Nfter the party congress in Beijing, the disillusionment in the West is great. In Beijing, as in Moscow, it looks as if a former oligarchy has finally been replaced by the rule of a strong man who mainly gathers loyal followers around him. As in Moscow, the result of this change could lead to a political and social hardening, which probably does not want a loss of economic dynamism, but accepts it if in doubt if it serves to secure power by restricting freedoms.
A hardening of foreign policy and China’s desire for external influence strengthens the conviction in the West that there is a geopolitical conflict. Decades ago, historians like Paul Kenney and economists like Mancur Olson showed how such behavior fueled a nation’s long-term decline. In the short and medium term, however, these nations are able to mobilize considerable energies. How should the West react to this?
External security is essential
Over time, the traditional model of free trade will have to be expanded to include a political component, for which the term geo-economy, which has become a buzzword, is suitable. This means an understanding that was already widely known in the past, but has been underestimated not least in Germany over the past few decades: international business is good as long as it does not damage one’s own security interests.
This also means, however, that the general suspicion occasionally expressed by critics of an increasingly moralizing or ethics-motivated foreign trade policy in the West cannot be applied to restrictions on free economic activity based on security policy. The guarantee of external security forms a constitutive part of state regulatory policy and every functioning economic and social model.
For years now, a comparison has been drawn between today’s China and the German Empire of the late 19th century, which at the time competed with the British Empire on land and sea. No matter how good this comparison may be: China has been pursuing a foreign trade policy for years that also has geopolitical motives and is characterized by staying power and creating dependencies.
It is not always clear whether this policy makes economic sense, but it is probably not always important either. Economists like Clemens Fuest have shown that Chinese state-owned companies are willing to buy less profitable and highly indebted companies abroad, as long as they receive strategically important access to raw materials, for example.
Ports are critical infrastructure
Investments in foreign ports may also have an economic background if they serve to optimize global supply chains. But the French communist trade union CGT already knew why, in its heyday after the Second World War, it had particularly courted workers in the French ports in addition to the railway workers: ports are part of a country’s critical infrastructure from both an economic and a military point of view.
However, the West’s overdue acknowledgment of the political externalities of global economic activity must not lead to the other extreme of rampant protectionism. External security can cost money, but the principle of using resources and economic policy instruments as efficiently as possible applies here too. Restrictions on the international division of labor cause significant losses in economic prosperity.
Ever since the oil crises almost 50 years ago, the importance of diversification in sourcing energy and commodities has been well known. But it did not come for free and it takes time, which, as Russia’s war against Ukraine shows, becomes scarce in times of tension. Additional storage of raw materials and preliminary products, which makes sense in view of fragile supply chains, requires investments and ties up financial resources.
The potential to bring outsourced production to the home country appears limited in view of the shortage of skilled workers and often not very profitable due to significantly higher costs, but it does drive inflation. Even after the party congress, doing business with China is of course not fundamentally reprehensible – but underestimating the geopolitical context would be disastrous.