Small Post, Big Idea

Time is short this week, but something interesting occurred to your blogger.

History divides time up into eras and periods, creating time frames where changes of significance happened - think of the Renaissance Era, or the Interwar Years, which cover the Renaissance and the gap between World Wars respectively.

Now consider that every few years there is a ‘momentous event’. This is an event of a certain magnitude and scope that it must be classed as ‘momentous’; either because it’s large in scale and brings about instant change, or because several years later, academics will say ‘that was a key turning point in the development of weaponry/society/economics’. 

This may be the creation of democracy in the US in 1783, or the Franco-Prussian War unifying Germany. It may cause instant repercussions, or it could create subtler, more implicit changes over time. 

But a Momentous Event will often either begin the end of an era, or usher in a new one. Sometimes both.

Our most recent ME was the Banking Crisis in 2007-08. Before that, it was the collapse of the USSR in 1991. The 9/11 attacks make a claim to be in that category too. 

So, let us assume that if the USSR’s dissolution was the end of an era (which it was; the Cold War), then what era came next? And has it stopped, or is it still going? 

Because this blog is arguing that it’s stopped. That the 27 years since that colossal rotation of the sun have now ended, and are enclosed in their own time frame, their own ‘era’ for historians to argue over. 

The Globalised Era

With the breaking down of Communist walls and the rapid expansion of the EU (joined by the WTO), world trade entered a boom as countries knitted together economically. The terrorist attacks in 2001 may have slowed the boom, but they didn’t really halt it; people continued to enter employment and take out loans, and countries got closer, lowering tariffs and encouraging free trade [this is globalisation in a nutshell].  

What did stop the boom then? That would be the imminent destruction of the banking system plunging the world into a panicked recession. And this ME does indeed end an era - but not right that moment. It actually totters along for eight more years. 

Because it’s in 2016 when citizens all around the world notice that wages are still flat, living standards stagnant, and the poor in the same position as they were eight years ago, when they were promised rejuvination and overhaul, as Lehman Bros. and Bear Sterns dissolved around them. 

They’d tried Obama’s ‘Hope’ and Cameron’s ‘Compassionate Conservatism’. They’d seen repeated Italian governments fall into the dust, and Greece on the tipping point of anarchy. Their steel plants had been bought out, their welfare slashed, their education mauled, and the rich got richer, as the poor got poorer.

So they spoke out. And they voted for real change. ‘Leave’ and Trump in 2016; the destruction of France’s two main parties in 2017; the Northern League in Italy, and Catalonian independence in 2018. They found their voice, and yelled it with fury. But it seems that they may have yelled in the the wrong direction.

Because Trump, for four years or eight, will wreck the world economy. Leaving the EU will damage the UK’s own, and take a chunk of the Union’s too. The populist coalition in Italy has no meaningful plan to revive their country, but points at immigrants as scapegoats. Instead, all three will look inwards, reject the world, and strive for self-sufficiency. In their wake, the world will follow. 

Free trade may collapse, and the EU become a shadow of itself. All the jobs and income dependent on inter-linked goods and services will be reduced. Countries will revert to pre-WWII trade barriers, protecting their own.

And the interconnected, globalised, sociable world that was created after the USSR’s death will quietly fade from existence.

And so, historians will argue over the exact year and time period. But they will agree on one thing. That it was in the late 2010s when the Globalised Era came to a sad, shuddering stop.

Like China In A Bull-Shop

It has been fashionable for many years to say that China will soon be the world's number one power. Its rise has been unstoppable. But the long threatened trade war is coming, and China seems more vulnerable now than for many years.

Shanghai, We Have A Problem

President Trump has been threatening to reduce foreign imports since his campaign for office, and after a year of relative quiet on the issue, he’s begun taxing goods from China, the EU, Canada, and Mexico. 

In March he applied charges on aluminium and steel, then in July openly considered a 25% tax on Chinese imports worth $200bn. Right now, the White House is studying the potential for further tariffs. (A handy update on what trade wars and tariffs are, here) 

Twenty years ago, this would be a non-issue. But China has moved away from self-sufficiency, first doing mass-production, and now moving into internet technology. 

This means it has to rely on a strong Yuan-Dollar rate to sell to their new foreign markets. And if you a) use the dollar, or b) export anything to the US - you’re now an easy target.

China has responded with its own tariffs on $110bn of its US imports, putting the two economies at loggerheads. But Chinese tariffs have been slapped on most of its American imports. 

The United States, however, imports $385bn more from China than China does from them, i.e. it can tax Chinese firms selling in the US way more than China can tax US firms selling in China. 

Investors know this, and they trust the dollar more than the yuan, so they’ve been selling the yuan as fast as possible, causing it to depreciate against the dollar. This makes Chinese goods more expensive in the United States and across the world, even before adding on the extra tariffs. 

The dollar's influence also gives the US power to wield over foreign businesses. ZTE, a large Chinese telecoms firms, was faced with American sanctions for dealing with Iran and North Korea. 

The influence of the US was great enough to be driving a multinational company, based in a different country, out of operating. (It was eventually pardoned after some major overhauls.) That is a sure warning sign for China.

Therefore China could lose the trade war. Its newfound emphasis on exports has given it an Achilles heel against a marauding United States. Well-known firms such as Huawei are finding big bills facing them for operating on the other side of the Pacific.

Just two years previous, China was the most threatening economic power in the world, driving many western firms out of business. But the trade war is making China weaker.

Decentralised Centralisation

One of the historic challenges of ruling China is that the huge population size and diversity means that a centralised government, based in one place, can only control some of the country. 

Yet since 1949, the Communist Party has done a remarkable job of unifying the nation, helped by propaganda, the occasional tank, and (more recently) modern technology. Peacefully regular changes of national leadership helps, keeping policy fresh and up-to-date. 

But this is changing. The consolidation of power by Xi Jinping, who’s abolished term limits and refused to name a successor, probably means he’ll govern for life. 

This isn’t good news for China anyway, as it will lead to an increasingly powerful government in Beijing, but also because he seems to encourage a stagnation of ideas and reforms. 

One of the less understood reasons for Chinese success in the 1990s and 2000s is the quiet encouraging of experimentation. While being an outwardly fixed and dogmatic ruling class, the party inwardly sponsored thousands of innovative trials such as land reform.

Many (such as the coastal free-market zones) became national policy and ended up being key factors in China’s economic growth. Under Chairman Xi however, there has been a severe decrease in these experiments. 

That will mean less productivity in the economy, and far less of the groundbreaking reform that has made private Chinese firms some of the most valuable in the world. As Jinping centralises and stifles, he will limit Chinese potential.

State-Owned Morality

China will soon be the world’s economic giant. But that does not mean it will be our biggest global power. The two great nations of modern history, the USA, and the USSR, occupied positions of inspiration and leadership. The USA as the figurehead of democracy, capitalism, and freedom; the USSR as one of revolution, equality, and might. 

China is a hybrid of the two, and cares for neither. 

It has never tried to assume a military standing outside of its own backyard, and it rarely enforces its own style of regime upon other countries. It does not submit many troops to the UN, it has only one overseas base (in Djibouti, left), and its foreign aid is negligible. 

In no way does it inspire other nations to follow its lead (unlike the United States). And it is this absence of moral and ideological power which will ultimately limit it from becoming a superpower.

Its main foreign adventure is the clunky ‘Belt and Road Initiative’, developing trading routes across Eurasia, and loading countries with enough loans that they’re literally indebted to China for years. But this is running into problems. 

The complex B & R plan

One key component is Afghanistan, which is in no condition to maintain a new infrastructure program. Likewise, many of the old Soviet states around the Caspian Sea. And when countries begin to default on these loans (as some look likely to do) this will surely dissuade other nations from cuddling too close to China.

Keep Your Chin-a Up

Of course we’re not discussing anything remotely near a Chinese collapse. But the evidence from these three areas alone seems enough to show that China is not going to rule the world within five years. That is not to say that trade war is a good thing. However, through his destructive trade policies, President Trump has inadvertently made China seem far weaker.