Fukuyama's Post-Historical Model Got Politics Wrong and Economics Right

June 21, 2019 Topic: Security Region: Eurasia Tags: ChinaRussiaEconomyHistoryIndustry

Fukuyama's Post-Historical Model Got Politics Wrong and Economics Right

The 1989 economic revolution that left the United States at the top of the global economic hierarchy didn’t provoke any political quarrels—to the contrary, it caused a short post-historical era in world politics.

But much of this has changed in recent years as President Donald Trump de­cided to “stay firm” towards China and finally launched a full-scale trade war against Beijing. I contend that the United States without any doubt has good reasons for doing this, since China kept the protective tariffs against U.S. goods for years (in 2017, the United States cashed $13.5 billion in custom duties from $506 billion large Chinese imports into the United States while Chinese authori­ties levied $14.1 billion in duties on $127 billion U.S. imports into China), violated many American laws protecting intellectual property, forced foreign investors to share their technologies while outsourcing their production facilities to China, failed to introduce the market exchange rate for renminbi, etc. But the fundamental difference from all other trade and investment tensions that arose in the times of economic globalization was that the American authorities invoked sanctions against several Chinese hi-tech companies—most notably Huawei and ZTE—actually accusing them of industrial espionage in the United States. And even this wouldn’t change the situation much if the restrictions imposed aimed at curbing the companies’ imports to the United States or the purchases of U.S. manu­factured components. But as of June 1, 2019, several U.S. companies, following the authorities’ orders, effectively banned Huawei from their services: Microsoft discontinued the supply of its Windows operating systems for Huawei laptops and other content-related services, and Google announced it blocked some elements of its Android operating system such as GoogleMaps, YouTube, Google play app and Gmail on Huawei smart­phones.

It might be said that the recent developments are quite routine—once again, so­me U.S. companies deny access to their products due to the government re­gulation. But it seems to me that in this case the U.S. government crossed an important “red line”: it undermined the trust of the foreign hi-tech companies in the technological platforms that for decades secured America’s preponderance in the globalized world. Global companies like Microsoft or Google don’t produce only American soft­ware—they have for a long time been producing American soft power. Now it appears this soft power can easily be turned into a hard one at some point, and the long-term consequences of such a change may be profound.

What may happen in the foreseeable future? Of course, the affected Chinese cor­porations will suffer a major blow from the U.S. sanctions; Huawei and ZTE may well be stopped from their future expected expansion—but I expect the Chine­se government will to retaliate. Unlike the oil producing countries or other com­modity economies, China already produced billions of units of hi-tech products and definitely will continue its industrial expansion. Therefore it’s crucial for Chi­nese companies to develop their own operating system (Huawei already announ­ced it will have one at its disposal as soon as by the end of this year)—and the Chinese government will do its best to help them achieve this end. Alongside, Chinese producers will aim on developing their own microchips (today not a single Chinese company is listed within top-twenty-five semiconductor producers in the world) which will not be a great problem since all the major technological recipes are already either acquired or stolen from the Western companies (but certain­ly it will take far longer than to introduce an original operating system). Sooner or later, another technological platform will emerge that will be able to become a com­petitor for the currently dominating American one.

If one looks at the growth of China’s hi-tech sector, then she or he may mention that Chinese software and Chinese social networks are predominantly used either in China itself or by overseas Chinese. This situation hasn’t changed for years—while China-manufactured goods conquered the world, Chinese software remained locked inside the Chinese community. Now the United States seems to facilitate the internationalization of the Chinese hi-tech making it a real rival to the American one. China’s strength consists of its incredible reach to the most important consumer markets in the world. While for Russian exports, e.g., the consumer products accounts for less than 3.1 percent of its overall value, in the case of China the figure exceeds 59 percent. The users of China-made computers and mobile devices abroad—around two billion people all over the globe—are China’s main economic asset, and now it will be used with all possible ardour. As a result, a real alternative to the U.S. technological platforms will emerge for the very first time after the advent of the information age.

Of course, the United States is a “die hard” opponent. In recent years it initiated at least two major economic shifts of global importance. On the one hand, the so-called Fourth Industrial Revolution put a start to fully automated production techniques, thus endangering the position of labor in the entire production chain. This undermines China’s and other rapidly developing countries’ main competitive advantage—their relatively low labor costs that propelled them towards the global industrial leadership. Therefore, American companies might be able to dissociate with their overseas production capacities and bring not only their capital but also their industrial facilities back to the United States, thus delivering an additional blow to China.

On the other hand, the United States and Europe embarked on a way towards energy independence—focusing either on non-conventional extraction techniques (in the case of the United States) or on developing renewable energy so­urces (in the case of Europe). Both trends will make the West much more independent from the industrial as well as from the commodity economies; they will enable the West to fight very effectively against either Chinese or OPEC/Russian claims over their role in the global economy—but at the same time they will make the West less concerned with China’s technological advances.

All this will definitely produce a kind of dissociation in the current post–his­to­rical economic system. Both parts of what some analysts prematurely started to call “Chimerica” will rely on their strongholds. In the case of China, it’s the hardwa­re produced in the mainland and supplied all over the world: in quite a short per­spective these devices will be furnished with the Chinese operational system and with microchips under Chinese brand names—and the Chinese will do their best for securing that this software cannot be uninstalled. I would also expect all the Chinese smartphone manufacturers to introduce a system replicating one created by Apple with all its free iMessages, FaceTime calls, etc. which will lift the overall demand on their produce.

In the case of the United States there are many com­petitive advantages as well: first of all, the United States will make full use of its total domination on the microchip market which can hurt Chinese manufacturers dramatically; secondly, it may increase its pressure on Chinese consumers as more and more software applications will not work on Chinese smartphones, and, last but not least, the West can use the global internet projects it develops for in­creasing its dominance—e.g., announcing that China-produced devices will not fit with the space-based internet providers. As a result, the global economic and infor­mational realm that exists today will split with each part of it leaning to one or another dominant technological “core.” It’s difficult to say how far this dissociation may go, but the general trend it’s easy to see.

Undoubtedly, the ongoing economic and technological split will be followed by the reinforcement of political contradictions between different blocks and allian­ces. Today the United States has, by far, the largest number of loyal supporters: in Europe, Latin America, and Japan, local leaders will take the Americans’ side with all their devotion. The financial capabilities of the United States, its economic reach and the long-term strategic alliances will contribute to the making of the Western economic and technological area cautiously opposing the one created by China. But the Chinese also have made remarkable progress in recent two decades.

While even I wouldn’t call the Shanghai Cooperation Agreement an effective military-politi­cal alli­ance, China shows its capability to put it footprint in different parts of the world. Its investments into the African economies boomed from $23 to $352.7 billion between 2005 and 2018; the Chinese companies invested around $170 billion into Latin America; the government proclaimed a One Belt One Road strategy in 2014 that seeks to develop transit routes in the Indian Ocean and continental Central Asia; and, of course, Beijing did a lot in turning Moscow into its economic vassal (I would mention that in the midst of Huawei scandal, all the leading Russian mobile communication companies opted for Huawei’s hardware to comply with the new law that makes them obliged to collect and keep all the customers records for at least a year (some observers even accused the Rus­sian parliament of acting on behalf of Huawei when enacting the law). Therefore, I would suggest that both economic superpowers may well press their allies and economically depen­dent nations for adopting technological and software standards that they have been develop­ing in recent years.

How significant is the probability of “Chimerica” being destroyed due to the current economic showdown? I wouldn't exclude such a chance at all. Even though China exported more than $539.5 billion worth of goods to the United States in 2018, this made up on­ly 4 percent of its nominal GDP while the government increased the amount of loans banks provided the local companies and households with more than 16.2 trillion renminbi ($2.4 trillion or 17.9 percent of the country's nominal GDP) du­ring the same year. Chi­nese authorities seem to be reluctant in creating the grea­test credit bubble in history while seeking economic growth driven by local demand—so the preparations for “decoupling” from the United States are in full swing. Of course, if the situation worsens, the world might face a full-scale economic recession—but it may well be the last recession of the globalized world and the political rhetorics during it (with praise for protectionism, ex­port substitution, and reliance on different nations’ own com­petitive advantages) may contribute greatly to the creation of a “multiple globalization” scenario centered around either the United States or China. Taking into account both countries’ economic policies, I would doubt that any of them cannot survive with­out the other—moreover, I would argue that both nations seem to be really fascinated these days by the perspective of doing so.