Geopolitical tag team dismantles globalization

The Ukraine crisis is part of a seismic shift on the geopolitical chessboard that could substantially damage world trade and the global economy by dismantling globalization. Particularly the situation in Asia is dangerously similar to Europe's political landscape in 1914: territorial disputes, competing superpowers, widespread and deeply engrained nationalism. To a large degree, Asia's geopolitical stability depends on how the U.S., China, and Russia manage to get along while countries like Japan and India are cast in supporting roles.

In recent history, the relationship between the U.S., Russia, and China did also play an essential role. During the Cold War, the U.S. succeeded in boxing Soviet Russia into a corner, partly by making overtures to China. Nixon's ping-pong diplomacy and Deng Xiaoping's subsequent open-door-policy strengthened the ties between Washington and Beijing whereas the Soviet Union was left out in the cold.

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Now the time is ripe for a new three-cornered relationship, Eurasia Group points out. The participants are the same but they are assigned different roles. Presently, Beijing is able to play the other two against each other while at the same time the dynamic duo of Batman Beijing and sidekick Robin Russia could become a formidable geopolitical force. On the other hand, Beijing is not eager to alienate the Americans as the US still commands superior military, political, and financial powers while it has allies in numbers that the Chinese and Russians can only dream of.

Meanwhile, Russia and China are taking steps to cement their relationship. Xi Jinping first foreign visit as China’s leader was to Moscow.  Recently, Beijing refused to condemn Russia for what happened in Crimea. And the two countries have signed a 30-year, $400bn contract whereby Russia agreed to supply China with 38bcm of natural gas per year.

Circumstances force Russia to look eastward although from a political, military, demographic, economic, and cultural perspective it is more connected to the West. Moscow has little choice; the Ukraine crisis has reached a stage where there is no turning back. 

There are more reasons forcing Putin to turn east. The Russian economy is being eroded by a toxic mix of corruption, stagnating growth, high inflation, and a shrinking population. Last but not least, Moscow has no other country to turn to in its quest for strong partners whereas China has an alternative for Russian energy supplies – the Chinese have even began to muscle onto "Russian turf." To quote Foreign Policy, “China using Central Asia as its energy playground kicks dirt in Russia's geopolitical sandbox.”

Whereas Putin feels the only way is East, the Chinese leadership seems to have more room for maneuver. Trade with Russia represents just two percent of China’s foreign trade. In addition, only nine percent of China’s oil is imported from Russia and a mere one percent of its natural gas.

China may have the best cards but from a geostrategic perspective, it might have to rely on Russia over the long term. If the current trends persist, China could quickly close the economic gap with the US and perhaps overtake it militarily (albeit at a much slower pace). Yet, that is only part of the story. If it wants to have a serious stab at global leadership, Beijing will not just have to deal with the U.S. itself but also with its many powerful allies: Japan, Australia, Canada, and so on. To make headway, it needs a potent partner. Russia boasts thousands of nuclear weapons, a gigantic land mass, maritime flexibility, and huge commodity supplies.

Geopolitical sparks would fly once the US, the Russians, and the Chinese start to wrestle in earnest. After all, they have each other in a hold whereas the latter two are not yet a smoothly operating tag team. But the strategic winds have turned; the Bear-Dragon partnership could grow into a hard-to-ignore alliance as geopolitical and political-economic clouds amass.

Presently, the non-Western world is militarizing rapidly whereas Europe is lagging. In 2012, for the first time Asian countries spent more on defense than Europe while their investment in offensive capabilities continues to increase. And whereas Russia has upped military spending by 50 percent in the past five years, on average NATO states have cut their budgets by 20 percent. Currently, China and Russia are in second and third place, respectively, on the list of countries that spend the most on their armed forces (still far behind the U.S.). 

Owing to the relative weakening of the West, the allies of the US are starting to question bilateral and collective NATO security guarantees. For example, Japan, which is moving towards a more assertive stance.

The deterioration of the international political climate is bound to impact on the world economy. In the past decades, many countries could afford to focus on economic growth but it is obvious that they need to get their priorities straight. Ironically, it was a Finance Minister who pointed this out recently. “Economic interests cannot be a country's top priority. Maintaining peace and stability is more important", the German Wolfgang Schäuble said.

These days, peace and stability are hard to come by because:

•             Putin intends to turn Russia into an imperial power with traditional buffer states and China and Russia could team up

•             For a long time to come, the MENA region may be trapped in a destructive battle between cross-border extremist movements, authoritarian regimes, and democratic forces

•             India and Japan are ruled by nationalist leaders, who are scrambling to obtain a more prominent position on the world stage

•             Many wonder if the U.S. can (or wants to) be the global policeman on an ongoing basis

•             Europe seems incapable of getting its act together

All of this – an uncertain atmosphere, shifting and ambiguous geopolitical relations and in the longer term the possibility of a Russian-Chinese front against the U.S. – will contribute to a risk-off climate and could trigger a renewed bear market.

Langenkamp is senior political analyst at ECR Research and ICC.