Walls – both metaphorical and physical – are going up all over the world.
We’ve written a lot about U.S. President Donald Trump’s “Fortress America” approach to global trade. Trump has led the U.S. into a sharp shift away from globalisation – from promising to build a wall on the U.S./Mexico border and making it more difficult for people from certain countries that happen to be majority Muslim to enter the U.S., to withdrawing the U.S. from the climate change Paris Agreement.
One of Trump’s first acts as president was to pull the U.S. out of the Trans-Pacific Partnership (TPP) – a 12-country deal that would have encompassed around 40 percent of total global output.
Meanwhile, tensions between China and the U.S. are slowly escalating… which I think are eventually going to lead to an all-out trade war.
And it’s not just the U.S. that’s turning inward. Britain’s vote to exit the European Union signaled a similar shift. And throughout much of Europe, the rise of right-wing nationalist parties, who tend to equate globalisation and open trade with the refugee crisis and terrorism, is putting the unity of the European Union under pressure. In short, many developed, western countries view globalisation as a threat to their future.
But not China
While the U.S. is backing away from globalisation, China is filling the vacuum.
One of the most important benefits of globalisation is free trade. And China has made it clear that it will be happy to replace the U.S. in any potential trade deals – most notably in the wake of the dissolution of the TPP.
At least two other proposed trade deals, the Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Area of the Asia-Pacific (FTAAP), could help bind Asia more tightly together – only with China, not the U.S., as the glue.
America’s shift inward also means that China’s efforts to deepen its political and economic influence throughout the world will meet fewer roadblocks.
China’s trillion-dollar plan to take over the world
One example of China becoming a larger force on the global playground is its One Belt One Road (OBOR) initiative. OBOR is a large-scale development and infrastructure programme announced by Chinese President Xi Jinping in late 2013. In time, OBOR will connect China to Europe, Africa and Asia by road, rail and sea.
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OBOR in many ways is a continuation of China’s ongoing efforts to expand its reach throughout the world. China has investments underway in everywhere from Brazil (China is Brazil’s largest trade partner), to Ukraine (where a few years ago a Chinese firm signed a 50-year lease for around 5 percent of the country’s land mass), to the African continent (where China is the single largest source of foreign direct investment) to Sri Lanka (where China has taken over a large – if for now, under-utilised – port and has numerous other investments).
China is a major global investor – with strings attached – through Asia and beyond. The OBOR initiative incorporates around 60 countries, which account for a third of global GDP and around 60 percent of the global population.
In total, China says it will invest US$4 trillion into OBOR initiatives.
OBOR is a way that China can cement its strategic interests across a huge swathe of the world at the same time.
And unlike the West, China doesn’t interfere with internal affairs of other countries. That’s attractive to some governments that have grown tired of Western reform demands (like democracy or market liberalisation) in exchange for financial help.
Innovation not imitation
China also seeks to close the technology gap between it and the U.S. by leading the charge on investment in new technology. (This is part of the reason why the U.S. might soon start a trade war with China.)
Much of the world views China as a nation of copycats and counterfeits. But China accounts for 20 percent of all global research & development spending. That’s a close second behind the U.S., which accounts for 26 percent of global spending.
In the field of artificial intelligence, China is also second – just behind the U.S. in terms of the number of AI companies and the corresponding amount of financing received by those firms.
And when it comes to simply brute computing power, China is the world leader. Since mid-2013, China has held claim to the world’s fastest supercomputer.
These are just a few examples of the slow but inexorable shift of the global political and economic centre, from west to east. (We’ve written more about this shift here.) And the looming U.S. trade war with China will likely only accelerate this shift.
Publisher, Stansberry Churchouse Research