The Godfather Wars

(The American Interest) – Don Vito Corleone, Don Licio Lucchesi, Hyman Roth, and the coming international realignment.

In the aftermath of World War II, the U.S.-led Western hemisphere decided that economic interdependence between Western democracies would underpin political harmony. The trauma of two world wars prompted the Europeans to establish the Coal and Steel Community in 1951, the progenitor of the European Union. This trend was cemented by the end of the Cold War, with the triumph of capitalism over communism, to the point that the free world became defined by open markets and democracy. Despite being underwritten by the U.S. security guarantee, the Western order distinguished between political security and economic prosperity, to the point that the former concept was consigned to the dustbin of history (this despite historical precedents establishing that economic ties do not necessarily strengthen political ties). The Unipolar Moment came to be identified with the End of History, to the point that President Clinton in 1997 dismissed the Chinese government as being on the “wrong side of history.” Little did the West suspect that it might be on the wrong side of history, or that its primacy would become a source of its vulnerability in the international system.

Liberal internationalists certainly did not anticipate China’s military assertiveness, or its economic decoupling with the United States. They embodied a tendency to idealistically project the West’s unique historical circumstances, and especially the triumph of democratic capitalism over Soviet communism, onto China’s totalitarian political system. This tendency was complemented by the West’s eagerness to access China’s large consumer market and natural resources. In the process, the West discarded realpolitik, and the bell rang forth, extolling the virtues of U.S.-Chinese financial interdependence. The World Trade Organization learned the wrong historical precedent that, “The key lesson drawn from the inter-war experience was that international political cooperation—and an enduring peace—depended fundamentally on international economic cooperation.” In 2002, the Bush Administration’s National Security Strategy advanced the idea that the United States and China would enhance cooperation on global challenges. This was echoed by the Obama Administration’s National Security Strategy in 2010. Tony Blair echoed this approach when he argued that the European Union should extend to China, along with the United States, a new global partnership. As such he took a page from The Godfather’s Peter Clemenza, who orders Rocco Lampone, “Leave the gun. Take the canoli.”

In the liberal internationalist order, which stresses interconnectedness, Western manufacturers have followed suit by preferring access to China’s vast markets. In the process, they were willing to overlook issues like the trade deficit, theft of intellectual property, the forced transfer of U.S. technology to China, and ongoing attempts to prevent China from selling at below-market levels in order to drive out competitors….

Read Full Article: The American Interest

Barak Seener is the CEO of Strategic Intelligentia and a former Middle East Fellow at the Royal United Services Institute (RUSI). He is on Twitter at @BarakSeener.

Welcome to the Coronavirus – Inspired Supply Chain Security Showdown

(The National Interest) – German chancellor Angela Merkel and France’s President Emmanuel Macron have expressed their commitment to make strategically important products such as medical and pharmaceutical products in France and Germany. In a similar vein, the European Union Chamber of Commerce has asked its members to wean themselves off being reliant on China’s supply chains. Japan and India appear to be following suit.

Strategic decoupling from China is likely to lead to governments to increase national security regulations on foreign investments and expand their definition of strategic sectors from being information technology (IT), telecommunications and dual-use technologies with civil and military applications, to include food security, biotech, and pharmaceuticals. In turn, governments will demand that strategic sectors conduct domestic manufacturing.

The United States, EU, Russian and Chinese governments will have greater oversight and screen foreign direct investment (FDI) in these strategic sectors to prevent foreign investors from accessing sensitive data and technologies in a bid to protect their respective technological bases. As businesses are increasingly vulnerable to buyouts due to the economic downturn, governments are wary of foreign investments of their national companies. In late May, the U.S. Senate passed a bill that would bar foreign companies from U.S. exchanges if they are unable to prove that they are not controlled by a foreign government and refuse greater U.S. oversight of company financials. Similarly, the British government is considering legislation to prevent significant investment and foreign takeovers of UK companies.

Already prior to the pandemic, higher wages and increased shipping costs had led companies to shift supply chains away from China. Yet, the coronavirus has created severe disruptions in a complex web of international supply chains due to quarantines, factory closings, travel restrictions imposed by China and other countries. This increased the momentum of companies seeking to relocate as part of a growing trend of attempting to build resilience into their supply chains and mitigate against future shocks. A recent Bank of America survey of three thousand firms reported that companies in ten out of twelve global industries, including medical equipment along with semiconductors are in the process of shifting part of their supply chains from current locations.

In a bid to accelerate the trend to regionalize supply chains, Western states are likely to increase taxation on goods that were not made onshore or near shore. U.S. Commerce Secretary, Wilbur Ross exclaimed, “Globalization had gotten out of control. It takes two hundred suppliers in forty-three countries on six continents to make an iPhone.” The United States is exploring increasing tariffs on Chinese goods, tax incentives and potential re-shoring subsidies. The United States is also engaging with states across the international community and companies as part of an “Economic Prosperity Network” to standardize an approach towards regionalizing supply chains, trade, energy and infrastructure.

Read Full Article: The National Interest

Barak Seener is the CEO of Strategic Intelligentia and a former Middle East Fellow at the Royal United Services Institute (RUSI). He is on Twitter at @BarakSeener.