Russia’s war against Ukraine will have consequences extending far beyond the European Union and our country’s security and defense policies. In fact, this war is the most visible and tragic proof to date that the world is in a dramatic process of change.
The Old Order, forged by the momentous events of two world wars originating in Germany and Europe and designed first and foremost by the United States of America, is losing its power to shape global events. This “Wilsonian era” began at a time when China, India and the African nations were still referred to as “third world countries” and looked down upon by the paternalistic old European powers, and the USA.
Those countries have long since evolved into more than merely cheap marketplaces serving the economic interests of their former colonial rulers. And justifiably so, because the Indo-Pacific nations alone represent around 60 percent of the global population, generate 60 percent of global GDP, and are responsible for around two-thirds of global economic growth. Since the establishment of a free trade zone Africa, too, has been showing the first signs of geopolitical confidence. The former European colonial regimes are largely responsible for the failure of decolonization and, for many years, their former colonies in Africa were unable to find an answer to their problems.
A tectonic shift of global power axes
We are contemporary witnesses to a tectonic shift in our world’s power axes – a shift that is affecting both economic and political powers, and models of social organization. The Euro-Atlantic region is no longer the single global center of gravity today; it competes with the Indo-Pacific region. We are nearing the end of a European age spanning some 600 years in which Europe has been the origination point for global developments, both good and bad. Enlightenment, colonialism and slavery all have their roots in Europe. European technical revolutions and economic upheavals have shaped the world, and even though China certainly had the potential to have a similar impact, it chose protectionism instead. Then two world wars plunged Europe into chaos and America became a European power despite a distance of several thousands of miles separating the two continents – partly because of experiences in the first half of the 20th century. Pax Britannica was replaced by Pax Americana, with the United States stepping up to play an important role in protecting Europe from itself and replacing Great Britain as the Western guarantor of international order. It was a very convenient arrangement for Europe as a whole and especially for Germany, because we were able to focus on building a strong economy and society. With the exceptions of France and the United Kingdom, Germany and the rest of Europe evolved into soft powers that believed economic ties could help them achieve the integrative outcomes they sought. But what happens when Europe’s integrative strategy clashes with a diametrically opposed, confrontational strategy like Russia’s, and a country that is willing to accept significant economic disadvantages in order to expand its geopolitical power base? Up to now Europe has been able to count on the support of the USA as the leader of the free world, and President Biden’s willingness to clash with a foreign power on European soil in the interest of transatlantic relations.
In the long run, however, we may not be able to take that support for granted because the United States of America were first to recognize and put a name to the global power axis shift. George W. Bush was the first U.S. President to call his country a “Pacific nation” and Barack Obama coined the term ”pivot to Asia”. The change of perspective associated with the shift in the political and economic power axes is rooted in a second westernization process in the USA, which has permanently moved the population center towards the Pacific. The rising power that is China has long been seen by the USA as its main rival for global influence and economic strength. The United States no longer believes itself capable of being both the world’s leading economy and a globally indispensable nation. The withdrawal of U.S. troops from the Middle East, from Afghanistan and – if Ukraine hadn’t been invaded – also from Europe, happened so that America could focus on its rivalry with China. At the same time, it symbolized the end of the Pax Americana era in which, at least since the collapse of the Soviet Union, the United States had deployed overwhelming power to shape and direct global events. We have now reached a “turning point in history”.
But what will the new world order look like? What principles will it be founded upon and who will ensure they are upheld? It is still unclear what the new world order can or should be. U.S. political scientist Ian Bremmer coined the phrase “G-Zero” to describe a post-Pax Americana world with an absence of clear leadership and no “hegemon” or guardian of international order: A volatile world with multiple pivot states.
We only have think about how our leaders deal with global crises to realize how much the world has changed in the space of just a few years. At the apex of the financial crisis in November of 2008 the G20 quickly and efficiently reached consensus on a crisis strategy. There has been no such meeting – if you discount online formats – to discuss a collective strategy for beating the coronavirus pandemic. Although we face an increasing number of issues that can only be resolved by international collaboration – the pandemic, climate change and the proliferation of nuclear weapon technology – it seems that we are losing our ability to act collectively. We aren’t even capable of establishing a common understanding of the status quo and the associated challenges, let alone agreeing upon and coordinating necessary political measures.
Turning point: geopolitics replace geoeconomics – hierarchies regain dominance over networks
The next decade will be characterized by various nations vying for influence in a new global order. And the outcome may not be what we Germans and the majority of Europeans are expecting because having the economic advantage is no longer the single deciding factor. In fact, the age of geoeconomics is being replaced by a new age of geopolitics. Power interests will supersede economic strength as the “currency” of international politics. Potential political power gains and geopolitical influence on the creation of a new global order are more important than the economic advantage of an efficient, conflict-free global economy based on the division of labor. Geopolitics is replacing geoeconomics. Russia views western sanctions as a kind of “superpower tax” that has to be paid in order to be an architect of the new global order.
Yet global power competition is also fundamentally defined by a new dominance of hierarchies over networks. According to Niall Ferguson, major historical episodes can be interpreted as conflicts between networks and hierarchies. The first phase of globalization after the dawn of the industrial age was followed by the first world war, which meant a setback for the hierarchies. In the decades that followed the networks gradually gained in strength, despite some setbacks, until they achieved widespread dominance after 1989.
Globalization is a phenomenon that creates networked economies based on free trade in goods and services, capital mobility and risk exchange, knowledge diffusion and information sharing, migration and human capital mobility. Networks are to some extent anarchic systems because they are fundamentally unstable and draw strength from weak, non-institutional and liberal connections. The political power hierarchies, whatever their constitutional status, perceive that as a latent threat. This explains why conflicts within societies resulting from perceived or real weaknesses in hierarchies often play into the hands of radicalized political powers – conflicts such as the ones we have seen in the USA (Trump), France (Le Pen), and the United Kingdom (Brexit).
After a lengthy phase of constantly accelerating economic globalization and increasing external and foreign influence, the turning point is characterized by an emerging dominance of hierarchies. In domestic policy it is represented by a shift in the political spectrum, and in foreign policy by emerging nationalism (America First) and competition between world powers. Russia’s war of aggression against Ukraine is part of this process to the extent that Putin perceived the emerging dominance of hierarchies as a chance to restore his nation’s superpower status in the transatlantic West – particularly in light of the domestic policy conflicts and tensions in western democracies.
Until now two world powers have dominated the geopolitical arena: China and the USA. The war in Ukraine is likely to be Russia’s attempt to elevate its status to that of a superpower in the new world order, especially since it is taking place in a region called ”Eurasia” in Russia. With the USA so focused on its domestic policy divisions, its own affairs, and competition with China, Russia saw a good opportunity with calculable risks to flex its muscles in Europe again. Even NATO was recently described by a European head of state as “brain dead”, and Europe is afflicted by both a north-south and an east-west divide. In this context, Russia’s war is more a reflection of the transition to a new era than its cause. However, Russia made a number of assumptions that have proven to be incorrect. NATO is more united than it has been for a very long time. The USA and President Joe Biden have stepped up again in their role as a “European power” and the people of Ukraine did not react with the restraint to be expected in this “post-heroic age”. Instead, they have been willing to sacrifice much, even their lives, for their country’s freedom.
As a result of the Ukraine war, Russia will be reduced to a shadow of its former self. Instead of increasing its influence in Europe, it will lose that influence altogether. All that will remain is an economic, political and military cooperation with China – although Russia will be in a position of dependency rather than an equal partner. As an economic partner it will lose status by having to take a technological step backwards, and in the framework of progressive global decarbonization, there will be a permanent degeneration in value of the country’s natural resources. An historic slump in prosperity seems unavoidable and, even if the political regime does change, by then Russia will be lagging so far behind in terms of technological capability that it will take decades to establish a new prosperity base.
China’s position on the war in Ukraine and the Chinese COVID-19 strategy are a related puzzle
The Chinese leadership initially appeared to be observing the Ukraine war with a certain gratification. After all, its old rival Russia – and sparring partner in violent border conflicts during the second half of the 20th century – had seemingly fallen into its lap like a “ripe fruit”. At the same time the USA’s renewed involvement in European affairs took its focus and attention away from the Indo-Pacific region, making it easier for China to pursue its maritime interests there. This could also explain why China initially seemed disinterested in Russia’s invasion of Ukraine.
However, although the Ukraine war initially seems to offer advantages, these could quickly turn into a significant risk. More than anything else China is dependent on the continuous growth of its economy. Even though the vast Chinese population, with 1.4 billion citizens, offers immense growth potential, China remains a nation that can only achieve its dream of prosperity for all through global trade in goods, services, and technologies. In recent years, despite increasingly obvious ideological regression and the centralization of political power in one person’s hands for an unlimited term, the Chinese leadership has managed to hold on to its political dominance by promising the comprehensive completion of a moderately prosperous society in return for the lack of democracy and human rights. There are indications that this promise will be replaced by a pledge to achieve an historic victory over the coronavirus. In return Chinese citizens have to live with extreme restrictions on elementary freedoms and accept shortages of basic supplies, even the citizens of the supposedly more liberal city of Shanghai. It is impossible to foresee the end of China’s lockdown policy because the country has a low vaccination rate and less effective vaccines. So the historic victory can only be achieved through permanent isolation, such as has been imposed by the quarantine rules.
The anti-COVID-19 strategy that China is propagating as the only possible way forward, as well as its position on the Ukraine war, are prompting people to ask themselves if China can still be depended on as a partner in international relations and in the global division of labor. There have already been some quite dramatic consequences of the Ukraine war. Since the war began there has been an unprecedented capital outflow as foreign investors turn their backs on China and, in Shanghai, for example, 85 percent of foreign specialists want to leave the country. It seems increasingly likely that this fits in with the dual circulation strategy – to boost domestic consumption and lower dependency on exports – in conjunction with the concentration on the Indo-Pacific economic partnership (RCEP). However, it doesn’t mean that Chinese globalization is coming to an end; it is simply changing regional direction. China’s regional divergence, lack of social capital, capital market inefficiencies, and ageing population mean it has to continue to be a dependable and calculable global economic partner in order to strengthen its own economy and develop the economic regions where it hopes to exert its influence.
Global trade has been thrown into disarray by the Ukraine war. There have been dramatic consequences for Africa, a continent dependent on supplies from both Russia and Ukraine, and the food security crisis there has worsened. This development certainly doesn’t serve China’s interests on the African continent and, on top of that, parts of the “New Silk Road” from China pass through Russia to Europe. Sanctions and counter-sanctions are likely to render these trade routes impassable for a considerable time. On a more general note, the massive global economic disruptions cannot be in China’s interest either. Anyone following the energy independence debate will have soon realized that it is associated with a general call for de-globalization. Even though deglobalization may seem unrealistic for Germany, a country more closely intermeshed in the international value chains than any other, except China, the country that will be most affected by debate on re-shoring and decoupling is China.
With that knowledge, it is difficult to understand why the Chinese leadership is not attempting, at least externally, to adopt a “neutral position” on the war in Ukraine. The Chinese leadership interprets the Ukraine conflict as a “proxy war” between the USA and Russia in which China does not want to take sides. However, Russia’s invasion of Ukraine is actually more about a breach of the minimum standards of international law, one of those being that no nation should be permitted to launch a military attack on a neighboring country.
Russia is violating China’s foreign policy principles
The war being waged in Ukraine isn’t “just” a conflict between “the West” and Russia, nor is it a “proxy war” between the two “old” superpowers. Essentially, the issue at stake is whether a country – in this case Russia – should be permitted to breach one of the main pillars of international law and get away with it unpunished. Russia’s invasion of Ukraine also violates the United Nations Charter, which is a very important document for China. The Charter codifies the principles for international relations that were fought for so hard in early modern Europe’s Thirty Years War: the non-intervention in domestic affairs of another country, and the sovereign equality of all countries under international law, irrespective of their size or internal constitution.
Fundamental principles of international order have been violated. To uphold a stable international order the powerful nations and global institutions, particularly the UN and its Security Council, must be able to guarantee the common principles of: territorial integrity, national sovereignty, the non-use of force, and the resolution of conflicts by negotiation and treaties. The People’s Republic of China has always emphasized that these principles are an important part of its foreign policy because a stable and peaceful world order is central to the realization of the “Chinese dream”. Or could it be that China has set its sights on defining, realigning, and securing its sphere of influence in the Indo-Pacific region? That would mean the beginning of bi-polar globalization.
Russia has brutally violated all of the previously mentioned principles with its invasion of Ukraine. However much the Chinese view of this conflict is shaped by its own antagonisms with the United States of America and its former allies, the violation of these fundamental principles cannot be in the interest of the People’s Republic of China.
After all, 141 countries attending the United Nations General Assembly voted to demand a prompt end to Russia’s military operations in Ukraine. And, even though China, India, and South Africa abstained from voting – as did 31 other countries – this is the biggest ever majority vote on such an issue.
The United Nations’ clear position on Ukraine poses crucial questions for China, a country whose history and international image is closely linked to the United Nations General Assembly. A resolution passed by the UN General Assembly in 1971 recognized the People’s Republic of China as the only legitimate representative of China to the United Nations, even though the USA and other nations voted against it. From then on the People’s Republic began to cultivate its international influence. This, too, is reason alone not to go against the UN’s unequivocal decisions.
Russia’s war against Ukraine not only violates the principles of international order that are so crucial to China’s continued development, but also directly violates the Chinese interests because China imports raw materials and technologies from Ukraine. The war in Ukraine will also stop exports to other countries for some time to come, which will cause famine in parts of the world that are dependent on the World Food Program (WFP) and are also China’s partners. So it is in China’s own best interests to deploy and build its “soft power” and “public diplomacy” efforts. Past examples of China’s positive interventions in crisis situations include its handling of the Asian economic crisis at the end of the 1990s, and the global financial crisis of 2008. In other words, it has plenty of experience that it could be putting to better use.
If China were to assume a more proactive role in easing the conflict or, at least, in achieving a permanent ceasefire, it would have a far better chance of securing significant reputation gains – measured in terms of previous strategies for economic development and political positioning – and this would fundamentally change and improve its opportunities for closer economic and political collaboration, particularly in Europe. Until the Ukraine war is stopped, European-Chinese relations, especially German-Chinese relations, will suffer because Chinese “neutrality” is interpreted in Europe as tolerance of Russia’s aggression.
China has every right to exert influence on the global order. It has long since evolved into one of the global economic and political powers, a status that comes with certain responsibilities. As a permanent member of the UN Security Council, China has co-responsibility for global stability and peace. It should be ready to exert that influence and shoulder the responsibility, even when it is inconvenient.
China and Germany are the main beneficiaries of globalization
Germany and Europe should also avoid becoming too complacent in their dealings with China. Despite all our efforts to make our economies more resilient and pursue a diversification strategy in South-East Asia, decoupling ourselves from China is not in the political or economic interests of Europe and Germany. We can never put a country with a population of 1.4 billion under a kind of “house arrest” and Europe should be taking geopolitical advantage of its influence over China, however moderate it remains in the long run. Bearing the Chinese leadership’s COVID-19 policy in mind, all efforts should be restricted to exploring the scope for future cooperation – not least in order to discover whether and to what extent it is associated with a fundamental change in the political program.
Germany could play an important role in this respect because China and Germany both have developed economies with integrated (i.e. reciprocally dependent and supportive) industrial value chains. The two economies differ in terms of their main industries, their pace of innovation, and their business culture, and they have very clear divergences in regional development, as well as differences in other areas. Nevertheless, both economies are fundamentally based on access to raw materials and energy, and export-oriented. For that reason the two countries, their economies, and their companies are interested in free market access, including the secure supply chains on which the international division of labor is based. In the last 30 years China has been one of the biggest beneficiaries of globalization, but so has Germany – in fact, Germany is the biggest beneficiary in the developed world.
Germany’s exchange of goods and services with China is very important for both countries: in terms of the continuous growth in volumes in recent years and the quality of the integrated value chains. In 2021 the European Union exchanged goods in the value of around EUR 695 billion with China (around EUR 472 billion EU imports and around EUR 223 billion EU exports). In that same period Germany exchanged around EUR 245 billion in goods with China (almost EUR 104 billion exports from Germany and almost EUR 142 billion imports from China). Modern-day globalization – the globalization of supply chains – has created dependencies for all participants. We have to remember this, because the disruptions caused by Russia’s war against Ukraine give the impression that the dependencies are the problem and that unbundling and de-coupling is the answer when, in actual fact, unbundling and de-coupling would have a negative impact on prosperity and limit action capabilities in the transformation to climate neutrality. However much we call the Chinese strategy into question, we face the unavoidable challenge of finding a cooperation formula that works in this maze of contradictions and conflicts of interest. The failure of the simple concept of “change through trade” doesn’t necessarily mean that isolation and self-sufficiency are the answer.
Despite all the cultural and historical differences between China and Germany, they are both strongly integrated into the international division of labor and value chain. So perhaps we should be considering China’s history, culture, and social development to a greater extent rather than focusing exclusively on disassociation and exclusion. It is certainly possible, as is evident by recent developments in South-East Asia, despite serious political and security policy conflicts.
Is Europe being sidelined?
On January 1, 2022 the RCEP entered into force, creating the world’s largest free trade zone. The Regional Comprehensive Economic Partnership presents Europe with one of the biggest challenges it has yet faced. The new free trade zone encompasses around 30 percent of global domestic product, 30 percent of the world’s population and 30 percent of global trade. The European Union, which also represents around one-third of global trade, looks set to be overtaken by the RCEP in the near future. The RCEP comprising Japan, South Korea, Australia, New Zealand and Chinaand the ASEAN states, which are all very different nations, was established to explore and realize common economic opportunities. The deal was signed despite many of the nations being involved in tough political conflicts, which are evident by the political and, in some cases, military tensions of recent months. What can Europe learn from this?
Firstly, the process of economic globalization and international division of labor always has and always will be a regionalization process involving regional markets that are in line with World Trade Organisation (WTO) rules. These markets are gaining in significance, not least due to the need for resilient supply chains and regional integration, which is why they have gained a lot of momentum over the last 25 years (Article 24 GATT unites the idea of regional trade agreements with the concept of a global order). One impressive example of such a trade agreement is USMCA, which replaced NAFTA, the former trade agreement between the USA, Canada and Mexico, or CPTPP, a trade agreement that the Obama administration was keen to push through, which went ahead during the Trump administration without the USA. The United Kingdom and China have now applied to participate in membership.
The EU has still not ratified a negotiated trade agreement with Mercosur, the common market of South American nations, and the CAI, an investment agreement that doesn’t cover trade issues negotiated with China in December 2020, has been put on ice. Even the most modern and progressive trade agreement in the world between the European Union and Canada, CETA, has not yet been fully ratified by all EU Member States in the last five years – one of those being Germany. The Europeans have always been fixated on social and ecological standards. This is the reason why the free trade agreement between the EU and the USA failed. Europe tends to view itself as the measure of all things and forget that European standards were established in a step-by-step process and not in one giant leap. Increasing differences between Member States as a result of its expansion to include very different countries, as well as the pending new memberships, are diluting the EU’s future powers of negotiation.
We may not need a new European entity (as recently suggested by President Macron), because that would never work, but the EU does need to focus on its essential functions and issues: democracy, rule of law, the common market, currency stability, infrastructure networks, the investment union, and the defense union. These are the strong foundations of civil society and democratic institutions on which the EU could base a more modest negotiation strategy that helps it to mobilize the benefits of open markets. Instead, we are seeing obvious and disconcerting egocentricity on the part of the European Union and some of its Member States. They appear to believe that the sun revolves around our planet and especially the continent of Europe, even though the 500 million Europeans only account for a bit more than 5 percent of the global population.
Perhaps the EU representatives should engage with Australia and New Zealand for a change. Both countries are developed democracies. Both countries have firm security partnerships with the USA, and both are RCEP signatories. Australia and New Zealand also have significantly different positions on China – relating to policy, security policy, ecology, and many other issues. However, these two countries are also “close”, and not just geographically speaking. They practice a value-based Realpolitik in an attempt to achieve alignment, explore new options, and make fundamental differences of opinion “manageable”.
And what about the USA? Although the confrontation with China has become a focal issue in U.S. foreign (and domestic) policy, there is no talk of “decoupling” from China. Only 10 percent of U.S. companies have cut back on their business with China. 50 percent are still doing the same level of business and 40 percent have actually increased their level of business. The United States is now planning to supply American climate protection technology to China so that it can step up its climate protection efforts. Last but not least, the USA closed a deal with China a few days ago making the USA China’s second-largest supplier of liquid gas behind Australia.
Striking a new balance: confrontation, competition, cooperation
For a while now the USA and China have been focusing on relativizing three areas of their relations: confrontation on the issues of human rights, Taiwan, and the freedom of international maritime traffic, competition on the issues of innovation, economic success, and technology, and cooperation in global challenges such as the battle against COVID-19, climate change, and the control of nuclear weapons, which can only be achieved together. They have not yet struck the right balance of confrontation, competition, and cooperation, but this is an objective of both U.S. President Joe Biden and the President of the People’s Republic of China, Xi Jinping. However, it would be fatal for Europe if these efforts were based on a silent consensus to focus on the U.S.’ and China’s respective spheres of interest rather than having a global focus.
If that happens, the EU could easily be sidelined. Supply chains would shift, with products from the new RCEP economic area having a distance advantage and a cost advantage, because they would be exempt from customs duties. Machines and electrical goods, optical and IT products, vehicles and their parts – which are manufactured in Japan, South Korea, or China – would have it “easier” than they did in the past. Products originating from the EU would lose some of their competitiveness. The existing free trade agreements between the EU and Japan, Singapore, Vietnam, and South Korea will not change that, nor will the ongoing negotiations with Australia, New Zealand, or Indonesia.
It would be better for all sides to stop the spiral of reciprocal sanctions that are currently blocking the further ratification of CAI because both sides – the EU and China – would gain a great deal, despite losing out on some fronts. It would be possible to apply CAI rules without ratifying it – which is what happened with the EU-Canadian free trade agreement. This is about more than an economic strategy and economic policy that makes good sense. It is also about building trust in a new economic framework and political process to exploit common opportunities This new political process is in the global interest, not just the interests of the two sides involved. No global challenge, be it climate change, weapons of mass destruction, peace or terrorism, can be effectively overcome without China or even against China.
The EU should manage its own interests more effectively, particularly by being more focused and not attempting to Europeanize every single issue. Germany and France, but also other Member States are called upon in this respect. The work of the Trade and Technology Council (TTC) which was established last year as a replacement for the investment and trade agreement between the EU and the USA, which was looking increasingly unachievable, has begun to take shape and step up pace. Despite being a poor substitute for a trade deal, the TTC shows the joint actions that are possible, involving specific issues that are in the interest of both nations such as the transformation to renewable energy, chip manufacture, and the regulation of artificial intelligence. At the end of April this year the EU and India established a similar council. The underlying idea, which is a bit like setting up debating clubs to discuss specific topics, could also be an approach to reshaping and adding more substance to the cooperation with China.
The European Union should also be more flexible when it comes to incorporating standards in trade agreements if it wants to achieve a realistic solution that isn’t beyond any of the other partners’ reach. It would definitely be worth Europe’s while to try a new approach. What is the use of being strong on rules and standards, but having a weak grasp of reality when it comes to economic and industrial policy? The potential is there. Europe just has to leverage it. The world will not wait for Europe, but it would lose many things without Europe because Europe is the only place where everything that typifies the modern world works: minority-resistant democracy, a society capable of integration, and an innovative, transformative market economy. It is a club of unpredictable democracies.
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