Are we facing a new Cold War 11022022 Solange Srour

Are we facing a new Cold War? 11/02/2022 Solange Srour

For many years, geopolitics ceased to play a leading role in shaping the global economic and financial outlook. The year 2022 will certainly have marked the end of that period, not only because of the pandemic and war in Ukraine, but also as a result of ongoing changes in Chinese politics.

The future balance of power between the two most important economies, the US and China, will have a profound impact on global growth and inflation and may pose major challenges for our country.

The recent imposition of sanctions on US chip and semiconductor exports to China leaves no doubt as to the answer to the article’s title. The scale of the current initiative is the strongest response we’ve seen since China launched the Made in China 2025 program with the explicit aim of decoupling its manufacturing chain from the West.

From now on, companies around the world whose products use US technology will be banned from supplying goods and services to Chinese companies that are controlled. The purpose is to prevent China from not only American but also global technological progress.

It is not for nothing that the recently concluded 20th Congress of the Chinese Communist Party (CCP), which determines the country’s course every 5 years, emphasized the goal of national innovation and technological selfsufficiency. There was no doubt about the Asian giant’s new position in international relations and geopolitics.

The event ends the period when China was viewed as a middleincome nation that strived for a better quality of life for its citizens. From now on, a next phase begins, focused on governance and national security.

More importantly, the event firmly cemented Xi Jinping’s clear leadership status. Previous practices in selecting central party offices have changed, with personal loyalty replacing meritocracy as the principle of appointment.

The risks to China’s growth in 2023 are not small. Ongoing uncertainty about Ômicron’s development, the real estate crisis and slowing global growth are exacerbated by the government’s new stance.

Faced with an aging population and the failure to boost the birth rate after the strict onechild policy, China appeared to be escaping this problem with a clear productivityboosting strategy: opening up the service sector to foreign participation and adding value to its manufacturing chain by incorporating new ones technologies.

However, what we were already witnessing prior to the pandemic was a clear backlash in this process, with drastic regulatory changes across multiple sectors. When there was no longer any doubt that such measures would dampen foreign investment, the CCP’s new stance will definitely put the economy on the back burner.

Faced with the new centralized power structure and surrounded by allies with less experience in federal public administration, the risks of serious mistakes in economic policy will increase significantly.

For the world, changes in China’s domestic politics are an element with great potential to shake up diplomatic relations between the countries. The division between the countries of the west (USA, Europe and their allies) and the countries of the east (China, Russia and their allies) is becoming increasingly clear and endangers the process of globalization.

And how do we face a new Cold War? We are certainly in a very different world from 2003 to 2008 when China grew on average 10% per year after joining the WTO. Back then, China accounted for less than 4% of our exports, while today it accounts for about 15%.

After a very close election and a significant increase in uncertainty over the direction of economic policy, we will enter 2023 with the greatest challenge of restoring fiscal credibility while taking into account the social demands already promised during the campaign.

The world of higher interest rates and robust inflation now brings with it another difficulty: the end of multilateralism and the deepening division between US and China allies. It will not be easy for a divided country to navigate a divided world. We will need a lot of political skill at home and abroad.

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