Why Europe must break with US on China policy to avert global economic disaster

The prospect of the global economy splitting into rival US and China camps is growing more likely, but Europe can help prevent this
Only an enlarged European community that includes Britain and moves away from US foreign policy can provide the needed counterbalancing force

Anthony Rowley

Published: 1:30am, 4 Dec, 2022

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The view that the global economy is destined to split into two rival camps – one led by the United States and the other by China, with others relegated to being “camp followers” – is unfortunately gaining ground. Yet this will become a reality only if it is passively accepted and not actively challenged.

The great divide will not happen overnight, but it is under way. There is still time to devise countervailing measures and create counterbalancing poles of influence, but this will require radical policy actions going beyond the US-China arena.

A potential catalyst for change is in sight, although it will come only at the expense of deeper economic recession. It is that the prospect of growing economic hardship in Europe and the US will force politicians to adopt less rigidly ideological attitudes.

The cost of inaction could be devastating. On the economic side, inflation could become entrenched because production of goods will become less efficient and more costly in a fractured global system. As prices rise, so too will wage demands, and so on, upwards.

Trade and investment between the two great economic powers will suffer as sanctions and counter sanctions multiply, and the economic fate of other powers that are reduced to becoming satellites of these two will suffer as a consequence. Physical confrontation will become a real possibility.

No other single power can compete, in terms of economic and diplomatic clout, with the world’s biggest and second-biggest economies, and new alliances among multiple smaller nations would be too unwieldy. Only an enlarged European community can provide a needed third pole.

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This might appear highly unlikely as things stand. As the Ukraine war grinds on and the European economy is ground down, however, internal dynamics within the continent will create pressure for an accommodation with Russia, one that is not dictated from across the Atlantic.

French President Emmanuel Macron and Dutch Prime Minister Mark Rutte have indicated a desire to differentiate their position on China from that of the US. German Chancellor Olaf Scholz recently headed a business and goodwill delegation to China. That could be suggestive of a united European front.

Britain’s position on China will also need to change. The role of the United Kingdom could be highly important, diminished though Britain’s status is in the eyes of the world at present as a result of the hash the country has made of managing its political affairs under the ruling Conservative Party.

Britain’s reputation has suffered damage as a world power, but it can still look to its economic roots as a former colonial power to leverage its position within Europe and to bolster that of continental Europe within the wider world. But first, the UK must apply to rejoin the European Union or at least achieve a closer and more cordial relationship with the continent after the irresponsibility of the Brexit adventure.

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The chances of Britain rejoining the EU may appear slim but many people are beginning to regret Brexit. After a long winter of discontent and a prospective lengthy economic recession in the UK, the realisation is likely to take hold that the only way forward is to sidestep back into Europe.

Britain’s relations with Australia, New Zealand, Canada and others are no longer strong enough to enable it to form a Commonwealth Economic Union, as might have happened before it joined the EU. But these links have value as something to bring to Europe in the event of a UK-EU remarriage.

Such a reunion could also revive China’s hopes of seeing a “European” Britain become part of the Belt and Road Initiative, taking advantage of its centuries of experience as a global trading hub and using the capital-raising skills of the City of London to finance completion of belt and road projects.

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China’s relations with Britain have deteriorated since Little Englanders became sufficiently emboldened during the Boris Johnson era to pursue post-Brexit “Britannia rules the waves” policies. Sino-European relations have also deteriorated on fears of a security threat from China.

These relations can be mended, however. If the current UK government’s desperate bid to cling to power – despite its unpopularity – fails, a likely scenario in a time of deepening economic recession could be a move by a successor government to reverse Brexit and restore relations with China.

These might appear grand assumptions, but the fact is that the global economy is heading for a very bad place as things stand. There is the prospect of a widening economic recession that will affect more countries that become victims of US-China rivalry or, much worse, physical clashes between these two giants.

British Prime Minister Rishi Sunak speaks during Prime Minister’s Questions in the House of Commons in London on November 30. Photo: AFP

It is tempting to see US-China rivalry as a battle between good and evil, between democracy and autocracy. There is some truth in this assertion, but the problem is equally about economic rivalry, which clothes itself in concerns over human rights and security issues.

The world needs to figure out how to escape the thrall of such narrow perspectives which can only lead to a dead end. For that to happen, we need a new balancing factor in the global power equation, and a further renaissance in Europe seems the only viable option now.

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