China Builds Economic Future with Blocs

Nico Yardas, Hamilton College ’18:

In 2013, President of China Xi Jinping announced the Silk Road Economic Belt and 21st Century Maritime Silk Road initiative, a project designed to meet the infrastructure needs of Eurasia, and promote greater pan-Eurasian integration. As the project has progressed, however, Beijing looks more and more like it is spinning a concrete web around Eurasia, with six main terrestrial corridors connecting China to Mongolia, Russia, Turkey, Pakistan, Greece, Germany, and Singapore, among others.

The plan is of special concern to Washington, whose two massive trade initiatives, the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), have floundered in the noxious political environment of the last U.S. election. While the TPP and TTIP would have united the pacific ring economy with the transatlantic economy via the U.S., both deepening the region’s integration with the U.S.-led international economy and reducing dependency on China’s economy, the U.S. needs a new strategy when it comes to the rising Dragon.

It is quite likely that the TPP and TTIP were designed to explicitly stifle China’s ‘new assertiveness,’ and were part of a grander vision of the so-called ‘Pivot’ to Asia. Yet with the election of Donald Trump, the U.S. has not had an explicit strategy to address China’s new initiatives. The U.S. is not part of the Asian Infrastructure and Investment Bank, and has expressed no desire to play a role in shaping the development of the Belt and Road initiative. But with the apparent demise of the TPP and TTIP, the U.S. should not attempt to ‘contain’ China economically or geopolitically. Such a strategy will waste valuable resources attempting to stifle a rising world power.

The risk the U.S. runs, however, is not that it will come into direct conflict with China, but rather that it will seek to undermine the success of China’s regional and global endeavors, by using its influence to maintain the status quo and engaging regional belligerents in Eurasia. American troops will gain strategic footholds along the Belt and Road initiative’s routes (in the Middle East and Afghanistan), or by tacitly supporting opponents of the road, such as India and Japan. Chinese attention will be diverted from completing the route. But this strategy lacks the support of key European allies such as Germany and France, and it will likely sap domestic willingness to sustain the conflicts it is involved in.

Regional conflict, even on a relatively small scale, is a hazardous route for the U.S. to take. Conflict between the U.S. and China will create the opportunity for new regional threats to arise. Instead of trying to isolate China and its power, the U.S. should instead take the bull by its horns by joining the AIIB, and invest in the Belt and Road initiative, which itself should be encouraged by the U.S. as an opportunity to reinvigorate a flagging global economy, as a chance to stabilize fractious regions, and as the 21st century’s humanitarian project.

If the U.S. hops aboard the proverbial ship, American firms have an opportunity to invest across Eurasia in an infrastructure project that will increase American prestige and influence in China’s backyard. That investment is imperative, as the size and scope of the Belt and Road initiative has the potential to create the world’s largest regional economic bloc in history, one that threatens to shift the locus of the international economy from the U.S. to China.

Looking back at history, economic globalization has resulted in loose regional integration, with several large regional economies dominated by their respective hegemon, in a bid to strengthen regional capacity and compete on the world stage. Blocs such as the EU, AU, EAEC, NAFTA, ASEAN, UNASUR, and even the GCC, serve the dual function of promoting regional integration and global economic participation under the umbrella of the WTO and IMF. Regional integration, as a rule of thumb, brings about increased collaboration and coordination between national governments, reduces the possibility of conflict, and allows for a more complete harnessing of labor and raw resources. Global economic participation of these regions, brings about the apparent convergence of the benefits of regional integration scaled across the globe.

However, the global interests of the states in each regional bloc do not necessarily align with the regional interests of the bloc as whole. If this is the case, the benefits of regional integration can be turned on their head, as has happened in the EU. Germany, were it to still use the Deutsch Mark, would have a far less competitive export economy, as the theoretical Mark would be valued much higher than the Euro, raising the cost of German exports significantly. This is because the value of the Euro is determined by all Eurozone members. The drawback is that the opposite effect occurs for less prosperous countries, making their exports more expensive, reducing their ability to compete in high-value productions areas such as manufacturing, and in turn increasing unemployment, lowering standards of living, and increasing government debt within those countries.

The U.S. has historically benefited from the formation of economic blocs, and has often had a hand in their formation. However, the last 30 years have seen a massive restructuring of the global geopolitical and economic scene, and it is now evident that trade blocs are just as prone to regional hegemony today as they were during the Zollverein confederation that resulted in the formation of the German Empire.

The financial crash of 2009 raised doubts about the durability of the global economy and the appropriateness of U.S. leadership. The BRICS (Brazil, Russia, India, China, and South Africa) have especially clamored for a reorganization of the global political structure to more accurately reflect the apparent multi-polar world that was being forged.

Yet the BRICS have felt the reverberations of the financial crash, and nations are increasingly looking to their own interests in place of greater international or regional cooperation. When those nations find themselves favorably advantaged in a trade bloc, they can and do exploit the bloc, buoying themselves up at the cost of their peers, as is the case with Germany and the EU. Donald Trump’s rhetoric that the U.S. is ‘losing’ to Mexico and Canada via NAFTA is also a symptom of inward-looking national self-interest. As the U.S. continues its apparent withdrawal from the world stage, China offers a reassuring alternative. A host of nations, including the EU and its de-facto head, Germany, have vowed to strengthen ties with the Chinese government. Many of these countries stand to benefit from the Belt and Road initiative, yet all of them are significantly outclassed by Chinese economic power.

At the 2015 Boao Forum for Asia, Xi Jinping gave the following remarks:

“The programs of development will be open and inclusive, not exclusive…. To develop the Belt and Road is not to replace existing mechanisms or initiatives for regional cooperation. Much to the contrary, we will build on the existing basis to help countries align their development strategies and form complementarity. Currently, more than 60 countries along the routes and international organizations have shown interest in taking part in the development of the Belt and the Road.”

It is indeed likely that Xi Jinping intends for the Belt and Road initiative to be conducted as inclusive, along the lines of Beijing consensus foreign policy, whereby China offers state-backed investment to developing nations without stringent IMF-loan conditions, but with a quid-pro-quo standard where China receives preferential access to raw materials of that nation.

The effectiveness of the Belt and Road initiative at bringing increased development to the Eurasian continent is a moot point. The initiative, if it does anything, will establish a spoke-and-wheel economic zone across Eurasia, rather similar to the relationship Germany enjoys with the EU, only on a much larger scale. The U.S., if it continues its policy of retrenchment, will not only wake up to find that the endless wars in the Middle East to be its Sicilian Expedition, but that China has surpassed America as the world’s preeminent economy.

The Belt and Road initiative will eventually be completed, with or without U.S. involvement. If the U.S. gets involved, however, throwing its considerable economic weight behind the project, it has the chance to reap many of the rewards for itself, establish ties between U.S. companies and the greater Eurasian community, and perhaps restore some balance to the international arena through multilateral cooperation. The Belt and Road initiative has the likely potential to establish the largest economic bloc in history, centered on China. If successful on its own, China will likely surpass the U.S. as the global economic superpower, and that is highly dangerous to international stability.

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