The Pittsburgh G20 meeting held in 2009 played a significant role in coping with the unfolding Great Recession. The coordinated measures taken by the world leaders, led by President Barack Obama, helped the world avert a 1929-like calamity. The G20 meeting underway this week in Osaka will likely be remembered for ushering in the birth of a ‘one world two systems’ global order.
The rivalry between the US and China may not be a new cold war, but the emerging trade, economic, technology and security divergences could make conflict more likely.The most consequential meeting in Osaka will be between US President Donald Trump and Chinese President Xi Jinping, who are still trying to resolve their bitter disputes over trade and technology – a proxy struggle between the democratic capitalism of the West and China’s authoritarian state capitalism. Trump has accused China of ‘raping’ the US with its mercantilist, state-backed trade policy, garnering an annual $378 billion (2018) trade surplus and forcing American companies to transfer their technology. Trump has imposed stiff tariffs and threatens even more until China agrees to address American grievances. The US has also banned Huawei, China’s leading technology company, dealing a serious blow to its ambitions of world domination.
Beijing believes American pressure tactics have little to do with unfair trade and are instead designed to block China’s rise. To satisfy American demands, China will essentially have to restructure its entire economy, unwinding its state-owned business model and its aggressive ‘borrow and steal’ policy to achieve technological supremacy. The growing tariff war has hurt both countries, but for Xi to accept the system change demanded by the US would be tantamount to political suicide. For Trump, continuing the dispute might increase his stature with his blue-collar base but could also damage his re-election prospects by inflicting more pain on his rural supporters. A stop-gap solution is possible, but over the longer term, it seems inevitable that the rise of these two opposing systems will require countries to take sides.
Singaporean Prime Minister Lee Hsien Loong recently appealed to China and the US not to “create rival blocs, deepen fault lines, or force countries to take sides”. But divisions are already becoming apparent. While seeking to stay above the fray, Australia’s newly re-elected prime minister this week asked countries to be prepared for a “decoupling” of the US and Chinese economic systems. Australia itself has angered Beijing by passing laws designed to reduce Chinese meddling in national politics, and barred Huawei from taking part in its 5G network as it would empower China’s surveillance capability. The US has sought to harden the technology divide by warning countries against using Huawei equipment. It has similarly discouraged participation in China’s Belt and Road Initiative, which secretary of state Mike Pompeo warned comes “not with strings attached, but with shackles”.
Of course, merely joining BRI or using Huawei technology alone would not divide the world into two camps. It is the entire financial and technological ecosystem surrounding China’s signature infrastructure project – and the surveillance-based governance, military, and security cooperation accompanying it – that has the makings of a different political system. Perhaps the most serious challenge to the one globalised world would come from disruption of intricate supply chains that sustain today’s manufacturing and trade. Facing the US imposed tariff on Chinese goods which are often assembled from parts produced in countries all over the world (a Huawei phone has parts made in the US, Japan, Germany and South Korea) suppliers have begun to scramble. Even if the US and China paper over their dispute the recent experience is bound to reshape the supply chain, with supplying countries choosing which system to ally with.
China’s economic rise came because of its decision to couple with the West by joining the WTO. Will the rise of a ‘one world two systems’ paradigm now weaken China or give new impetus to its dream of becoming the reigning superpower?