At G20 and other summits, Asia can take back economic power from the US, China and Russia

The world’s economic course has been poorly piloted in recent years, whether by Trump or Biden, as the US seeks to decouple from the Chinese economy
If the world is to prevent an economic crash, Asian nations and others must demand that the major powers change direction

Anthony Rowley

Published: 3:30am, 12 Sep 2022

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Asia will host several economic summits in the coming months, which the feuding US and Chinese leaders (plus Russia’s Vladimir Putin) are expected to attend. For the others, the temptation to stay out of things will be great but more positive actions are needed.

Russia’s hot war with Ukraine and America’s (for now) cold war with both Russia and China threaten to produce, at the minimum, a global economic crash unless Asian nations and others ask the major powers to explain where they think they are taking the world and demand that they change course.

The US, China and Russia are the major powers in question but, instead of showing collective leadership, they are dragging the world towards an economic and strategic abyss with their rivalry. The only way to halt this is resistance from lesser powers acting in concert. Hence the importance of the upcoming summits.

The world’s economic and strategic course has been poorly plotted and piloted in recent years. Former US president Donald Trump blundered into the pilot’s seat and weaponised trade with China, while his successor Joe Biden is doing quite the same and urging allies to fly in US-led formation against both China and Russia.

These allies must sense by now that, with people who have no sense of direction or knowledge of flying at the controls, they are all heading for a crash. They may need to peel off and create new formations, which would at least allow them to keep flying even if at a lower altitude.

As writer Christopher Caldwell has noted, “The attempt to isolate Russia from the American world system has had a striking unintended consequence – the possible founding of an alternative world system that would draw power away from the existing one.” This applies even more to US actions against China

The upcoming summits in November (the G20 in Indonesia, between the world’s advanced and key emerging economies, Asean’s East Asia Summit in Cambodia and the Apec leaders’ meeting in Thailand) all include the US, China and Russia, thus providing a unique opportunity for action.

Taiwan tensions, Ukraine conflict a reminder of high cost of war

If cooler heads and wiser counsel than those presently in Washington, Moscow and Beijing fail to prevail at the summits – which may be the last opportunity for them to do so – the global economy could shatter in ways that make the deglobalisation trends seem mild.

As it is, such trends are well under way and accelerating. Biden has shown Trump a clean pair of heels in moving from plain old tariffs to crippling sanctions, and from simple trade decoupling to the “onshoring” or even “friend-shoring” of supply chains.

Yet the United States and Europe are fighting a monster of their own making. It was, as Atlantic Council senior fellow Hung Tran has noted, their offshoring zeal that helped make China a “global manufacturing and trade powerhouse” and it is no easy task to divert global supply chains away from China now.

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China condemns new US law aimed at boosting domestic semiconductor manufacturing

As a recent paper by Tran (a former International Monetary Fund and Institute of International Finance official) noted, “China occupies a crucial position in global supply chains: being the top manufacturer … of high-tech goods … and being among the top trade and investment partners to most countries”.

There can be no economic logic behind the largely US-led moves to reverse this classic example of economist David Ricardo’s theory of comparative advantage at work. The conclusion that such moves represent politically motivated protectionism (dressed up as economic security) is unavoidable.

Western nations that were once happy to apply the principle of comparative advantage to serve the ends of their own economic and corporate profitability are now trying to take it back in everything from telecommunications and green energy to strategic minerals and pharmaceuticals.

Why US ‘friend-shoring’ plan to contain China will run into trouble

It is this arbitrary attempt to restructure supply chains as much as Covid-19-induced supply interruptions that is driving the global surge in inflation. And it is geopolitical and ideological struggles between the US and Russia that lie at the heart of the equally disruptive war in Ukraine.

It is not businesspeople who are driving the reshoring movement but national leaders like Biden whose politics have triumphed over economic logic. In the latest example, Biden is reportedly weighing measures to limit US investment in Chinese tech firms.

World trade is becoming politicised to the point where economic advantage disappears. Just think of the launch of the US’ Indo-Pacific Economic Framework for Prosperity or IPEF which is, in the words of Japan’s Kyodo News, a “vehicle to counter China’s ascendance in the region”.

Japan usually goes along with the US in reshaping the global order to suit Washington’s desires although there are signs that the current prime minister, Fumio Kishida, is eager to pursue a more independent course on economic and strategic issues. That would be a constructive first step towards change.

If Asian and other nations that are not in the direct orbit of American, Chinese and Russian influence wish to take back power from a feuding triumvirate of superpowers, the next few months could provide a chance to do so, or at least register a protest against having their fate hijacked.

Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs