7.1 Introduction

This chapter explains how the Belt and Road Initiative (BRI) fits into the global power play of major powers. The seeds for a shifting horizon in global international politics have been sown. The importance and the impact of international trade cannot be adequately assessed without considering the politics that may enhance or interfere with global trade relations; hence the success of the BRI will be largely determined by political decisions which may oppose or enhance the development of the BRI.

The gravity of global trade is shifting towards the emerging economies, especially towards China, but also towards India and Russia. This chapter on the BRI and international relations begins with an analysis on trade dependence and political dependence and then proceeds to discuss the BRI as a globalizing force . However, China’s rapid rise and the implementation of the BRI provokes a counter push to the BRI by opposing countries; this counter push will be discussed next, followed with specific analyses on various measures which are part of the counter push, such as the thrust towards protectionism, policies of sanctions to maintain hegemony, and the trade disputes to prevent China from rising as an economic power. The assumption that an increase in trade and greater trade dependence between nations will lead towards greater foreign policy conversion is discussed. It is argued that dependency theory which divides the world into an industrial core and a periphery, where the periphery supplies commodities to the industrial core, has become outdated, because nation’s comparative advantages as well as global political forces have shifted towards various emerging economies.

Nevertheless, an increase in trade and trade dependence may lead towards greater convergence of foreign policies as can be seen by the greater allegiance of members of the BRI with China’s foreign policies on multiple issues. Moreover, China’s importance in international affairs is largely due to China’s rise in economic power . International relations may be conducted through the application of soft , hard and smart power (Nye 2004, 2009). China’s exercise of soft power as activated through the BRI is in effect a network of partnerships consisting of a huge number of projects. Furthermore, the consequence of the RMB as an increasingly powerful international currency will also affect the international monetary system and so will have an impact on international affairs as well. The shift of economic power from the industrialized towards emerging economies, including the growing importance of South–South trade; for example the greater importance of China’s trade relationship with African nations, the Middle East and South America will also have an effects on international affairs. The Eurasian Economic Union (EAEU) will also exert greater influence on international affairs. Political instabilities in Afghanistan, the Middle East, Myanmar and other geographical locations may present various obstacles for the BRI.

It has been argued that processes and prospects of the BRI cannot be understood by resorting just to theories of international economics or trade theories, but the various obstacles that will be confronted by the BRI have to be considered as well. The creation of various obstacles as a counter push to the BRI has also been discussed. It has been argued that China institutionalizes its global power through globalization with Chinese characteristics. Furthermore, the thrust of the BRI has some neoliberal features with Chinese characteristics. China sees its status of a global power as inevitable, but pursues a gradual approach. It does not seek to replace the international financial system based on the US dollar; but seeks a greater role within the current system, including the internationalization of the RMB. One of the major aims is the BRI is to internationalize China’s domestic economy and to connect the global economy with the China’s economy which will have considerable spin-offs, both economically and politically.

The gravity of the global economy is shifting towards the emerging economies, especially towards China, India, and Russia. An increase in trade relationships may enhance economic relationships which may also improve international relations and greater foreign policy convergence. As there is a shift in power from advanced countries to emerging economies, international institutions are likely to be reconstructed. Other newly formed international institutions such as the SCO are likely to present a countervailing force to the advanced economies. The SCO and similar institutional power relationships together with the BRI are likely to present a countervailing fore to the present unipolar world order. Various international organizations, such as the SCO have been established to serve as a countervailing force to the anticipated counter push to the BRI . China shifted its foreign policy from one of keeping a low profile towards one of modernization, spreading across different spheres from the economy to the PLA, especially within areas of high-technology.

Policies of protection may help declining economies whereas globalization is likely to help emerging economies. However, the imposition of tariffs contravenes the policies of the WTO. Various policies have been adopted to contain the BRI. However, the counter push to the BRI has pushed Russia and China closer together; neither do sanctions have the intended effect.

There are objective trade barriers , such as geographical characteristics, and there are subjective trade barriers, such as the imposition of tariffs and sanctions ; this chapter deals with subjective trade barriers . Trade sanctions and tariffs have a multiplying an accelerating impact on foes and allies alike. Protectionism is imposed by countries which are unable to compete, whereas free trade is advocated by those who have a competitive advantage. Sanctions and trade disputes between the United States and China will compel China to intensify its “Made in China 2025” programme which will lead to more Chinese made and designed technology. The more appropriate trade policies are agreements which provide access to international markets and reject any imposition of an optimal tariff.

Fulbright’s (1970) concept of an arrogance of power has been explained and the danger of open conflict is more acute when an arrogance of power is blocked by other countervailing forces, especially when it is combined with a realization that these policies cannot be implemented and may react with force out of desperation. This leads us to a discussion of the Thucydidean trap .

7.2 Trade Dependence and Political Dependence

A major shift is occurring within the global economy away from the major industrialized economies towards the emerging economies; especially towards China, India and Russia. Political conflicts and international relations can interfere with trade between nations and consequently will affect their economic relationships. Political tensions based on misguided rivalry create barriers to economic integration. On the other hand, an increase in trade can facilitate economic integration which can reduce political tensions. As China’s rise in economic power and its trade relationships with other countries is increasing, China will also increase its influence in international relations. Flores-Macías and Kreps (2013) find that countries that have high levels of trade with China “are more likely to converge with China on important foreign policy issues” (p. 358). This confirms Hirschman (1945) argument that an increase in trade and greater trade dependence lead to greater foreign policy convergence; obviously, the greater the trade between nations the greater the costs of any interruptions to trade between them. Hirschman (1945) argues that countries that have less to lose in a trade dispute are in a stronger bargaining position.

According to Hirschman (1945, 1980), an increase in trade and trade dependence results in a convergence of foreign policies simply because interruptions to trade will increase the costs the greater the trade relationships are; hence a convergence of foreign policies will lead towards fewer costs. The greater a country’s reliance on trade the greater will be the country’s willingness to grant concessions. Of course, a country may obtain concessions not because of its dominance in trade but rather because it is powerful and so may impose its will; unless weaker nations form alliances amongst each other, and so may cause a countervailing effect to the more powerful nation. Flores-Macías and Kreps (2013) using ordinary least squares (OLS) and two stage least squares (2SLS) for their investigation in the case of African and South American countries find that China and its trading partners are more likely to converge on foreign policy issues the more they trade. Flores-Macías and Kreps (2013) find that China’s trade volume with African and Latin American countries has increased, and as a consequence there has been a convergence of foreign policies of those countries with China.

According to the dependency theory, the world economy is divided into an industrial core and a periphery which produce the commodities. The periphery consists of developing countries which produce largely low-value products, mainly within the agricultural sector to be exported to the developed countries situated in the industrial core; such situation is assumed to reflect the comparative advantage of the core and the periphery; however, not only are the comparative advantages of nations shifting, but so are the global economic and political forces. The dependency theory is incapable of explaining such rapid changes and much of economic theories have no explanation for the financial crisis of 2008–2009 . Indeed, the financial crisis was largely confined within advanced economies, especially within their financial sectors.

Hirschman (1945) makes the point that trade can be used as a political tool. Economic dependence can lead towards political dependence . The construction by the BRI of infrastructure establishes greater interconnectivity and is expected to create political support in the participating countries for China. Furthermore, as China’s economy grows, China will gain greater influence in the decision-making process of those countries participating in the BRI. The greater a country’s foreign trade the greater will be its importance in international affairs. The United States has since the financial crises of 2008–2009 declined in its importance resulting from its decline as an economic power which also has implications for foreign affairs. However, a political power vacuum is quickly filled again. The shift of gravity of economic growth from the industrialized to the emerging economies has become a global phenomenon; hence China’s trade relationship with South American countries has become more important; especially within the oil industry, the agricultural sector, high-tech industries and the construction of infrastructure.

The Chinese and Venezuelan economies complement each other. China has diversified its imports of crude oil partly because of its fast increase in demand for oil. Suppliers of oil also realize that China with its considerable economic growth is a sustainable strategic importer of their oil; at the same time, they reduce their reliance on the United States to purchase their oil. South America supplied almost 10% of China’s oil imports in 2013. Hongbo (2014) points out that “the Sino-Venezuelan Cooperation Model is a plural collaboration pattern with the oil sector as the principle cooperation axis, which is extended to the infrastructure, high-tech, agriculture and other fields under an intergovernmental institutionalized cooperative framework” (p. 652). Chinese financial institutions provide the finance to be repaid with crude oil exports from Venezuela. The China–Venezuelan Joint Fund was set up in 2007 by the China Development Bank (CDB), the Chinese National Oil Companies and the Venezuelan Oil Companies. Finance was provided through loans, not in the form of equity. Such cooperation between China and Venezuela has now been extended to the agricultural sector, infrastructure and high technology areas. Venezuela has a trade surplus with China and China has become Venezuela’s second-largest trading partner. The Security of oil supply is regarded by China as a priority in its national security policies. However, like in the case of some other participating countries of the BRI, Venezuela is politically unstable as a consequence of political interference by countervailing forces which are opposed to the BRI. Crisis of attempted regime change such as in Venezuela is a means to counteract China’s influence in South America; especially as China cooperates with Venezuela’s PDVSZ in the production of oil.

As China has global investments, new political reconfigurations will affect China’s economy as well as its international relations, and consequently the viability of the BRI. Political changes since 2011 resulting from the “Arab Spring” in the Middle East and in North Africa have affected the supply of crude oil to Asia, especially to China which is highly reliant on crude oil deliveries from the Middle East.

India is building up a partnership at sea with China which includes Japan and Australia, while still advocating concurrently a US Indo-Pacific strategy; obviously it is trying to hatch its bets, but India’s dialogue with China is intensifying. However, it is highly unlikely that India will join the anti-China strategy for too long as its attitude towards China is changing. The Quad countries of Australia, India, Japan and the United States have formed a coalition specifically to oppose the BRI; especially to patrol the East and South China Seas which are now referred by the four countries as the area of Indo-Pacific instead of using the previous term of Asia-Pacific. However, rather than seeing the BRI as a danger to the participating countries, it will enhance the domestic as well as international trade relations with other countries.

The Quad proposal which was first announced in 2005 provides Australia with severe contradictions in its policy. Australia sees an alliance with the United States as in its best-perceived security interests which conflicts with Australia’s trade interests based in East Asia. Australia’s trade with China has increased greatly, and it has also increased with Hong Kong, Japan and South Korea; whereas it has declined with the European Union and even more so with the United States. Australia’s future obviously lies within the East Asian-Pacific region. Japan cooperates with China on a project in the construction of a tunnel and a bridge connecting Japan with the Eurasian mainland, and India is a member of the BRICS and the SCO and is attempting to build a transportation route across Iran and Azerbaijan to Russia which interferes with India’s geopolitical alliance with the United States. Hence, Australia’s interests may be best served if it joins the BRI; especially as a new quadrangle is evolving in Eurasia between China, India, Iran and Russia; indeed, China, India and Russia have great potential to create a new multipolar world.

The Eurasian duopoly of Russia and China is fast intensifying its economic and political cooperation; while at the same time, a new quadrant is taking shape between China, India, Iran and Russia: the quadrant of Eurasia. The sanction will push Iran more towards Russia and China who are willing to take up new opportunities. China has opened a new rail link between Bayannur in Nei Mongul and Teheran although various projects are still to be completed.

7.3 The Belt and Road Initiative as a Globalizing Force

Globalization is usually understood as the “liberalization of trade ”, that is, “free trade across borders, production, investment and even cultural exchanges” (Khan and Marwat 2016, p. 104). However, globalization is also the externalization of the domestic economy of a hegemonic trading power. Khan and Marwat (2016) argue that “the process of globalization allows increased penetration of national economies” (p. 104) through international organizations such as the IMF, World Bank and the WTO which in the process leads to the “marginalization of developing countries” (Khan and Marvat 2016, p. 104). Globalization may be perceived as reducing barriers to trade, such as tariffs , quantitative restrictions and the promotion of the free movement of factor of production which is often initiated by major economic powers to expand their domestic markets. The aim of the CDB has been described as the “Internationalization of China’s economy and the Chinalization of the international economy” (Hongbo 2014, pp. 657–658). China is able to institutionalize its global power through globalization with Chinese characteristics. Chinese pragmatism is by far more flexible than policies which are guided by ideologies which will be subject to a paradigm shift eventually. China’s fast economic growth beginning in 1978 increased its power of negotiations and soft power in international affairs as well as its military force.

The mutual development of the BRI and the EAEU can easily complement each other, so that discussions about Chinese and Russian rivalry in Central Asia are often overblown; however, what is of greater concern is the rivalry between China and the United States for the success of the maritime route in East-, Southeast, and South-Asia, especially in areas bordering the South China Sea (SCS) and Kashmir and other areas. However, the maritime route will be able to improve ports along shipping lanes from South China to Indonesia, Africa, the Middle East, and Europe.

Jammu and Kashmir is strategically situated and borders China, including the autonomous region of Tibet, and Pakistan. India and Pakistan are the two largest economies of South Asia but trade between them is considerable less than their potential; however trade could be vastly improved through the construction of the appropriate infrastructure between India and Pakistan , but political antagonism often wins out over the well-being of the population. The insecurity in Afghanistan is also another obstacle as it will impose instability in Xinjiang which is China’s door to the West for the BRI. Afghanistan is also the nexus between Central-, West-, and South-Asia, and instability in Afghanistan can disrupt the flow of traffic between and within such regions. A good relationship and bilateral cooperation between China and Afghanistan are therefore vital for the successful implementation and the functioning of the BRI.

It may be argued that China’s diplomatic approach is geared to serve its economic interests, so that in the past, China kept a low profile, which in recent times has been more or less abandoned. At the 18th Party Congress in 2012, it was announced that China is to emerge as a maritime power which China regards as essential to rejuvenate the Chinese nation; whereas until recent years, China was and still is, concerned with the “maintenance of regional stability”, it has now partly shifted towards the “defending of sovereign rights”. China has announced at the 19th Party Congress that China will give priority to economic development as well as to the modernization of the PLA to become a first-rate military power by 2035. China’s aim is for greater economic cooperation and an increase in trade which is expected to lead to greater political influence.

As emerging nations rise and present powers decline, international institutions such as the United Nations will be reconstructed to avoid a decline in their advance (Stiglitz 2015). The IMF has essentially adopted the Washington Consensus which calls for various austerity measures, such as balanced budgets which often intensify the adverse economic conditions which they intend to overcome, as in the instance of the East Asian financial crises. Stiglitz (2015) makes the point that Malaysia recovered relatively quickly as it rejected the IMF requests. An economic model that does not serve the majority of its citizens cannot be regarded as a role model. The average American families are worse off than they were some 25 years ago and the proportion of the population living in poverty in the United States has increased while approximately 500 million people were able to move out of poverty in China (Stiglitz 2015), by 2018 the number of people who have moved out of poverty increased to over 800 million.

The SCO or other similar realignments of global power is likely to present a countervailing force to the domination of the world by the US and its allies. The SCO will also supplement the BRI. Most people in the West are not aware of the importance of the BRI and SCO, and are inclined to belittle such organizations. However, the BRI is expected to create eventually the greatest trading block based on the RMB which will have considerable political implications. It is on the way to unite Eurasia and so is inclined to shift strategic power away from Western domination. It is shifting the financial power away from the US dollar as the major reserve currency towards the RMB as the major reserve currency as part of a basket of other reserve currencies. The BRI was officially announced in 2013 and by 2015 Russia joined in a linkup between EAEU and the BRI and so became the Greater Eurasia.

Presently, various parts of the BRI are in the process of being reconstructed through renegotiations between China and Malaysia, the Maldives, Ethiopia and amongst several other countries. Various scenarios to make geographical areas of the BRI appear to be unsafe can be expected to prevent possible success of the BRI; especially in areas which are highly important for the BRI, such as the province of Baluchistan in Pakistan. The Maldives are situated across the transport route for hydrocarbon; whoever controls the Maldives can exert pressure on their geopolitical opponent. Yemen is strategically important for the flow of oil as it connects the Mediterranean with the Red Sea via the Indian Ocean and Suez Canal through the Bab el Mandab which is close to Djibouti at the Horn of Africa, hence the war in Yemen was not unexpected.

China commits hundreds of billions of dollars to global infrastructure through the BRI but the creation of Hybrid Wars which includes the dissemination of false perceptions in many of the participating countries of the BRI, may make the BRI at least in some countries unviable at present. Once a country has been destabilized, China will lose its markets in those countries which then may lead to an economic downturn so that they are unable to repay their debts to China. China is using constructive regional economic policies, especially in Xinjiang and through various developmental projects along the border with North Korea. Luttwak (1990) argues that states resort to geo-economic substitutes when their geopolitical importance declines. However, the aim of politics remains much the same, so that geo-economics merely recasts geopolitical endeavours (Cowen and Smith 2009).

Economic issues have become increasingly important in international relations; the expansion of economic power by one is often regarded as a threat to the security by the other. A rising power has much to lose in the case of a war, whereas a declining power that feels threatened is more likely to assume that a show of force may prevent its decline. Political power can also lead to an arrogance of power (Fulbright 1970) and those who are affected by it are unlikely to resort to diplomatic discourse in the belief that they have all the answers. An understanding of the economic processes of the BRI cannot ignore Regime Change which may affect changes in the international financial system which has political implications affecting the global economy (Keohane and Nye 1977). Hence, an analysis of the BRI is not only a matter of theories of international economics or trade theories, but issues of international Regime Change and other obstacles to the BRI will also have to be addressed. Keohane and Nye (1977) argue that technological change and an increase in economic interdependence have made existing international regimes obsolete. Economic powers are reluctant to adapt to changes in regimes which have served them well. Instead, protectionism often increases when economic interdependence is on the rise. The imposition of tariffs on imports is a sign of economic decline as those that impose tariffs are unable to compete. As the powerful states make the rules it is inevitable that such rules change as the rulemaking states decline in their power. Protectionism has been increasingly adopted by several countries as a consequence of the decline of many economies after the financial crisis of 2008–2009 . However, trying to adopt beggar-thy-neighbour policies such as the imposition of tariffs only deepens the financial crisis.

7.4 The Counter Push to the Belt and Road Initiative

The intercontinental trillion dollar project of the BRI will diminish opposing countries influence and the counter push will lead towards an overreach as the resources of the United States are diminishing, whereas those of China are expanding. The widening conflicts between the contending nations have already become wide on the economic and technological front. A country’s power is based on its economy so that the irrefutable aim of the United States as a declining power is to incapacitate China’s economy; it has less to do with reversing the American unfavourable trade balance.

The “Made in China 2025” project is vital for China’s economic expansion, so that this programme is financially supported by the Chinese government; especially in areas of high technology, such as in artificial intelligence, robotics and computer microchips. As the future will be dominated by high-tech areas, it is vital for China to excel in those areas; hence great emphasis is placed by the Chinese government on research in high-tech areas, including in areas which support it, such as R&D and education. International relations are conducted through the use of “soft power ”, “hard power”, and smart power” (Nye 2004; 2009) . The BRI may be classified as the application of smart power. It increases China’s economic power and diminishes unilateralism; hence the power of the United States declines.

Nations often see themselves as unique and superior and if they have acquired power, it may lead to an arrogance of power as Fulbright (1970) argues, and so are disinclined to learn about other civilizations. However, China is likely to accumulate diplomatic goodwill in many countries as China is engaged in projects which develop various economies in contrast to western countries which are reluctant to do so. The danger of international conflict is greatest when the exercise of arrogance is being blocked by countervailing forces, and it may become more dangerous when an arrogance of power is combined with frustrations resulting from a realization of their inability to implement their policies which then derives from a power of disillusionment. It may be argued that a power of arrogance is less dangerous when a country has real power rather than when a country suffers from its arrogance of power when such power is in real decline. When nations do not know how to react, they act with force out of desperation, such as trade sanction or a new cold war. Advanced economies do not want to relinquish the unilateral global economic order which has served them well, and so intend to prevent the new global order from coming into existence.

Rising powers demand greater influence and established powers are resentful towards rising powers which may lead towards a Thucydidean trap , named after Thucydides who lived from c.460 B.C. to c.400 B.C. Such a risk may become greater when the civilizations concerned are perceived as being irreconcilable; for example the ideologies which drive them and form the fundamental concepts which underlies their political actions, such as the role between the economy and the state and governance of international relations.

The rivalries between rising and declining powers may lead towards a Thucydidean trap which is especially acute when the exercise of an “arrogance of power” (Fulbright 1970) is combined with the realization that their policies cannot be implemented as they are faced with countervailing forces. The trap is caused by types of rivalry which has confronted rising and established powers, which in most cases has led towards war in the past as occurred between Athens and Sparta during the fifth century B.C. which gave rise to the Peloponnesian war (431–404) which was caused by the rivalry between Athens and Sparta. Thucydides (1954) argues that war between Athens and Sparta was caused by the fear of Sparta of the rise of Athens. Now it is the United States that fears the rise of China. Society is guided by egoism and animus dominand, or the lust for power (Morgenthau 1974, pp. 191–196). Thucydides’s analysis illustrates how superpowers relate and react to one another’s power changes in their relationship. Avoidance of war necessitates a change of attitudes in the countries involved. Furthermore, military alliances are unlikely to promote peace, instead peace and international security may be furthered through sustained economic development; on the other hand, the successful development of the BRI may foster the interconnectivity and development between the nations involved in the BRI.

However, international disputes in the longer term are unlikely to be able to prevent the rise of China as an economic power, but they may provide various obstacles on the way which will have to be overcome if the BRI is going to succeed. In a similar fashion, when multiple corporations compete amongst each other, the competition of one may crowd out other competitors. China is now the largest economy as measured through the purchasing power parity (PPP) and it is the second-largest economy when measured through the market exchange rate, and it is on the way to be the biggest economy on this measure in a few years as well.

State interventions may be detrimental to the economy when they are based purely on power politics; for example some of the sanctions against Russia are intended to prevent the implementation of the Nord-Stream 2 gas pipeline and thereby attempt to force the European Union to buy US natural gas which will be to the detriment of the European Union. US policies have driven Russia towards China and present American policies may do the unspeakable and drive Germany towards Russia in the longer term, Germany and other European countries would thereby gain greater access to the BRI projects. Due to Western-imposed sanctions Russia is engaged in reforming its agricultural sector, hence Russia’s agricultural sector has expanded to supply the domestic market as well as exports of dairy products, livestock and various crops to Asian markets. After the implementations of sanctions, Russia has now created a flourishing agricultural sector. Sanctions against Russia lower the value of the Russian rouble; however a weak rouble reduces imports to Russia and increases exports from Russia and thereby increases Russian profits, especially when the price of crude oil and gas has increased.

Various policies of the United States can be seen as an attempt to contain China, including China’s attempt to implement the BRI. However, intimidation was seldom a successful policy but rather entrenches nations’ attitudes. Such containment policies include various forms of sanctions and the imposition of tariffs. However, the imposition of sanctions and tariffs do often not have the intended effect. Sanctions such as those imposed against Russia are hurting more the EU than Russia. Sanctions against Russia caused agriculture to boom in Russia and have made Russia self-sufficient in agricultural products and also have turned Russia towards China, so that China and Russia now cooperate even more than before. Sanctions are more likely to backfire as the target country is likely to intensify R&D in the area which has been sanctioned; this scenario has been referred to by Miyagiwa and Ohno (2015) as the “paradox of sanctions ”.

There are two different types of trade barriers ; there are objective trade barriers such as based on geographical characteristics, for example distance. The costs to the trade of such barriers may be reduced through the construction of viable infrastructure as is being constructed through the BRI. On the other hand, there are subjective barriers which are imposed barriers to trade, such as tariffs. Bilateral trade may be assessed by using the trade intensity index as used by Kojima (1964); however, the trade intensity index approach combines the effects of the objective and subjective trade barriers so that it becomes difficult to design the more appropriate policies to overcome such barriers. Trade may also be assessed by using different gravity models; however they are unable to assess and compare barriers between countries. Hence, Chen and Li (2014) combine these two approaches through the use of a “gravity model adjusted trade intensity index” (GMATI) to show “the short run trade barriers while controlling for the long run ones under global trade context”. Protection may help declining economies whereas globalization helps emerging economies. Trade and investment are the main driving forces of a successful BRI through the promotion of connectivity.

The unilateral measures and protectionism are incompatible with the rules of the WTO. The current protectionist policies are intended to preserve the economic dominance of the United States and to prevent the functioning of a multilateral world order. In such a situation it will be difficult to come to an agreement on climate change with detrimental repercussion on the future well-being of the human race. Present unilateralism is eventually pushing the four big economies of Euro-Asia of China, India, Japan and Russia closer together. Hence, it is expected that Japan will find it necessary to sign a peace treaty with Russia, and India is increasingly cooperating with Iran to diversify its sources of energy, and it is also buying the Russian S-400 air defence system. More and more countries find it necessary to consolidate the multipolar world to cement multipolar relations between countries.

As the economy of the United States is declining; it resorts to protectionism, whereas globalization, for example through BRI helps China as it has developed comparative advantages in many fields. Throughout history, protectionism has been used by countries which fear competition within the global economy. Instead, China will use BRI to foster trade and will transform the global economy through the construction of multiple infrastructures. Imposed sanctions or tariffs on one country may divert trade and investment towards another country; for example, when the United States embargoes investments of energy with Iran or when the United States revoked investments in Sudan, Iran increased its trade with China and Sudan became China’s largest producer of oil.

Likewise, any sanctions directed against China would be futile. China is less dependent on imports from the United States, but the United States is an import led economy as it has a relatively weak manufacturing base. Most of the commodities available on the shelves in the United States, such as textiles, electronics, toys, television sets, computers, and mobile phones are made in China. Many companies in the United States produce little in the United States, but instead may produce in China, by subcontracting to Chinese or international companies based in China. However, political decisions are not always taken according to the best options available, which may be the consequence of what Fulbright (1970) referred to as the “arrogance of power” which is illustrated through “a psychological need that nations seem to have in order to prove that they are bigger, better or stronger than other nations” (p. 17).

However, as long as countries’ policies are dominated by fear, they will be unable to optimize the benefits of closer economic and cultural association between the countries engaged in the projects of the BRI. India has a lot to gain, including the construction of a vast network of infrastructure, such as a high-speed railway system, by putting its fear of China aside. In much the same way, North Korea and South Korea have a lot to gain if they joined once again. Indeed, military power can destroy another country’s economic power, but it cannot substitute for it. Without economic power, military power will be counterproductive as it depletes much-needed resources.

7.5 The Thrust Towards Protectionism

The changing paradigm in the global governance of trade and finance has entered the stage where it operates as an accelerator and multiplier and eventually will affect the global economy. Since the financial crisis of 2008–2009 protectionism has been on the increase. China has been regarded in numerous studies as a competitor with other countries, possibly because such studies focus mainly on horizontal specialization in trade rather than considering also vertical integration which has been becoming increasingly important for China’s integration into the global production networks which is rather complementary to other economies in East Asia. China already had a significant effect on the growth of GDP of its neighbouring countries before it entered the WTO (Abeysinghe and Ding 2003). However, China’s accession to the WTO has reinforced such trend.

If the trade disputes intensify, it will affect the United States as well as China; consequently, China will emerge as its own designer of numerous products and will engage in import substitution in the technology sector. In the long run, this will assist the Chinese technological sector and will accelerate China’s “Designed and Made in China” policy as defined in China’s “Made in China 2025” policy. If the trade dispute intensifies, China will become less dependent on foreign supplies. China’s industrial policy of “Designed and Made in China” will not be relinquished by China but instead will export such China designed products to other countries, especially towards the participating countries of the BRI. China plans to implement “Made in China 2025” and at the same time intends to leapfrog other countries in next-generation technologies such as artificial intelligence, Cybersecurity and 5G wireless which will be the foundation of future comparative advantage for industries but also enhances military capabilities. The initiation of a trade war with China through the imposition of tariffs will also not prevent the successful implementation of the BRI.

The United States deficit with China helps to sustain America’s retail economy and thus helps to increase American GDP. As the United States is an import led economy and as the United States has a weak manufacturing base and its industrial base is fast eroding, it is heavily dependent on imports from China. “Made in China” plays an important role in the American consumer economy, especially in areas of electronics, toys, TV sets, mobile phones, hardware, and clothing. Hence, the United States trade deficit with China increases the profits of the consumer economy in the United States. The trade war has little to do with the US trade deficit with China but has everything to do with China’s project of “Made in China 2025” to prevent China from emerging as a high-tech powerhouse. The “Made in China 2025” vision encompasses robotics, high-speed railways, biomedicine, aerospace, artificial intelligence and much more. It is vital for China to continue its projects under the “Made in China 2025”, after all without innovation a nation moves backward.

China has been regarded by the United States increasingly as a political, economic and military competitor in the Asia-Pacific Region. However, Washington’s policies of protectionism and “American First” may eventually push Japan closer to China. Japan is already engaged in a closer rapprochement with Russia to promote further large investments in the Russian Far East; which is similar to the situation when European countries are increasing their trade with Russia. As the United States embargoed investments of energy with Iran or when the United States revoked investments in Sudan, Sudan became China’s largest producer of oil.

Trade wars conducted by the United States in forms of the imposition of tariffs and sanctions will cause China to intensify negotiations with other countries, such as through the Regional Comprehensive Economic Partnership (RCEP) and with members of the BRI and so may foster greater economic integration between those countries. The RCEP attempts to negotiate a free trade deal between ten nations of the ASEAN and six Asia-Pacific countries of Australia, China, India, Japan, South Korea, and New Zealand. The implementation of the RCEP would constitute the largest economic bloc in terms of market size.

The United States perceives the BRI as a threat, so that countries involved with it may experience difficulties. China has already offered to help Syria in its reconstruction after the war, and so has Russia. Iran links the BRI and the EAEU. Iran is waiting in the wings to join the SCO. While Western countries are reducing their trade with Iran, China is increasing it and so fills the gap. China has also increased its purchases of Iranian oil. While Total and Renault moves out of Iran, China picks up the pieces. China has increased the imports of Iranian oil, using Iranian ships while Iran is paying for the insurance as well. China is more likely than not to pay for its imports of oil in RMB which are backed by gold. As Iran is vital for the BRI and the Eurasian integration China will intensify its economic relations with Iran.

Antidumping policies are also often used as a way to protect one’s economy, however Lee et al. (2017) find that antidumping actions reduce the volume and the value of imports from China and they also cause a price increase of those Chinese goods in the US market. They also find that the effects are only short-term and that they also cause a substitution effect; that is, they increase US inputs from other countries instead of China. Hence, US antidumping actions do not really protect US producers. Even though protectionist measures bring a net loss of welfare, they are introduced because producers are able to lobby for protectionist measures (Olson 1974). However, a trade war between China and the United States is a lose-lose situation for China and the United States. The main reason why the United States has a huge trade deficit with China is that the United States is a high-income economy and it does not have a competitive advantage in labour-intensive production which China has. Trade sanctions are imposed on China as a counter-push to prevent the rise of China as an economic power. However, countries which impose such sanctions will also bear themselves considerable costs in terms of their trade (Roach 2017).

Present protectionism is the biggest barrier to international cooperation. Sanctions may lead eventually towards a de-dollarization, at least in countries on which sanctions have been imposed. A worldwide decline in the use of the petrodollar will also lower the US dollar so that China’s value of its dollar reserve holdings will decline. In fact, the current sanctions and the impositions of tariffs imperil the present international financial and economic world order; especially as it accelerates the de-dollarization of international finance to counteract imposed sanctions.

As the United States is declining in its economic power it resorts to protectionism, whereas globalization, for example through BRI helps China as it has developed comparative advantages in many fields. Throughout history, protectionism has been used by countries which fear competition within the global economy. Instead, China will use BRI to foster trade and will transform the global economy which will be further facilitated through the construction of multiple infrastructures.

7.6 Policies of Sanctions to Maintain Hegemony

The present sanctions against Rusal the Russian aluminium supplier to Europe will damage the European aluminium companies as it leads to a shortage of aluminium in Europe and therefore will damage the European car industry, especially Volkswagen; however, demand for cars will not shift to American cars but more likely to Chinese cars. The repercussions of sanctions are not very well thought out. American and European sanctions improved further the trade between Russia and China and now China is Russia’s largest trading partner so that 15% of Russian international trade was with China in 2017 which has increased to 17.2% in January 2018.

Largely as a consequence of a sharp deterioration of Russia’s relationship with the West and sanctions imposed on Russia, Russia increased its economic relations with China and other non-Western countries, so that trade and cooperation between those countries substantially increased. Conflicts in participating countries can be timed to occur at the very moment when China becomes dependent on their transit and are relying on their domestic markets. Conflicts in the participating countries will lower entrepreneurs’ confidence and investment will decline. The construction of the BRI enables China to minimize the use of the Strait of Malacca and the SCS for transit, but conflicts along routes of the BRI may counteract such intentions which may endanger China’s cooperation with the participating countries of the BRI. Such scenarios are highly probable considering that regime changes have been used in the past for economic reasons and indeed are continuing to be used for such purposes. New governments which come into existence because of regime change are unlikely to honour their debts to China, especially as many Chinese loans are provided in return for the supply of raw materials.

The sanctions imposed by the United States have deepened the rift between the United States and those countries which suffered most from the sanctions ; that is, some Western European countries, especially Germany experiences a considerable loss of trade with Russia. It is highly unlikely that Europe and Russia are being kept apart from each other in their trade relations in the long term. Europe, especially Germany requires resources, especially gas which Russia can provide; hence sanctions against Russia over the Crimea issue are also likely to be disbanded in the long term by Europe because it requires access to Russian resources to prevent any possible deterioration of their economy. Sanctions imposed on Russia and its deteriorating relations with the West have also pushed Russia towards China and so have become beneficial to the BRI. Schmitt (1976) made the point that “economics has become political and thereby the destiny” (p. 78).

Trade sanctions and imposed tariffs have an accelerating and multiplying detrimental impact on trade, both on imports and exports as well as on investment and thereby increases the magnitude of multipolar power and reduces the power of unipolarity. When policies of sanctions take the place of diplomacy it is the consequence of a power shift, whereby a declining hegemony is being replaced by another. When diplomatic incompetence takes place, sanctions often take its place. Sanctions imposed on Russia by the United States and the tariff dispute between China and the United States are drawing China and Russia closer together, especially in regard to their cooperation between energy sectors. Hence, the vicious cycle of measures and countermeasures in the current trade disputes between China and the United States has a multiplier and an accelerator effect which will also affect other trading nations.

Once sanctions are imposed on the friends of one’s enemies, it will go out of hand and are not sustainable and interfere with countries’ sovereignty. The only reason that China is being sanctioned is that it has become the biggest economy measured by the PPP. Western concern with Xinjiang has nothing to do with freedom of religion or human rights, but instead is concerned with the geopolitical strategic situation of Xinjiang. Similarly, Syria and other regions which are important to the functioning of the BRI can expect political difficulties. Regime Change is attempted in countries that are important for the progress of the BRI, such as in Brazil, Myanmar, Nicaragua, Syria or Venezuela. Other Regime Changes have been attempted in other countries for varies political and economic reasons, such as the Tulip Revolution in Kyrgyzstan, the Rose Revolution in Georgia, or the Orange Revolution in Ukraine. However, constant United States-led Regime Changes to cover their own weaknesses are not sustainable. The SCS is another potential area of conflict as it connects the Pacific Ocean with the Indian Ocean. The SCS has also a large amount of oil and gas reserves.

The United States puts on pressure on China as well as on the European Union; hence it is likely that eventually China and Europe are being drawn closer together, especially as the volume of trade between China and Europe is already greater than between the European Union and the United States. If the trade conflict intensifies between China and the United States, China may channel its investment more towards the European Union, Russia and other venues as it then provides greater opportunities to China and Europe; furthermore more bilateral trade between China and Russia is expected to be conducted in RMB and roubles, and the increasing trade between the EU and Russia will also increasingly use the Euro and rouble.

7.7 The Trade Disputes to Prevent China from Rising

The imposition of tariffs by the United States is a protectionist intervention and contravenes the aim of the WTO. The WTO rules are broken when sanctions are imposed for political reasons and often also to gain a competitive advantage; hence various countries, such as China and Russia call for the de-dollarization. China has been the largest oil importer in 2017 and Russia is China’s largest oil supplier. China imported 8.4 million barrels of crude oil per day (U.S. Energy Information Administration 2018).

The imposition of tariffs may spill over to currency devaluation. The devaluation of the RMB may then be the consequence of market forces rather than because of a deliberate official Chinese policy. The huge United States budget deficit caused an increase in the rate of interest to finance the trillion-dollar deficit over the next decade. The increase in the rate of interest causes the US dollar to appreciate and so the values of currencies of emerging countries decline so that US tariff policies become ineffective. A trade war in the form of imposed tariffs on Chinese exports would weaken the RMB. A decline in the euro will partly counterbalance the tariffs imposed by the United States, so that European exports will increase. Trade wars are not confined to the imposition of tariffs but there are various non-tariff barriers available as well.

While imposed tariffs affects those countries which have imposed such tariffs and are recipients of such a trade policy, currency devaluation between the United States and China provokes a chain reaction with global ramifications. A trade war between China and some advanced economies will induce China to divert even more investments towards the BRI as a countermeasure which diverts more trade towards South–South economies. China also concludes more trade agreements with other countries which are not strictly part of the BRI which may be referred to as an extended BRI.

The trade war will not only have detrimental impacts on China and the United States but will also affect such countries as Europe, Australia and Canada. Furthermore, as China exports less to the United States, it will seek alternative markets for its exports, so that trade along the BRI is likely to be intensified, because countries will increase their trade with China when they realize that the United States rejects free trade, so that they will come to trade more with China which will promote trade between China and other countries, and not only countries which are part of the BRI. The real reason for the conflict between China and the United States results from China’s technological catch-up as envisaged in China’s “Made in China 2025” initiative. A trade war of course will force China to become more innovative. Once the trade war is over, it may be difficult for the United State to get its technological market back.

The present tariffs imposed on Chinese trade are an attempt to prevent China to excel technologically and to prevent China from achieving its project of “Made in China 2025”. However, the effect will be that China will intensify its technological avant-garde research. Trade policy is one of the main factors which shape trade competitiveness . A trade war will intensify China’s technological growth. Through the BRI, China will be able to diversify its export markets as well as its sources of raw materials which China requires for further economic growth.

Sanctions by the United States against China has nothing to do with trade but instead is intended to prevent China from reaching technological dominance in new technology, especially in cybersecurity, robotics, and artificial intelligence. The trade war however will undermine the status of the US dollar as a reserve currency. The United States needs China because China has a great trade surplus with the United States and because China holds a huge number of United States treasury bonds and so lends money to the United States which allows the United States to live beyond its means.

Tariffs are imposed to prevent Chinese economic strength from gathering force as it also underlies military strength. The newly imposed sanctions against China by the United States are largely directed against the ten large industrial sectors; hence the sanctions are being imposed to block China’s advance as a global economic power and control of the most important technologies, such as robotics, artificial intelligence, quantum computing, aerospace and aeronautical equipment, modern rail transport equipment, new-energy vehicles, high-tech shipping, advanced medical products, bio-pharma, power equipment, and agricultural equipment; much of such endeavours will support the BRI.

The mutually imposed tariffs by the United States and China will have a detrimental effect on global economic growth through a decline in investment and trade which causes financial market volatility. China has exported 46 million TEU in 2015 by container shipping while imports were 21 million TEU. Trade will remain unbalanced as the volume of exports by container shipping will be about 2.2 times greater than the volume of imports by containers in the foreseeable future (United Nations 2017, p. 47). Logistics constitute about 12% of global GDP (United Nations 2017, p. 68).

By imposing sanctions on various countries, the United States ensures that countries are losing confidence in the US dollar. The US imposed tariffs on Chinese goods will divert more trade towards emerging economies, especially South–South trade is likely to increase, and trade between Europe and Asian countries is also expected to increase; for example, sanctions imposed on Iran will benefit China as well as India because they will continue to import resources from and export products to Iran. China and India are at the forefront of the emerging South–South trade relations.

The United States argues that the imposition of tariffs on Chinese goods are essential because of unfair trading practices by China; however when American companies manufacture in China and sell their products on the American consumer market, such products are classified as imports from China. American corporations gain from offshoring, so that their profits increase, shareholders’ capital gains rise and job vacancies decline in America and American workers lose. Hence, it is not the case that China steals American jobs, instead American corporations export American jobs to China.

Tariffs are often imposed by countries which face a debasement of their currencies, which occurs especially if a country is overwhelmed with printed money which lowers the exchange rate, so that imports become relatively cheaper and the purchasing power declines. However, the imposition of tariffs makes the situation worse. The imposition of tariffs increases the costs of consumption and the economy is driven by consumption, rather than by production.

7.8 Conclusion

Policies of sanctions and the imposition of tariffs are intended to contain countries which do not follow the unipolar model of global governance. Protection may help to some extent declining economies, whereas globalization may help emerging economies. Trade wars are indeed ancient and it is a sign that trading nations are unable to compete on equal terms which may be reflected in currency wars, patent wars, or any other forms of trade wars.

To request China to discontinue its project of “Made in China 2025” implies that those who make such requests fear that they may be unable to compete. Tariffs and sanctions may be seen as purely protective measures and are indeed counterproductive in the long-run. Imposed tariffs and sanctions are more likely to induce China to intensify its own R&D; China is unlikely to abandon its “Made in China 2025” programme; instead it is likely to intensify to gain even greater comparative advantages in numerous areas.

It may be argued that a successful implementation of the BRI is seen as a challenge if not a threat to the Washington Consensus. Putting roadblocks in the way of a successful implementation of the BRI threatens the security of those regions which are vital to the operation of the BRI; put in place by those who feel that their hegemony is dwindling.

Trade wars merely redirect trade towards other countries; it compels China to seek greater trade alliances with other countries, for example through the RCEP agreements. Rather than imposing sanctions, countries may instead increase their economic competitiveness . The escalation of a trade conflict between China and the United State is an indication of the rivalry not only in terms of trade but it is also the consequence of conflict within the global hegemony which eventually may lead towards a reconstruction of the global multilateral trading system.

As emerging economies gain greater influence, established powers tend to oppose such a shift in power and thereby may lead towards a Thucydidean trap. The United States now fears the rise of China and many policies of the United States are intended to contain China, including the successful implementation of the BRI. However, Mearsheimer (2001) argues that the United States pursued an “offensive realism” during the twentieth century and the United States is accusing China of what the United States has done itself. China just wants to be a great power.