Op-Ed: Xi Jinping Wants a New World Order Centered on Chinese Trade

 

[By Michael Pezzullo]

In October 2017, Xi Jinping declared that the world is experiencing ‘great changes unseen in a hundred years’. He often uses this signature phrase, the century-ago events being the tumultuous ones at the end of World War I, which saw the Bolshevik Revolution of 1917, the crumbling of European empires and the emergence of the United States as a great power, manifested through its decisive intervention in the war. In the century that followed, the US dominated the international system, defeating threats to its primacy from Nazi Germany, Imperial Japan and the Soviet Union.

For Xi, world history is currently undergoing a similarly momentous shift. As he sees it, the decline of the United States, its political ‘dysfunction’, the changing structure of world power and the rise of China are all irreversible and intertwined trends that can be explained by the laws of the Marxist theory of history.  His worldview is superbly analyzed in Kevin Rudd’s new book, "On Xi Jinping: How Xi’s Marxist Nationalism Is Shaping China and the World," which should be read by specialists, the public and incoming Trump officials alike.

Xi believes that the tide of history is flowing in China’s direction and that a new world order can be fashioned with China at its center, due to the ‘rise of the East, and the decline of the West’. This will be a new epoch. This is not to say that China will seek world domination as the Soviet Union did during the Cold War. Rather, it will seek to refashion globalization and multilateralism such that they serve its interests and the interests of those who align themselves with China.

Xi is wrong. His theory of history is flawed. His thesis that the West is in decline is optimistic ideation, not informed analysis.  His ideological and analytical rigidity prevents him from seeing the trap that he is setting for China in relation to the economic underpinnings of its power.

China cannot prevail economically over the aggregate weight of the US, Europe, Japan, India, Britain, Australia, Canada, South Korea and others, if they work together. This will be especially so as they increasingly deflect the ongoing surge of heavily subsidized Chinese exports of manufactured goods, components, and materials. Creating manufacturing overcapacity has been a deliberate strategy to concentrate industrial power in China.  It has stunted the development of a services-based economy in China, distorted global trade, hollowed out Western industrial bases and disrupted industrialization of the Global South.

China’s hold on global manufacturing could be broken if US partners leverage Donald Trump’s proposed tariffs by imposing similar tariffs and other forms of market access restrictions and by countering Chinese subsidies, dumping and predatory pricing strategies. Trump’s tariffs will work best if they are coordinated with friends so China cannot circumvent them by flooding other markets. This will require enhancing supply chain tracking so that China can’t get around these trade shields through third-country workarounds.

Through a concerted strategy of industrial, investment and financial coordination, global trade could be re-balanced such that China could be economically pressured into divesting its overcapacity into the above-named countries. Some would also go to less developed countries, such as Vietnam, Indonesia, Malaysia, Thailand, Argentina, Mexico and Turkey. By sitting on the runway of global manufacturing, China is blocking the development of such countries from taking off. The US could reshore higher-value and nationally critical manufacturing while helping to spread lower-value manufacturing across more economies.

The US and like-minded countries should also ensure that China does not get easy access to, or steal, the critical new technologies that will boost and sustain higher productivity, such as AI, robotics and quantum computing. US financial power, including the global status of the US dollar and US treasuries, further challenges China.

China’s internal situation is perilous, due to population decline, structural economic problems (such as its massive debt overhang and the stifling of the dynamism of its own private sector) and its dependence on imported energy, resources and food. China will more likely collapse than it will ascend to global primacy.

For the US, seeing off the China challenge, including by way of trade warfare, is a pre-requisite for greatness in the second American century.  If it can pull off such a strategy, it will re-industrialise its economy and reconfigure the structure of global trade so that others also benefit, at China’s expense.  There are great changes underway, unseen in a hundred years—but they are not the ones that Xi Jinping thinks are occurring.

Michael Pezzullo is a former Australian deputy secretary of defence and was secretary of home affairs until November 2023.

This article appears courtesy of The Strategist and may be found in its original form here.