Three major crises

Singapore PM Lee Hsien Loong has identified the world’s three major  challenges: 1) the war in Ukraine; 2) US-China relations and 3) the breakdown of the multilateral trading system. Each has a devastating impact on most of us.

The Ukraine war is deadlocked, with no good outcome in sight. Neither side can win, nor can either afford to lose. Things have been at a stalemate since last November. The Ukrainians are understandably reluctant to stop fighting before they reclaim all of their territory, but this will be very difficult.

The Russians are most unlikely to be defeated entirely despite heavy losses. They have a large population and can still conscript more troops and mobilize more resources. A danger is the conflict escalating.

The US and NATO are supplying Ukraine with more and more sophisticated military equipment like longer range artillery, the Patriot air defense system and main battle tanks.

If the Ukrainians, using these Western weapons, make a breakthrough on the battlefield, we cannot predict how Russia may react.

Even short of worst-case scenarios, the impact is bad. The war continues to disrupt global energy, food and fertilizer supplies.

We are all feeling it, in higher prices. Relations between Russia and the NATO countries (the US and Europe) have completely broken down, and will not return to normal anytime soon.

Two months ago, Russia suspended its participation in the New Start Treaty, its only remaining nuclear arms control treaty with the US. For China, Russia’s invasion of Ukraine has presented a difficult problem.

The US and Europeans want China to use its influence to get Russia to stop the invasion. China would prefer not to aggravate Europe and the US by providing military support for Russia’s war in Ukraine.

But China is hard-pressed to condemn Russia’s invasion, or pressure Russia to stop fighting. It shares a very long land border with Russia, and it has to consider its own substantial relations with Russia. The war has made it difficult for China to improve relations with Europe, even though I think both sides would like to do. It has also complicated China’s already very troubled ties with the US.

US-China relations: There is deep mutual suspicion and fundamental mistrust.

The prevailing view in America is that their efforts to work out a cooperative relationship with China have failed, and China’s growing strength and assertiveness is becoming a grave threat to US interests and values.

Therefore the US must go for “extreme competition” and maintain “as large a lead as possible,” in their words, over China in foundational technologies, such as semiconductor chips, quantum technology, artificial intelligence, biotechnology and green technologies – all the things that count.

Pew survey: over 80 percent of adults in the US have an unfavorable view of China, and nearly 40 percent, 4 in 10, describe China as an enemy of the US, not a competitor or partner.

Similarly, Chinese public perception of the US has deteriorated. China’s leaders are convinced the US seeks to “contain, encircle and suppress” China. They believe that Washington wants to hold back China’s growth and weaken the Communist Party of China’s hold on power.

They say the East is rising and the West is declining, and they think the time has come for China to take its rightful place in the world. They consider issues like Hong Kong, Xinjiang and Tibet to be China’s domestic matters, vitally affecting its security and integrity, on which they see no room for discussion or compromise.

The most dangerous flashpoint is Taiwan.

China considers Taiwan as the most important issue, and “One China” is the reddest of its red lines. In the West, the problem is a broader ideological issue of democracy versus autocracy, even though most countries have “One China” policies.

Tensions over Taiwan are high. After Dr. Tsai Ing-Wen met US House Speaker Kevin McCarthy in the US, China launched three days of extensive military exercises all around Taiwan, described as “comprehensive and precise simulated attacks on the key targets in the island and surrounding waters.” The risks of a miscalculation or mishap are growing.

US-China relations will not improve anytime soon. Even if the two powers avoid a direct conflict, which neither side wishes to see, enduring enmity and bad relations will be very costly for both, and will mean big trouble for the rest of the world.

We hope that relations between US and China do not get worse.

The global multilateral trading system is under siege. This has very serious implications, especially for small, open economies.

For the last few decades, there was a broad international consensus supporting globalization. Countries were lowering tariff and non-tariff barriers, harmonizing rules, seeking win-win economic cooperation. APEC economies talked about a Free Trade Area of the Asia Pacific.

Countries are prioritizing domestic and national security considerations.

Countries no longer talk about trade being a win-win. When countries quarrel, their bilateral trade becomes embroiled in these disputes. They impose restrictions. If you need my imports more than me, I restrict my exports. If it is the opposite, we will restrict your imports. Sometimes it is high-tech items like semiconductor chips or sophisticated machinery; sometimes it is agricultural products like bananas, barley or wine. They seek to inflict maximum political pain while blandly denying any hostile intent. It is a vicious cycle.

Countries trust others less and less to play by the rules. They are increasingly going their own way, and “on-shoring” or “friend-shoring” supply chains. This then triggers a tit-for-tat response from the other side.

We are once again heading towards a world where protectionism is the default and trade rules are secondary. The economic cost to the world is high.

The IMF said fragmentation of the global economy could reduce global GDP by 7 percent cumulatively, a conservative estimate.

The reality is probably worse. 7 percent is the effect on goods and services not traded, but deglobalization will also impact on the exchange of ideas and innovation, technology development and diffusion, as well as capital flows and cross-border financing.

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