For years, the relationship between huge strategic multinationals and their home states was something of an enigma. Giants in the emerging world, such as Saudi-Aramco and the Chinese giants were always closely aligned to their home states’ strategy. In the Western world the relationship was very different. As documented in the works of Steve Coll, Daniel Yergin and others, the US was always willing to help ExxonMobil, while the British, French and Italian governments were equally helpful to their national giants. On the other hand, if these companies went against their governments’ interests, they were able to do this with impunity. ExxonMobil was allowed to get extremely cozy with Putin’s Russia, while it is an open secret that Shell plc is able to decide itself how much it wants to pay in tax. Western governments were so confident in their superiority that they accepted this uneven playing field in the name of free trade; this is no longer the case. This week’s new restrictions on semiconductor exports to China issued by the US government are a further acceleration in this development.
Understandably the news cycle is dominated by the shooting war in Ukraine. The conflict is both geographically close and highly brutal. We are all glued to the screen, immersed in a chain of reaction involving rocket strikes, atrocities, shipments of increasingly advanced weapon systems and the blowing up of ships, pipelines and bridges. However, if we take a step back, it is not the violence that is the most shocking. Russia, still a sizable economy, has been cut off from the global system in a way not seen since the end of the cold war. The example of this alone, is enough to make sure we have entered a new era in human history. The rules of the ‘international system’ have been broken, and in the absence of one single superpower, the system is revealing itself as the jungle it is.
What is more, the whole Russian conflict is no more than a side-show of, or prelude to, the US-China conflict. Russia does not have the economic dynamism needed to rival the US, in fact it is not even able to hold a candle to the successes of Europe, India or Japan. Perhaps even more importantly, Russia does not have an attractive ideology to threaten liberal democracy with. Putin has succeeded in bringing stability to Russia by placating the various oligarchs, becoming the de-facto head of a cartel, without challenging the billionaires’ position as such. This achievement deserves some respect, as it led Russia out of the chaos of the Yeltsin era. Although Russia is safer, the working and middle classes are still struggling economically. The propaganda of Russia being a conservative paradise, resisting the influence of the decadent West, is not based in fact. Russia has the highest divorce rate in Europe, as well as the highest number of abortions, leading analysts to conclude that this is possibly the last time Russia could mount an offensive as in the future there would simply be too few young men left to fight. Russia is no economic or ideological threat, and the luster of its armed forces has been severely tarnished by their inability to subjugate the far smaller Ukraine.
China is a for more formidable opponent, economically China is still on track to replace the US as the biggest player. This is mostly due to its huge population, but it would be unwise to ignore the Chinese progress in high-tech, where they are matching the US in telecommunications, consumer electronics, e-commerce and social media. Perhaps even more threatening is the growing prestige of the Chinese model, hailed as the ‘Bejing consensus’. The Chinese leaders are determined to use the power of technology to manage society as completely as possible, asking citizens to give up on freedom in exchange for a streamlined and organized system, turning life into a real version of 1984 or Brave New World. Where Russia has been supporting groups on the fringes of European society, trying to destabilize the democratic process, China has aimed far higher. As reported on this website, the Chinese communist party has influence in the most respected Western publications, as well as in academic institutions, and is thus able to partly drive the mainstream western discourse.
The US feels threatened in its supremacy by their challenger across the great ocean. In addition to the other challenges mentioned, China has rapidly developed in artificial intelligence and is poised to overtake the US efforts in this area. I do not think we should overestimate this threat. First of all, the term machine learning is more appropriate, it is a tool for rapidly developing new software, not for creating sentient robots. Although this technology is hot right now, it remains to be seen if this will be as revolutionary as expected. As part of his first job’s responsibilities your author wrote weekly bulletins on the latest developments in transformative technology. Back in 2014, pundits predicted the inexorable rise of 3D printing. Every house would have its own printer capable of producing anything at low cost, heralding a time were the cost of physical production would become irrelevant and value would be solely decided by content. A beautiful dream, which will stay that way for the foreseeable future: if you can look into the seeds of time and say which grain will grow and which will not, speak then to me.
Be that as it may, the US has decided to stop watering the seeds of Chinese ingenuity. Last Monday the government declared forbidden the sales to China of any semiconductors and chip-making equipment. Earlier this year, both the US and EU woke up and realized that they had to create their own chip industries. The Biden administration has now raised the stakes by trying to prevent China from developing its own. The chips are integral to almost any modern product, including defense systems, surveillance as well as experiments in information technology. In one fell swoop the Americans are undercutting the Chinese model in all of its aspects. Any lover of freedom can only applaud President Biden for his bold move; however, he is taking a serious risk. Just off the coast of China lies the island of Taiwan, the world leader in semiconductor production. China has a casus belli, never having accepted Taiwan’s existence as an independent state. It also has the armed forces to attempt an invasion, only deterred by the pledge of the Americans to defend its independence. The Chinese leadership will be nervously eyeing the Americans for any sign of weakness, and when that day comes, they will feel fully justified in taking by force what they so desperately need.
Meanwhile the Europeans are concerned about their exports to China. First and foremost is ASML, the leading producer of chipmaking machines. It has to decide whether to live in the regionalized world or cling to the old world of globalization. It cannot make this decision on its own. There are definitely opportunities for such companies in a regionalized world, but this will require not just European subsidies. It will require European customers which ipso facto means European phones, television sets and advanced computer parts. The European Chips Act is a good start but requires far more strategic vision. Hoping that the conflicts of interest with the Russian and Chinese governments will resolve themselves soon is pure folly. Even if a comprehensive and stable peace agreement is reached, the root causes of regionalization will not go away. To delve deeper into those, I can only recommend reading Regionalizing Eurasia.
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