But one thing can be said: domestic and foreign political instability are a dangerous combination.

A foreign diplomat who has been observing Germany for decades (and prefers to remain anonymous) explains the “paralyzing ambiguity” of German foreign policy as the effect of a “twilight period.” Germany is in a double transition: Angela Merkel apparently cannot and does not want to provide any more impulses. And while Germany is waiting for a change of power at home, foreign policy is also in transition, during which the American-centered order is crumbling without a new one being foreseeable yet. Germany is fleeing the double stress of domestic and foreign insecurity and in a way is playing dead.

The unspoken question is: what if Donald Trump wins a second term as President of the United States in November 2020? That is the question that hangs over all strategic considerations—not only in Germany. Uncertainty about the outcome of the impeachment process and the presidential election influences calculations in Beijing, Moscow, Paris, London, Brussels, and Berlin.

American elections are usually not decided by foreign policy. However, this election will undoubtedly be decisive for the foreign policy orientation of the US. It will determine whether the world has to prepare for another four years of disruption in the name of America First—an America that knows only opponents or vassals—or whether a (at least partial) return of the US cooperating with its allies again seems conceivable.

Expect More Shocks

And yet it would be wrong to fixate on this question. It is risky to bet on Trump’s exit. Not only because his re-election doesn’t seem unthinkable. Even without this president, there would be no return to a status quo ante.

NATO would breathe a sigh of relief if Trump lost, but the pressure for more burden sharing would remain, and the doubts about the commitment to collective defense would by no means disappear. They would perhaps even grow under an explicitly left-wing US president. A Democratic successor to Trump would perhaps choose less aggressive means against China. But the perception of Beijing as a systemic rival is a consensus position in America.

A more confrontational tone could even find its way into Russia’s policy if insights from the Mueller Report and the impeachment hearings become the basis of policy: a Democratic president would have a score to settle with the election manipulator Putin while the Republicans would boost their profiles by continuing to act as Russia apologists, in a blatant reversal of their previous role.

The questions that have thrust themselves on German foreign policy under Trump’s presidency would remain, even if he had to move out of 1600 Pennsylvania Avenue. How can we succeed in building a European defense without further damaging NATO? Can Europe agree on a Russia policy with gestures of détente coming from Paris and new-old fears rising in Warsaw? How should Germany behave in the new Cold War between the US and China?

There is no end in sight to the turbulence, not for domestic or foreign policy. The three shocks of recent years will not be the last. One thing is clear: German (and European) foreign policy can no longer be geared to who sits in the White House. This is a helpful insight for which we should be grateful to Donald Trump.

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© REUTERS/Altaf Hussain

This May, incumbent Prime Minister Narendra Modi led his Bharatiya Janata Party (BJP) to a resounding victory in India’s national election. The fact that 600 million people successfully exercised their franchise should give pause to Westerners who portray Indian democracy as merely a little brother to its older Western counterpart. Modi and his Hindu nationalist party have a new mandate to reshape India.

The first promise Modi’s new government holds for European states is political stability, which makes it easier to build lasting diplomatic ties. Unlike the governments of the 1990s—when Indian politics was terribly unstable and coalitions were prone to fall apart, repeatedly requiring new diplomatic efforts from Europe—the BJP looks a safe bet to last the whole five-year term. Moreover, as of now, the party appears as the best contender for the 2024 polls. So it’s a good time for the EU and its member states to unveil medium-term strategies for their relations with India.

In the Company of Indian Companies

Within this political context, Modi’s second term promises economic openness. Yes, his 2014-2019 tenure did not lead to the privatization of any major public company. Yes, new data suggest an economic slowdown occurred in the second half of BJP’s recent rule, and economic growth is probably lower than the New Delhi government would like to admit. Yes, Modi’s flagship campaign, “Make in India,” aimed at attracting foreign investment and creating jobs, was less successful than expected. But one thing remains certain: Modi will use both hands to keep the doors of the Indian market open to foreign firms.

While corruption, poor infrastructure, and uneven levels of governance remain huge thorns in India’s side, the rankings given to the country for the ease of doing business have improved under the BJP. The “Make in India” campaign will continue as long as Modi is in office. The program’s revised list of industries open to FDI includes significant sectors such as automobile production, chemicals, pharmaceuticals, defense, railways, biotechnology, and renewables. Some of these hold great opportunities. India has, for instance, recently built an International Solar Alliance of countries that wish to enhance their use of solar power due to their geographical position. Some European nations, such as France, are visibly attempting to take advantage of this development.

One thing must be remembered, however: large Indian industrial houses remain one of the BJP’s main constituencies. They are among the Party’s main donors and the main beneficiaries of its rule. Modi’s rhetoric has often focused on India’s poor, whereas the BJP’s electoral manifestos keep promising easier ways of investing in India. So it appears that Modi supports both India’s poor and the world’s rich. But despite all of this, it is actually India’s rich―the large Indian companies―for whom Modi most often rolls out the red carpet.

While this approach may offer some opportunities for cooperation, it also reduces the chances for European companies. Two crucial recent policies regarding FDI in retail and the procurement of defense technologies serve as examples here. Despite his own earlier opposition to FDI in retail, Modi allowed it to continue after taking over power in New Delhi. This came as a boost to firms like H&M and IKEA. However, his government recently introduced a rule forcing retailers to source 30 percent of the value of the sold goods from India. As for defense procurement, India’s Ministry of Defense imposed the rule that any foreign company selling major, strategic defense technologies to India needs to have an Indian partner. The controversy around the Rafale jet signalizes the Indian government may in fact try to pick the company itself. In either case, the Indian government is making sure that the country’s companies cannot be thrown out of the race.

Intra-European Competition

Even with an Indian government focused on attracting foreign investment, smaller European nations don’t have much to cheer about. As evident from his foreign trips, Modi, like his predecessors, focuses on New Delhi’s main partners in Europe: Russia, Germany, France, and the United Kingdom. As far as his European policy is concerned, India’s prime minister has not ventured into uncharted territory by, for instance, visiting any smaller countries in central and eastern Europe.

Among European capitals, Paris was perhaps most successful in developing its ties with New Delhi, with the government providing a huge diplomatic push to the economic endeavors of its companies. Germany remains India’s top trading partner on the Old Continent, while United Kingdom was the biggest European source of FDI inflows to India over the last 18 years.

Smaller European nations have a much more difficult position with regard to India, as they are both less recognizable and have less to offer in terms of capital and produce. Therefore, they will have to look for niches in the vast Indian market. Modi’s policies do offer some opportunities, however. For instance, a Polish company is installing screens at bus stops as part of the New Delhi’s Smart City initiative.

In some areas, European nations and companies are bound to compete with each other elbow to elbow on their run to India. There is no telling when the India-EU Free Trade Agreement will finally be completed—negotiations began in 2007—but it may end up benefitting the better-positioned companies of western Europe rather than the firms of newer and poorer member states. Meanwhile, France is likely to expand its ambitious push into India’s defense market, which will upset Russia. And if and when Brexit is completed, some Indian companies may start to depart the United Kingdom, which will encourage the major cities on the European continent to compete in order to attract them.

On the Same Page, Sometimes

When it comes to the global world order, there are areas where European Unions and its members may hope to share sentiments with India, and ones which will remain thorny issues. Europe and India have similar attitudes toward the rise of China; that is one aspect of convergence. India’s and EU’s recent steps show that both are willing to accept Chinese investment in general but aqre wary of Beijing’s rising political clout. Indian ministers have expressed security concerns about the Chinese telecoms company Huawei, but the country has not yet taken a decision on barring Huawei from its upcoming 5G trials. Similarly, New Delhi took a firm position against China during the Doklam standoff in 2017, when Indian and Chinese forces squared off (without violence) across disputed territory. But it did not invite Australia to its navy exercises, apparently not wanting to appear too militaristic. India also did not take part in either of the Belt and Road Forums organized in Beijing—and yet is the biggest beneficiary of the China-created AIIB.

Both New Delhi and the major European nations are also keen to retain the JCPOA deal with Iran and unhappy that Washington and Teheran are again on a collision course. If the US and Iran step back from the brink, Brussels and New Delhi will be equally relieved.

India’s relations with Russia, however, will remain a diplomatic challenge for the EU. Moscow is a close political friend to New Delhi and a crucial provider of military technologies (alongside Washington). Even though New Delhi’s elites and experts believe that the US is a much more important global partner, India does not wish to be pushed into a single global alliance. It prefers to hedge its bets. Therefore New Delhi has not criticized Russia’s activities in either Ukraine or Syria. A solution to the Ukraine crisis is not on the horizon, and Europe should know that this is not an issue where it can hope for India’s support.

Don’t Preach

The European Union will probably not be happy with Modi’s policies toward refugees, either. BJP, a Hindu nationalist party, has proved time and again that it is unwilling to welcome Muslim refugees such as Rohingyas from nearby countries, even when it is under obligation to do so. After the persecution of Rohingyas started again in Myanmar, around 40,000 of them managed to flee to India. The BJP government refuses to treat them as refugees, however, and considers them illegal immigrants who must be deported. But while New Delhi and Brussels may not be on the same page, the geographical distance between them means they are not likely to face the same refugee crises.

A word of warning seems appropriate, too, where India’s attitude toward religious minorities is concerned which has undoubtedly hardened unter the Hindu nationalists of the BJP. While this is a matter of concern, the EU should not repeat its past mistakes of being too preachy.

Looking at things from a global and long-term perspective, one of the most important conclusions is that India’s ties with the US are bound to grow much faster than the ones with Russia. New Delhi and Washington broadly agree on the need to counterbalance Beijing, among many other things. This should eventually open new possibilities for cooperation between European countries and India, too. Such developments may extend well beyond Modi’s tenure and shape a part of the global order.

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© Sputnik/Alexei Druzhinin/Kremlin via REUTERS

With prominent Western attendees few and far between, the stage was set at the end of June for this year’s St. Petersburg International Economic Forum to become a Russian-Chinese affair. Russia’s President Vladimir Putin took his counterpart Xi Jinping, the guest of honor, on a tour of his home city, and the two leaders talked until midnight.

Bilateral Russian-Chinese relations have reached an “unprecedented level,” Putin declared. The previous year, Xi had called Putin his “best, most intimate friend” and awarded him China’s first-ever Friendship Medal. Without a doubt, Russia and China have come a long way since the open hostility between the People’s Republic and the Soviet Union in the 1960s. Today, both countries closely cooperate in the UN Security Council, carry out regular joint military exercises, and look to each other for trade and investment.

Enthusiastic Handshakes

Since Xi became China’s president in 2013, Russia-China relations have become much more personalized. The two presidents have lent each other symbolic support when it counted most. Putin was the key foreign guest at the Belt and Road Forums both in 2017 and 2019. Xi, on the other hand, was the only foreign head of state at Russia’s military parade in May 2015, when Russia, on the 70th anniversary of Victory Day, faced international isolation after the annexation of Crimea.

Although the connection between Putin and Xi often looks transactional, it facilitates the rapprochement between Russia and China. However, this high degree of personalization comes with its own risks: a change in leadership in one of the two countries could quickly change the dynamic in bilateral relations.

And while the two leaders are adept at creating the image of an inseparable Russian-Chinese friendship, their enthusiastic handshakes often do not translate into actual cooperation. It has become common practice for Russia and China to sign several dozens of bilateral agreements each time their presidents meet, but the significance of these contracts, which range from partnership agreements to business deals, to cooperation of regional governments, should not be exaggerated. More often than not, they do not have any material consequences. The businesspeople and bureaucrats involved know that the implementation of the contracts is secondary at best. They see the signing ceremonies as a valuable opportunity to get access to their respective president.

Gas, Naturally

As a general rule, economic cooperation between Russia and China is successful when it aligns well with elite interests and pays for itself. Unsurprisingly, the biggest progress of the last years has been made in the natural resources sector. The largest common projects are the construction of the Yamal LNG terminal and the Power of Siberia pipeline, which will pump Russian natural gas to China starting in late 2019. Both projects have given Putin’s business allies and their contractors the opportunity to make billions of rubles.

Other bilateral initiatives are failing, however, because neither Beijing nor Moscow is willing to foot the bill. The flagship project of Russia’s cooperation with Xi’s Belt and Road Initiative, a high-speed railway connecting Moscow and Kazan, has been postponed year after year because Moscow is unwilling to grant the state guarantees that Beijing’s banks demand. Another case of unsuccessful cooperation is the attempt to de-dollarize trade between the two countries, 75.8 percent of which was still settled in US dollars in 2018.

The volume of trade, in contrast, has been a bright spot in the Russian-Chinese relationship. Trade turnover has doubled over the last ten years and reached a new record of $108 billion in 2018, despite lower oil prices. As an individual country, China is Russia’s most important trading partner. As a trading bloc, the EU still far outweighs China, with a trade turnover of $279 billion in 2018. Of course, the increase of bilateral trade has less to do with Russia’s “pivot to the East” or a Putin-Xi friendship, but is mainly the consequence of Chinese economic growth. While China’s trade with the world has ballooned, Russia’s share has remained virtually unchanged at around 2 percent.

Still, the outlook for trade in goods and services is promising: China’s demand for natural resources and food is expected to further increase, while more affluent Chinese tourists will roam Russia’s far east, Siberia, and the rest of the country. Railway transit of Chinese goods through Russia is small but growing. And thanks to its increasing technological prowess—and, to some degree, Western sanctions—China is more and more able to compete with EU exporters in the Russian market for machinery and vehicles.

Disappointing Investments

While the Kremlin welcomes the uptick in trade, it also hoped that investors would drive the modernization of Russia’s economy. The progress here has been disappointing. According to Russia’s Central Bank, the stock of foreign direct investment from China and Hong Kong stood at just $3.6 billion, or 0.9 percent of Russia’s total incoming direct investment in January 2019. Pinpointing the precise amount of Chinese investments in Russia is notoriously difficult because, according to estimates, about half of the Chinese capital flows through offshore jurisdictions such as Cyprus before it enters Russia. But even if these masked transactions are taken into account, it is clear that Kazakhstan, for instance, and a range of other countries have been much more successful in attracting Chinese investors than Russia.

The main reason for the lack of Chinese investment is Russia’s generally unattractive investment environment. There are few lucrative opportunities in Russia’s stagnating economy, and Chinese businesspeople often lack the necessary experience and patience. A peculiar combination of highly regulated markets, pervasive bureaucracy, rampant corruption, and economic protectionism makes Russia less predictable for Chinese firms than some of the least developed African countries with their highly autocratic regimes.

Another complicating factor is the anti-Chinese sentiment still lingering in Russian society. A common narrative is that Chinese investors exploit the country’s sacred natural treasures with the help of unscrupulous and corrupt Russian elites. The most recent variation on this theme was the commotion around a new Chinese water bottling factory at the Lake Baikal.
After reports spread throughout Russian social media that the factory was an ecological threat, it sparked outrage not only in Siberia’s Irkutsk, but more importantly in Moscow. Eventually, the authorities suspended the Chinese project in March 2019. There are similar concerns over Chinese farmers spoiling Russian soil with inappropriate fertilizers or Chinese loggers cutting thousands of square kilometers of Siberian forests. While only some of these concerns stand up to closer scrutiny, this doesn’t change public perception:. When in doubt, the Russian authorities would rather terminate a Chinese investment project than risk public unrest.

Fear of Dependency

The already staggering asymmetry in Russian-Chinese economic relations will only increase in the coming years. Still, Moscow has avoided falling into a one-sided dependency to China. At the moment, Russia can still balance the relationship with legacy advantages it possesses. Especially in the military and aerospace industries, Moscow boasts technologies that China cannot replicate or buy anywhere else. However, as China is quickly developing its own capabilities, balancing the relationship will become more difficult for Moscow.

In the past, Russia’s answer to looming dependencies has been to stall cooperation and integration processes. For example, Moscow has blocked Beijing’s initiative to create a free trade zone within the Shanghai Cooperation Organization. The asymmetry in information technology between China and Russia could also raise concerns in Moscow for the future. As a consequence, it is unlikely that Russia will create its entire 5G network solely with Huawei technology. Although a new contract between Huawei and Russia’s Megafon on 5G was prominently advertised in early June, much less attention was paid to similar agreements that Nokia and Ericsson signed in St. Petersburg.

An Analytic Challenge for the EU

China initially benefitted from the worsening relations between Russia and the West. The Kremlin was urgently looking for new partners, offering access to natural resources and military tech in return. However, Russia’s erratic and aggressive foreign policy is also a cause for concern for Beijing. While Chinese state media have harshly criticized the West over its sanctions regime and double standards, Beijing has formally adopted a neutral position on the Ukraine crisis and does not recognize Crimea as Russian territory.

So far, Beijing has given no indication that it is prepared to spoil its relations with the EU by supporting Russia’s foreign policy adventures. It avoids siding with Moscow too explicitly. When Putin gave an interview in Beijing in late 2018, Chinese censors cut out his invitation for Chinese tourists to visit Crimea. Chinese banks also take great care to not breach US sanctions, and they have closed accounts and blocked transactions of Russian businesses and citizens, leading to frustration in Moscow.

There is little the EU can do to change the trajectory of Russian-Chinese relations. However, a sober assessment will be needed to determine where Russian-Chinese cooperation is threatening to EU interests, where it is benign, and most importantly, where it is more about words than deeds. Meanwhile, EU policymakers should avoid the temptation of lumping Russia and China together. Observers in Washington are currently inclined to treat Beijing and Moscow as an anti-Western alliance in the making, which they are not. The analytical challenge for Europeans will be to not let the Putin-Xi show deceive them, while taking the more fundamental developments seriously.

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© REUTERS/Thomas Peter

In 1989, the global economy changed even more profoundly than global politics. While political rivalry actually never disappeared entirely, and nations like Russia never became liberal democracies, the “End of Economic History” could indeed be recorded, quite in the sense of Francis Fukuyama’s famous article.

1989 was not only the year that saw the Central European nations revolt against Communism, it was also the year that Japan suffered its biggest ever financial debacle, and the Soviet Union started its economic decline. Both developments deprived the world of two economic powerhouses. Scenarios of Japan becoming the world’s number one economy were quickly forgotten and gave way to the idea that the US would enter the era of “unlimited wealth,” as US economist Paul Pilzer wrote.

The major difference between the “post-historical” global economy that emerged in the 1990s and the traditional industrial economy of the 19th and 20th centuries was a new type of cooperation between major economic areas. Previously nations that tried to “catch up” actually used the same technologies as the others, but in a more effective way; this very fact explains why their economic rivalry only reinforced the political one. The fight for markets excluded compromises simply because it was a pure “zero-sum” game.

The post-industrial revolution of the 1970s and the 1980s changed all this. In the new globalized world, the US became the front runner in producing computers and semiconductors, in creating the operational systems these computers used, and in making the most effective economic use of new technologies. When selling software, the US and other Western powers didn’t sell the knowledge embodied in the original programs; they just sold copies, which could be reproduced in any quantity at zero cost. At the same time, the newly emerged economies in Asia used US technologies to create sophisticated hardware, producing these goods in increasing amounts.

This new configuration was perfectly “post-historical” in Francis Fukuyama’s sense. Both parts of the world’s economy became dependent on each other, and in this new order, there were no reasons for economic wars and quarrels. The United States was an absolute economic superpower. By 1992 it produced 26 percent of world’s gross product, according to IMF data, and controlled around half of the patents in force. But the economic policy it pursued vis-à-vis all potential rivals was super-friendly and extremely decent.

Benevolent Superpower

The US supported the economic reforms in Russia in the early 1990s; it bailed out Mexico from its debt crisis in 1994; it refrained from introducing any restrictions on cheap Asian imports after the 1997-98 financial crisis; and it advocated the accession of China to the WTO on conditions designed for a mid-sized developing economy rather than for a rising industrial powerhouse. During these decades, the peripheral economies grew fast, increasing the demand for US technologies and software, and supplying Western nations with affordable industrial goods, thus improving the quality of life in the global North. To my mind, this perfect interdependence was the essence of globalization. The globalized world was indeed a “post-historical” one.

The consequences of globalization are well known. Between 1991 and 2015, more than 1 billion people were brought out of extreme poverty, with “emerging Asia” accounting for roughly 75 percent of this number. China became the world’s largest exporter of goods in 2009, the largest industrial producer in 2010, and the world’s largest economy in 2016 (by GDP based on purchasing power parity). The “Asian century,” observers claimed, was set to begin.

The US share in the global GDP as measured by purchasing parity ratio decreased to 15.1 percent by 2018, and its trade deficit grew from $31 billion in 1991 to $622 billion in 2015. Asian nations turned into the largest holders of foreign currency reserves (China, Hong Kong, South Korea, Taiwan, Malaysia, and Thailand account for more than $4.65 trillion in combined international currency reserves), while the US is now the largest debtor nation in the world. It seemed that the newly industrialized world was successively challenging the post-industrial one, and the final outcome of this epic battle was far from predetermined. But while these numbers indeed appear to show that the gap between the leader and the follow-ups has narrowed dramatically, they do not reflect the whole situation. Look at the United States’ technological dominance instead―here, nothing much has changed.

Chips and Systems

As of early 2019, it’s true that more than a half of all desktop or notebook computers in the world were produced in China. But the country is able to furnish less than one-third of them with locally-produced microchips and remains highly dependent on imports. Meanwhile, up to 60 percent of all global makes rely on Intel microchips. In server processors, Intel’s domination is even greater―98 percent. Both Intel and AMD lead the development of new generations of chips, while mass manufacturing of the devices has been relocated to Asia. Companies like SK Hynix of South Korea or TSMC and UMC of Taiwan position themselves as American firms’ competitors, but continue to depend on them for the most vital technologies.

In 2018, more than 65 percent of all smartphones produced in the world were manufactured in China―and 78 percent of them were built by “genuine” Chinese brands, from Huawei and Xiaomi to OPPO and Vivo. But at the same time 97.98 percent of all the smartphones in the world run on either Windows, Android, or iOS operating systems. If all computers and computer-like devices are counted, the share of Microsoft, Google, and Apple software comes to an impressive 95.93 percent. As for the market for online searches, Google has a market share of 92.82 percent compared to 1.02 percent held by Baidu, the Chinese search engine, and 0.54 percent held by Yandex, which pretends to be the undisputed leader of the Russian high-tech sector. Among the 10 most popular social networks, US-based Facebook, YouTube, WhatsApp, and Instagram account for 8.12 billion users, while the Chinese or Chinese-oriented QQ, Douyin, and Sina Weibo only have 1.67 billion users. Of close to 300 billion e-mails exchanged in the world daily, up to 92 percent are received by inboxes registered with US-based companies. Apple and Google-built services are clearly in the lead with a 75 percent market share.

All the Big Players Are American

In 2007, PetroChina became the first trillion-dollar company by market value, and in 2008 Russia’s Gazprom advanced to the fourth position on the list of world’s most valuable companies. But as of March 2017, all the top 10 companies by market capitalization were once again American―for the first time since the 1970s! Therefore, the idea of a “US retreat from the world” looks a bit questionable. The same is true when looking at the financial side of things. As of April 2019, mainland China and Hong Kong together held around $1.33 trillion in US Treasury bonds. But even if they tried to sell them off, a “financial tsunami” would remain unlikely, since US banks can easily buy them out and get loans from the Federal Reserve using Treasury bonds as a perfect collateral. Just remember that between 2008 and 2011 the Federal Reserve’s balance sheet grew by $2.1 trillion. This could well be repeated if China engaged in full-scale financial confrontation.

In short, two decades into the 21st century, the US still appears the undisputed global leader in terms of technological domination and enjoys clear superiority in each and every domain of the information economy. If any other nation tried to wage “economic war” against the United States, it would be certainly defeated―and not so much by financial sanctions, asset freezes, or trade embargoes, but by denial of access to US-made or US-controlled technological and/or communication capabilities.

If all this is true, why do the other powers do nothing to counter this dominance? My answer is simple: because the American political leadership never used this component of US strategic power to subjugate any foreign government or foreign company―at least not until now. Since 1990, the US has waged many wars and boldly made use of its military power in Iraq (twice), Bosnia, Serbia, Kosovo, Afghanistan, Somalia, Libya, Syria, and many other corners of the globe. But it never relied on its technological superiority for promoting its political goals. As far as the information technology domain is concerned, the history of war and conflict seemed firmly over in all the years that have passed since Francis Fukuyama outlined his famous hypothesis.

Crossing the Red Line

But much of this has changed in recent years as President Donald Trump decided to “get tough” with China and launched a full-scale trade war against Beijing. Without any doubt, the US has good reasons, since China has for years imposed protective tariffs on US goods (in 2017, the US took $13.5 billion in custom duties from $506 billion Chinese imports, while the Chinese authorities levied $14.1 billion in duties on $127 billion worth of US imports). Chinese companies have also violated many US laws protecting intellectual property and forced foreign investors to share their technologies when outsourcing production facilities to China. More examples could be added.

The fundamental difference to all the previous economic tensions is that the US authorities have recently invoked sanctions against several Chinese high-tech companies―most notably Huawei and ZTE―actually accusing them of industrial espionage in the United States. And even this wouldn’t change the situation much if the restrictions imposed were aimed at curbing the companies’ imports from the US or their purchases of US-manufactured components. But as of June 1, 2019, several US companies, following the authorities’ orders, effectively banned Huawei from their services: Microsoft discontinued the supply of its Windows operating systems for Huawei laptops and other content-related services, and Google announced that it was blocking some elements of its Android operating system (GoogleMaps, YouTube, GooglePlay, Gmail) on Huawei smartphones.

Here, it seems to me, the US government crossed an important red line. It undermined the trust foreign hi-tech companies had in the technological platforms that for decades secured America’s dominance in the globalized world. Microsoft or Google don’t just produce American software―for a long time, they have been producing American soft power. It now appears that this soft power can easily be turned into a hard variety. The long-term consequences of such a change may be profound.

Chinese Retaliation

What will happen next? Of course, the affected Chinese corporations will suffer a major blow; Huawei and ZTE may well be stopped from their expected expansion―but I would be surprised if the Chinese government did not retaliate. Unlike the oil-producing countries or other commodity economies, China already produces billions of units of hi-tech products and will definitely continue its industrial expansion. Therefore it is crucial for Chinese companies to develop their own operating system (Huawei already announced it will have one available by the end of 2019)―and the Chinese government will do its best to help them achieve this end. At the same time, Chinese producers will want to devise their own microchips (today not a single Chinese company is listed among the top 25 semiconductor producers in the world), which will not be a huge problem since they have already acquired or stolen all the major technology from Western companies. So sooner or later, technological platforms will emerge that will be able to compete with the dominant American companies.

It should be noted that Chinese software and social networks are predominantly used either in China itself or by overseas Chinese. This hasn’t changed for years―while goods manufactured in China conquered the world, Chinese software has so far remained limited to the Chinese community. Now, however, the US would appear to be facilitating the internationalization of the Chinese hi-tech sector. This is helped by China’s incredible sway over the most important consumer markets in the world. In the case of Russia, for instance, consumer products account for less than 3.1 percent of overall exports; in the case of China, the figure exceeds 59 percent. The users of China-made computers and mobile devices abroad―serving around 2 billion people around the globe―are China’s main economic asset, which it will use with all possible ardor. As a result, a real alternative to the US technological platforms will emerge for the first time.

Of course, the US will not simply roll over. In recent years, it initiated at least two major economic shifts of global importance. First, the so-called Fourth Industrial Revolution introduced fully automated production techniques, thereby endangering the position of labor in the production chain. This undermines China’s and other rapidly developing countries’ main competitive advantage: the relatively low labor costs that propelled them toward global industrial leadership. In the future, US companies may be able to discard their overseas production capacities and bring not only their capital but also their industrial facilities back to the US, increasing their independence from China. Second, the US and Europe have embarked on a journey toward energy independence―focusing either on nonconventional extraction techniques (the US) or on developing renewable energy sources (Europe). Both trends will make the West far less dependent on commodity economies like OPEC or Russia.

The End of “Chimerica”

All this will definitely produce a kind of division in the current “post-historical” economic system. Both parts of what analysts had prematurely started to call “Chimerica” will increasingly rely on their strongholds. In the case of China, it’s the hardware produced on the mainland and supplied all over the world. In quite a short time, these devices will be furnished with Chinese operational systems and Chinese microchips―and the Chinese will do their best to make sure that their software cannot be uninstalled. I would also expect all Chinese smartphone manufacturers to replicate Apple’s system of free iMessages and FaceTime calls etc., which will lift overall demand for their products.

On the US side, there are many competitive advantages as well: first of all, the US will make full use of its total domination of the microchip market, which can hurt Chinese manufacturers dramatically; second, it may increase its pressure on Chinese consumers as an increasing number of software applications will not work on Chinese smartphones, and, last but not least, the West can use the global internet projects it is currently developing to increase its dominance. It can, for example, announce that China-produced devices will be barred from space-based internet providers. As the result, the global economic and informational realm that exists today will split apart, and countries and companies will lean to the one or the other dominant technological “core.” It’s difficult to say how far this division will go, but the general trend is easy to see.

Undoubtedly, the ongoing economic and technological split will be followed by the reinforcement of political contradictions between different blocs and alliances. Today, the US has by far the largest number of loyal supporters: in Europe, Latin America, and Japan, most will side with the Americans. The United States’ financial capabilities, its economic reach, and its long-term strategic alliances will contribute to creating a Western economic and technological space that cautiously opposes the one created by China. But the Chinese have made remarkable progress over the past two decades.

Between 2005 and 2018, China’s investments in Africa went from $23 to $352.7 billion; Chinese companies invested around $170 billion in Latin America; the government started the Belt and Road Initiative; and, of course, Beijing worked hard to turn Moscow into its economic vassal (all the leading Russian mobile communication companies opted for Huawei’s hardware to comply with a new law that obliges them to collect and keep all the customers records for at least a year). Both economic superpowers are likely to press their allies and economically dependent nations to adopt their technological and software standards.

How high is the probability of “Chimerica” being destroyed for good in the current economic showdown? It’s entirely possible. Even though China exported more than $539.5 billion worth of goods to the US in 2018, this accounted for only 4 percent of its nominal GDP. During the same year, Beijing increased the bank loans provided to local companies and households by more than 16.2 trillion renminbi ($2.4 trillion or 17.9 percent of country’s nominal GDP). The Chinese authorities seem oblivious to the danger of creating the greatest credit bubble in history as they seek to increase economic growth by boosting local demand.

Do Not Fear

So the preparations for a “decoupling” from the US are in full swing. Of course, if things take a turn for the worse, the world may face a full-scale economic recession. But it could well be the last recession of the globalized world. The political rhetoric that goes along with it―praise for protectionism, export substitution, and reliance on different nations’ own competitive advantages―may contribute to the creation of “multiple globalizations” centered around either the US or China.

Back in 2008, a young American strategist called Parag Khanna first described the model for this new era of economic and political competition. Khanna argued that the coming world will be led by three “empires”: the United States, China, and the European Union, which are capable of projecting their economic and societal models across the globe. All the other nations, Khanna argued, will be downgraded to either “second” or “third world countries;” the first group will at least be able to influence “imperial” competition, while the latter will no longer play any role in world affairs at all. This scenario looks more realistic as the technological showdown advances.

Should we fear the advance of this “post-globalized” world? I don’t think so. Economic progress is often uneven, fluctuating between cooperation and fierce competition between major rivals. As potential adversaries mature, the contradictions between them increase. But the most crucial point here is that since World War II, economic competition has played out increasingly peacefully. The 1989 economic revolution that left the US at the top of the economic hierarchy didn’t provoke any political quarrels―on the contrary, it caused a short “post-historical” era in world politics. In the economic and technological sphere, this “post-historical” age lasted even longer―and even now it seems that while economic tensions rise, the risk of political confrontation isn’t increasing. Francis Fukuyama, it would seem, had a point after all.

The post The (Temporary) End of Economic History appeared first on Berlin Policy Journal - Blog.

© REUTERS/Vincent Kessler

Sovereignty is like oxygen―you don’t notice it until it’s gone. But then you really miss it.

For Europe, the United States’ withdrawal in 2018 from the Iran nuclear deal was that type of asphyxiating moment. That decision not only undid the signature European foreign policy achievement of the last decade, but also demonstrated that Europeans were virtually powerless to oppose a determined US president even as he trampled all over European preferences and European interests.

In retrospect, it appears that on a host of issues from defense to technology standards to trade, the EU has never been as sovereign as it thought. Even the EU’s vaunted economic power now appears as the result of a relative lack of geopolitical interference and competition. A time of fiercer geopolitical competition and an America more focused on its own narrow interests has exposed the EU’s lack of independence in new ways.

A re-invigorated European sovereignty could limit the damage and help protect European citizens. It would ensure that European leaders have the power to promote European values, to defend a multilateral system that helps protect European interests, and to allow Europeans to trade and invest with whomever they please. In other words, they would regain the capacity to decide their own fate, which is virtually the defining characteristic of any political community.

Transatlantic Dangers

The cost of their current lack of capacity is manifold. Europeans have different interests than other powers in a wide range of areas. Russia, a country that periodically invades its neighbors, presents some obvious challenges for European security. Less obviously, China is buying up European companies that are strategically important for European security and prosperity as well as acquiring political leverage over European member states through its massive investments. It has already used that leverage to pressure European countries to block critical language on its human rights abuses at the United Nations. And most disturbingly, the policies of the Trump administration mean that Europeans need to acknowledge that their interests and values increasingly diverge from the United States.

Of course, the transatlantic alliance remains a pillar of European security and prosperity—breaking it up is worse than unthinkable; it is unwise. But the Trump administration’s opposition to multilateral institutions, its callous disregard of allied concerns, and its willingness to leverage the US economic and financial system for geopolitical purposes all endanger European interests and values.

Europe seeks to secure its troubled periphery while the Trump administration is stoking tensions in the Middle East. The EU would like to defend rules-based international trade, while the Trump administration is actively undermining the WTO and its dispute resolution mechanism. For these and other reasons, the EU and its members states need the ability to negotiate on an equal footing, even with their closest partner. The transatlantic alliance can only survive if it delivers value for both sides of the Atlantic.

A Costly Void

New analysis by the European Council on Foreign Relations shows that European non-sovereignty could soon exact an even greater price, both political and monetary. €191 billion worth of EU trade with Russia every year and around €1 billion of EU trade with China every day would be threatened if a great power decided to impose secondary sanctions on it. Europe’s vulnerability in the cyber space could also prove expensive. Often state-directed incidents such as the WannaCry virus or the attack on the UK National Health Service could cost Europe hundreds of billions of euros.

The emerging industry of artificial intelligence has the potential to contribute more than €13 trillion to the global economy in 2030, according to a PWC study. But it remains unclear whether Europe will tap into this potential if it cannot protect its technologies and its economy from great power predations. Other countries such as the US, Russia, or China could also block the EU from using its own resources to stabilize an African country through the United Nations, send an OSCE monitoring mission to Eastern Europe or bail out a third country through the IMF. And, finally, imagine the security costs of non-sovereignty if Russia decided to treat Poland or Latvia in the way they have treated Ukraine.

The EU needs to look more holistically at the current threats to Europe’s capacity to act and embrace a new concept of strategic sovereignty. Strategic sovereignty would seek to marshal all of Europe’s policy tools and create an independent capacity for prospering in the geopolitical competition Europe has reluctantly entered.

Three Areas of Sovereignty

A few concrete examples help demonstrate the concept:

In the economic realm, Europe needs the ability to fight back against secondary sanctions through a stronger, more widely supported INSTEX, a Financial Sanctions Enforcement agency, and a beefed-up blocking regulation. The EU also needs to introduce geopolitical considerations into its competition policy instruments, establish Union-wide foreign investment screening, and expand regulation of state aid beyond just EU companies. For the longer term it needs to bolster the euro’s international role by fostering deep and integrated capital and banking markets, creating a eurozone safe asset, and extending swap lines to partner central banks.

On defense and security, Europe needs to increase its readiness and force posture in eastern Europe to underscore its commitment to the region’s security. It would complement NATO efforts, but also build Europe’s own capacities, in part by introducing a European level of ambition in NATO. The EU could also take over missions in Kosovo and Africa to improve burden-sharing within the alliance. Europe also needs an effective cyber-security institution with centralized functions.

In the political-diplomatic field, Europe should more effectively coordinate its sometimes disparate voices within multilateral institutions, including the UN Security Council, the Human Rights Council, and the IMF. But it also needs to hedge against blockage of international institutions. First of all, Europeans should agree emergency rules with other multilateralists on how to manage arbitration if the Appellate Body of the WTO is blocked. But they should also prepare their own institutions such as the European Investment Bank and the European Stability Mechanism to engage outside the EU and beyond their current mandates if necessary.

The overall goal is to promote a Europe that can prosper and maintain its independence in a world of geopolitical competition. This requires recognizing that even as Europeans continue to support a rules-based multilateral order and the transatlantic alliance, they also need to respond to the interlinked security and economic challenges that other powerful states present. The values and interests of Europe’s citizens depend upon it.

The post The Case for a Sovereign Europe appeared first on Berlin Policy Journal - Blog.

© REUTERS/Joshua Roberts

Since it became a world power around 1900, the United States has had one permanent strategic goal: to prevent a single power from controlling the whole of Eurasia. Interestingly, during the first half of the 20th century, the danger came from Europe. American grand strategy came into its own when the US acted to prevent European powers from annexing China. Brooks Adams, a grandson of US President John Quincy Adams, warned at the time: “Were the Russians and Germans to coalesce to dominate Northern China, and were the country to be administered by Germans with German funds, a strain of a very serious nature might be put upon America.” Later, that same America allied itself with the Soviet Union to prevent Nazi Germany from controlling Ukraine, the Caucasus and, ultimately, India.

For most of the second half of the 20th century, the danger was Russia. Predictably, the US built up Europe and China as bulwarks against the Soviet Union. Now, in the 21st century, the circle is closing. This time, the danger is China. One might have expected the US to use Europe, Russia and India to balance China’s ambitions. But so far the iron logic of the process has been obscured by American triumphalism, itself a predictable consequence of the victory in the Cold War and the collapse of the Soviet Union, which bred the hope that the whole world might be unified under US leadership.

With the Belt and Road Initiative, China has placed the Eurasian question front and center of every geopolitical discussion. In its essence, the initiative is a plan to extend Chinese influence and power over the whole of Eurasia, obtaining access to energy sources from Russia and the Middle East, technology from Europe and large markets in Europe, India and Southeast Asia. Were the Belt and Road Initiative to achieve all its goals, the United States would become an island on the shores of Eurasia—still very prosperous and protected from direct interference in its affairs, but peripheral and absent from all global questions. It would become the blockaded party.

Faced with this nightmare scenario, the US has reacted on a number of fronts. The main one is the ongoing trade and technology wars. Washington has dealt a severe blow to China’s most successful global company. Running Huawei out of markets and suppliers may well doom the company’s ambitious plans. The US has also adopted wide-ranging tariffs against Chinese imports.

A Cold War Model

For a while, it seemed that, in its negotiations with China, the US meant to impose a number of onerous conditions on Chinese economic growth and technological development, preserving American primacy in these critical areas. But recent reports paint a different picture. When negotiations failed in May, the main difficulty turned out to have been Washington’s attempt to force Beijing into making fundamental changes to its economic constitution. It was trying to bring it closer to a liberal, Western model and get these changes carved into its domestic laws. There are two ways the US could think about the trade war with China: to limit or constrain Chinese economic power—and keeping the new tariffs in place might achieve this—or to convert China to a Western economic model. It seems that the Trump administration—but arguably not Trump himself, who regards ideological missions with scorn—chose the latter.

Ultimately, decision-makers in the US will have to ask themselves how this can be achieved. Does the Cold War model offer a solution? Can one imagine a scenario where the Chinese economy would not only slow down but effectively deindustrialize and enter a protracted technological winter? And would one then expect the country to fragment politically as the Soviet Union did? These are fanciful projections. If the United States is to adopt a strategy of maximum pressure against Beijing, it needs to have maximum clarity about the endgame.Does it expect China to change, perhaps after the collapse of the Communist Party? Surely, more modest experiments in regime change have failed dramatically, which would suggest some caution on this matter. If, by contrast, the goal is to decouple from China and create two separate economic spheres in the hope that the Chinese economy will quickly fold when left to its own devices, two questions must first be answered.

The first is about the extent of economic damage that such a strategy would inflict on the world economy. Many of the economic gains from globalization in the last few decades resulted from the creation of intricate global value chains. These gains would evaporate if value chains were to be repatriated. The process might well be highly disordered. It might also be conflictual, as both sides would blame the other for the economic pain being inflicted. Which takes us to a second question: can the two economic giants decouple their economies without heading towards conflict?
Most commentators will easily see where the logic of these questions leads us. If the United States ever finds itself in a new Cold War, this time with China as its global foe, it must be aware that it will not be facing the ghost of the Soviet Union but an immeasurably more obdurate and resourceful power.

Push Europe

So let us return to the nightmare scenario and see how it can best be avoided. The unification of the whole of Eurasia under a single power is so far from inevitable that it has in fact never been achieved. Consider the sheer diversity of political models now existing side by side across the supercontinent, the imperial traditions of many of the major powers in Eurasia, and the gradual spread of technology and economic growth to all its corners. These are critical factors suggesting that Eurasian political integration remains unlikely—economic integration is a different matter—and therefore there is no immediate need for Washington to renew its plans of a Eurasia whole and free, united according to a liberal, Western model and under American leadership.

The main counterargument can be answered with a creative reconstruction of the classical concept of balance of power. The US cannot be satisfied with a passive understanding of the concept. Balance of power rarely if ever comes about naturally. If we take the current distribution of power in Eurasia, there is reasonable cause to doubt that the balance will be naturally maintained. Combining economic and military power, China remains unmatched by either the European Union or Russia. The former is an economic superpower but a political and military minion. The latter is no rival to China on the economic plane. India and Japan remain too inward looking to be decisive factors in the Eurasian game.

When it comes to Europe, the strategy seems clear. It is one of the areas where the Trump administration has made progress. The United States was of course instrumental in rebuilding the European economy and prompting European nations to build the common institutions that have placed it on a stable footing. The task now is much more complicated because pushing Europe to become a major global political and military power will involve some brinkmanship. It may well be the case that Europeans will not move farther in this direction unless faced with a major crisis. And the US will have to sacrifice some of its immediate interests: the European Union will not create a common defense and security policy without diminishing the inordinate weight of the American defense industry in Europe in the process.

Find a Place for Russia

Russia poses a much more delicate question. The country has been moving decisively away from the West, and tensions with the US are now at the highest level since the end of the Cold War. Any rapprochement would have to come from the Kremlin, and that will not happen, at least not while Vladimir Putin is in charge. At the same time, the US risks bringing about an informal alliance between China and Russia. If the approach in Washington is to lump them together as the two major threats to the existing global order, they will act accordingly. Even if naturally inclined to develop as independent powers, China and Russia may well feel that the time for disagreements will have to wait while the task at hand is to overturn American hegemony. How does one square the circle? How can the US keep its distance from Russia’s geopolitical ambitions while simultaneously preventing a Eurasian entente between its two great rivals?

Within the confines of American power, the puzzle cannot be solved, but some possibilities open up if we enlarge the sphere to the full Eurasian chessboard. Every measure the US might adopt to strengthen Russia as an independent pole in Eurasia could be used by the Kremlin against its unwitting benefactor, but that should not be a reason to keep Russia isolated. The United States may feel that Putin’s Russia is an abomination. It may want to limit its engagement with the Kremlin. But it should not close Russia’s door to the West, to Europe and Turkey, leaving it entirely dependent on China. The goal is to find a place for Russia in the Eurasian balance of power—an independent pole between Europe and Asia—while preserving the ability to keep it in check and, when necessary, force it to respect that balance.

As for India and Japan, the strategic goal should be clear: to allow the two countries to grow more confident and outward looking, capable of marshaling their abundant resources to play an active global role. And why should the US fear or regret such an outcome? To keep them inside its chain of command, useful only when acting under US leadership, is profoundly self-defeating from the point of view of long-term American interests. Only as fully sovereign and autonomous actors can India and Japan contribute to a lasting balance of power in Eurasia.

The World as Literature

Were all these steps to be adopted and a coherent strategy developed, the United States would slowly emerge as a great balancer. Its role would remind one of the role played by Great Britain in 19th-century Europe: with one foot in the continent and the other one outside, perpetually balancing every European power against each other, determined to avoid a future where Europe fell under the domination of a single power. Its strategists knew that Great Britain would remain more powerful than each of the individual European states, but inferior to their combined strength.
The US must become in relation to the Eurasian supercontinent what Great Britain was in relation to Europe, but with a number of important revisions. First, the new version of Britain’s splendid isolation—the ability to influence the Eurasian chessboard while remaining sheltered from its affairs—will not come naturally, or in a fit of absentmindedness. The US will not be able to rely on its insular geography and control of the seas. Borders are more diffuse, and technology has eliminated distance to a great extent, so a form of forward deployment has become necessary, if only to preempt terrorist threats and face cyberattacks and nuclear-armed rogue states.

Second, the US does not have a ready-made world of competing great powers at its disposal. The trend is to return to such a world—the building blocks are available—but some construction work is still necessary. More than a great balancer, America must become a great creator. China has to be cut down to size—a hard-edged negotiation on the terms of trade and the temporary imposition of tariffs may well prove necessary—and other pieces must be built up if an equilibrium is to be the final product. But is this such a great transformation in terms of general psychology? The United States already regards the future of the world order as a great narrative whose main plot lines are written in Washington. What I am advocating is to replace the epic with the novel: world history is not coming to an end, and it does not follow a single line of development. It is open-ended and polyphonic. It contains multitudes. Every character and way of life can find its place in the great narrative.

The chief characteristic of the modern novel is the plurality of consciousnesses, with equal rights and each with its own perspective, the organized coexistence and interaction of spiritual diversity, not stages in the evolution of a unified spirit. The narrator should not pick sides, and that is why the narrator and not the characters are ultimately in control. For America, the age of nation building is over. The age of world building has begun.

The post Equilibrium Americanum appeared first on Berlin Policy Journal - Blog.

© REUTERS/Thomas Peter

One year into the presidency of Donald Trump, international affairs are in flux—not in the perennial sense that “a lot is going on across the world,” but in the more fundamental sense that things are changing structurally with an unknown outcome.

Trump has accelerated a central, structural change in international affairs that was already happening prior to his arrival in the White House: a noticeable decline in the United States’ political desire as well as capacity to lead on the international stage. Under its most recent four presidents, the US has gone from declaring itself indispensable to international diplomacy, to regretting its period of unilateral hubris, to trying to lead from behind, to not leading at all.

Today, Trump’s determination to take the US out of the leadership game is forcing America’s allies and opponents to adjust and challenging them to take greater responsibility for their future security as well as prosperity. The world is at the beginning of an uneasy new normal, where leaders across the world are driven to adopt more proactive foreign policies in order to compensate for the loss of US leadership.

The Receding Tide of US Leadership

Many people’s worst fears of a Trump presidency have not come to pass. US troops remain forward-deployed in Eastern Europe, and US-Russia relations are frozen in an uneasy stand-off of mutual suspicion. The president has appointed national security cabinet members who understand the value of NATO, and he has grudgingly committed his administration to uphold Article 5 of the Atlantic Alliance. He has re-engaged with traditional allies in the Middle East. He has not imposed the swingeing unilateral trade measures against China that he promised during his campaign.

Even in those areas where the president has taken radical steps–on climate change, the Joint Comprehensive Plan of Action (JCPOA) on Iran’s nuclear program, or Jerusalem – his dramatic public announcements disguise a near-term continuity and leave room for maneuvering. His choice of method for withdrawing the US from the Paris agreement on climate change extends US adherence to the end of his presidential term. His “non-certification” of the Iran deal transfers responsibility for deciding whether to abandon the agreement to an already overloaded US Congress. His statement recognizing Jerusalem as the capital of Israel and embassy move will not occur for another three years–also around the end of his first presidential term.

On the other hand, these ambiguities cannot disguise the fact that the Trump administration has accelerated the shift from the US being a committed, if imperfect world leader to being a more explicitly self-interested superpower. His mantra of “America First” is a declaration that the US will relinquish its core role of leading the world by example.

The Trump administration’s approach to regulation (or de-regulation), whether on the environment, financial supervision or corporate transparency in developing countries, appears designed to create market advantage for US firms versus their international competitors. This has meant the US relinquishing its role as the driver of a new wave of international liberalization of trade and investment–specifically through the Obama administration’s proposed Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership. They would have generated a common rise in standards on issues such as public procurement, intellectual property protection, labor standards and internet governance across two of the largest regional marketplaces in the world.

Similarly, Trump has removed the US from its role as a promoter of better domestic governance and democracy. His most successful visits have been with authoritarian leaders who offer the best opportunities to secure economic benefit for the US. Trump’s references in his first speech to the UN General Assembly in September about the primacy of strong sovereign nations with different values and different dreams being able to “coexist … on the basis of mutual respect” could easily have been delivered by Chinese President Xi Jinping.

Trump supporters would counter that his administration is now simply playing the same hard ball as everyone else, and that far from all Americans benefited from the liberal, open market approach of his predecessors. This may be true, but under his leadership, America is returning to the role it played in the mid-1930s, when its beggar-thy-neighbor domestic policies contributed to the rise of authoritarian governments around the world—and ultimately to a second world war.

Ripple Effects

History may rhyme, but it rarely repeats itself, as the saying goes. So how are other countries reacting to the return of a brutally realist outlook in the White House? There are three groups to consider.

First, this has been an especially difficult year for US allies in Europe who see themselves as America’s traditional partners in upholding the liberal international order. Some European leaders, most notably German Chancellor Angela Merkel and, to a certain extent, French President Emmanuel Macron, have sought to pick up the baton of liberal leadership. A majority, including the British, are trying to look beyond the personality of the occupant of the White House and focus on sustaining the many other channels of transatlantic cooperation, including with the US Congress. Some European leaders, mostly but not all in political opposition, even welcome Trump’s ascendancy.

Wherever one stands on this spectrum, it is possible to argue that Trump has had a positive effect on Europe. Concerns over the US becoming a security insurance policy of last resort and Britain’s imminent withdrawal from the EU have forced serious steps towards higher defense spending and deeper EU defense integration. Europeans are also being drawn into a more serious debate about Iran’s destabilizing effects across the Middle East, rather than just focusing on the importance of protecting the JCPOA and hoping for the best after the plan’s expiry. They are ramping up their security relationships and presence in the Sahel, a region that matters greatly to Europe and less to the US. And the EU has completed its Economic Partnership Agreement with Japan and is seeking a mandate to begin free trade negotiations with Australia and New Zealand.

These initiatives will continue to face obstacles and expose the distinct priorities and sometimes divergent interests of EU member states. Many would prefer simply to turn inwards and focus on fixing themselves after the trials and tribulations of the European financial crisis. The White House’s nationalist discourse, actively promoted across Europe by its ideological champions and financial backers among the “alt-right” movement, could exacerbate those differences. But there is no doubt that Trump is having a catalyzing effect on efforts to create a more autonomous Europe in international affairs.

Stepping In: China and Russia

A second group to consider are America’s main challengers for leadership around the world: most prominently China and Russia. In many ways, they are the main beneficiaries at this stage of America’s withdrawal from global leadership.

President Xi has been quick to step into the leadership vacuum, from his pro-globalization speech a year ago in Davos to hosting a major international conference last May on the Belt and Road Initiative. With US domestic politics in turmoil following Trump’s election, and the same in Britain following the Brexit decision, China’s soft power among its neighbors and the wider world is rising by default. The Chinese are looking for ways to exploit their new-found influence, whether in UN bodies or on international debates such as over regulating the internet.

In the absence of a US strategy for the Middle East, Vladimir Putin has doubled down on his military intervention in Syria and is now deepening relations with Egypt and Saudi Arabia. He can also stir up European popular discontent in order to weaken the EU with no fear of US retaliation. And he takes every opportunity to demonstrate equivalence between Russia’s amorally self-interested approach to international affairs and that of the United States under Trump.

At the same time, however, America’s more selective engagement in regional conflicts will lessen the options for low-cost Russian interference. The case of Syria shows that if Russia wants to play a more active role in the Middle East, it will have to bear the financial, security, and reputational costs itself. The same can be said for China’s growing military presence in the South China Sea and its broader neighborhood. If China is now seen as Asia’s regional hegemon, this will create opportunities for the US to play the role of counter-weight, much as China has done while the US has been in the dominant position.

An Inevitable Adjustment

The third group of countries are those that lack the protection of a strong regional institution and that still depend individually on the United States for their security. They include countries that are part of the broader democratic “West,” like Japan and South Korea, as well as some non-democratic countries now experimenting with more representative forms of governance and more inclusive models of economic growth, like Saudi Arabia. They are the most vulnerable in this more barren international landscape, where US protection from dangerous neighbors is increasingly conditional as well as unpredictable.

Like the Europeans, these US allies are being forced to build up their defense capabilities and rely more on their own diplomatic agility, including by triangulating their foreign policy beyond the US to the world’s other major powers. This is a less safe geopolitical space for these countries to inhabit; the fate of their economic and physical security is tied as much to their leaders’ personal chemistry, or lack thereof, with President Trump as to America’s formal security commitments, whose credibility had already come into question during the Obama administration.

It was inevitable that this adjustment from a period of US global leadership would happen at some point, and it seems unlikely that there will be a return to the status quo. The net result is that no country in the world has the luxury any more to free-ride on what has become a decaying American hegemony.

Hinge points in 2018

When all is said and done, it will be healthy for allies to escape their over-dependency on the United States. Although poll numbers continue to fluctuate, much of America’s population has become at best more ambivalent and at worst increasingly resentful of playing such a costly leadership role on the international stage.

But if other countries must take greater responsibility for their futures, this will pose new challenges, some of which will come to bear in 2018.

First, negotiations over Britain’s departure from the EU must not fall into a “cliff-edge” Brexit, with no clear sense of what the country’s future relationship will be with the EU. This should be economically and geopolitically self-evident for the British, although it might not seem so by the quality of the domestic British debate. But nor can the EU afford to lose the UK into a “splendid isolation” off the edge of the European continent, while grappling at the same time with a more anti-EU United States. Finding a resolution to its relations with the UK is largely in the EU’s gift, whereas this is not the case with the US.

If the two sides can arrive at a compromise, the EU may evolve into the UK’s second special relationship. And the prospects for a more strategically autonomous Europe could improve, with the UK committed to the security of its European neighbors through NATO and more comfortable with its post-Brexit security relationship with the EU, and with its EU neighbors more willing to integrate their security capabilities through EU institutions without British obstructionism.

Learn To Do Without US Leadership

This will also be the year where other nations need to demonstrate that coalitions of the willing can drive positive change on issues of global importance, even without US leadership. The successful follow-on summit to the Paris climate change agreement that President Macron held in Paris in December 2017 has shown that leading governments, working in tandem with major multinational corporations and international NGOs, can on occasion mobilize political and public action towards shared goals in the absence of US leadership.

On a more negative note, there is a high risk that US efforts to re-negotiate aspects of its key trading relationships, whether with Canada and Mexico in NAFTA or with China, will fail in 2018. With Congressional mid-term elections due in November, President Trump will be tempted to take unilateral action to demonstrate to his political base the seriousness of his intent to re-draw America’s terms of trade with some of its major partners. The EU, Japan, China, and others will have to work hard either to avoid this outcome or demonstrate that they can hold meaningful plurilateral and bilateral trade negotiations without US engagement.

The other wild card for 2018, of course, will remain North Korea. Here, there is no escaping the centrality of the US in any solution or, at least, the avoidance of a major escalation. But it would be far healthier in the future if the US administration could focus on critical questions of this sort, rather than having to apply its diplomatic time and capital simultaneously towards multiple other stand-offs where regional actors could play more constructive roles.

In the end, the rest of the world cannot and should not wait for the US to keep the world safe. Each country, each actor of scale–nationally, regionally, internationally–needs to step up to its own set of responsibilities as a beneficial stakeholder in the current system of international prosperity and relative stability that America has played such a central role in building.

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