Geoeconomic Power Shift

The ongoing transformation in the global geoeconomic landscape, highlighted by the evolving dynamics between the United States and China, signifies a pivotal shift in the geoeconomic world order.

It represents a fundamental challenge to established norms, transitioning from the historical dominance of the U.S. in shaping global institutions and trade relations to China’s emergence as a formidable economic force.

In a conventional conflict over Taiwan, China would likely prevail against the U.S. This realisation is acknowledged by many in the western world, including the United States, shifting the focus in strategy rooms to nuclear deterrence. On the other hand, China endeavours to secure an assured nuclear counterstrike capability, while the U.S. aims to prevent this. Experts believe that once China achieves this nuclear counterstrike capability, the balance tips decisively in its favour. Consequently, the U.S. would face defeat in a conventional war and lose its ability to credibly deter China using nuclear warfare.

Geoeconomic power involves a nation's utilisation of economic resources, trade relations, financial strength, and strategies to influence global or regional affairs. It leverages economic capabilities to achieve geopolitical objectives. After World War II, the United States played a pivotal role in shaping influential institutions like the IMF and the World Bank. Post the Cold War, the U.S. witnessed a surge in economic and military power, advocating for the global embrace of "neoliberal economics," emphasising free markets and reduced government intervention. However, this period also saw the ascent of other influential nations, particularly China, fundamentally reshaping the established global order.

The geoeconomic dominance began pivoting towards China after the 2008 financial crisis. These shifts sparked intriguing competition between the U.S. and China, leading to discussions within the U.S. on the need to reassess traditional methods of maintaining global hegemony. This has given rise to the emergence of a new Geoeconomic World Order.

China is winning the geoeconomic war. It is well recognised that China has become the world’s largest trading nation, displacing the United States from its traditional dominance as a trading partner for other countries around the world. In 2022, China's exports totalled $3.5 trillion, with imports at $2.7 trillion, resulting in an $857 billion trade surplus.

China's pragmatic approach has proven successful in the global south. Chinese loans come with advantages over Western counterparts, offering non-conditionality loans for major infrastructure projects in developing countries. They require 30 to 40 per cent of the recipient country’s imports to consist of Chinese technology, thus expanding China’s export. In contrast, Western funding often involves opportunistic, speculative and short-term strategies.

China adeptly uses geoeconomic tools to advance its interests, as exemplified by cases like Sri Lanka’s port and the ongoing debt negotiations in Zambia. T legal provisions, especially the incorporation of "cross-default" clauses in projects financed by China, wherein issues or termination of one project can affect all related projects. For instance, the recent suspension by the Chinese Embassy in Argentina of a swap arrangement valued at nearly $33 billion resulted in an apology from Argentina's new libertarian government. Despite this apology, China has maintained the suspension of the monetary swap until today.

The evolving power dynamics between the United States and China signify a paradigm shift in global geopolitics and geoeconomics, placing a critical question at the heart of global economic affairs:

How will nations in the so-called global south navigate through this reshaped landscape, especially with China consolidating as both a nuclear counterstrike power and an economic giant?