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Eurasian Connectivity: Can China Weaponise the Trade War?

The escalating trade confrontation between Washington and Beijing arrives at a general macroeconomic context where the scale and the systemic criticality of the contenders poses a significant risk to the stability of the international economy. With growth figures at a decade low, purchasing managers’ indexes (PMIs) slumping, negative interest rates and an inverting US yield curve, the trans-pacific conflict constitutes a critical potential ignitor a new global recession of unforeseeable depth and spatiality. To make things worse, beyond the existing macroeconomic fragility, the depleted effectiveness of monetary countermeasures and the 2008-shrunken fiscal spaces ensure the protracted condition of any potential global cumulative shock.

While mechanical orthodoxy-driven mainstream analysts monolithically assesses the disastrous aggregate effects of jeopardising the single most critical trade relation in the planet, the impact of a full-blown retaliatory engagement can also be approached by a non-chrematistic prism of competitive interpretation. In this regard, obviating the complex forecasting endeavour of deciding which contender might achieve the zero-sum edge and at which macroeconomic category, if a global economic slump is triggered, Beijing could significantly improve its vis-à-vis position versus the polities of the Eurasian plateau. A transactional geopolitical reality which could well incentivise risk-taking by the Middle Kingdom at ongoing negotiations.

Under a full-blown exchange scenario which decisively destabilises the global economy, China´s Eurasian neighbours are expected to suffer disproportionately. As a consequence of a protracted international economic downturn, ASEAN highly (trade) exposed macroeconomic architecture will rapidly experience capital shortages and pressure will mount on their respective currencies. With an outlook similar to the 1997 Asian Financial Crisis, the political systems of South Asia could experience growing levels of unrest and this, in turn, could led to reviewed geopolitical standpoints to secure political survival. Likewise, in the Central Asian plateau, weak macroeconomic fundamentals and moderate-to-high levels of political instability already constrain economic performance and hamper credit scores. If further financial caveats emerge derived from the crumbling of the global economic statu quo, similar developments are likely to crawl into domestic political rationales.

Under this potential scenario, across the Eurasian maritime and land corridor, societal turmoil and poor fiscal space would greatly increase the political value of macroeconomically-stabilising foreign credit and investment for domestic elites. Despite facing net economic losses due to the aggregate condition of the global economy, China will now encounter softer political resistance against the spatial and functional implementation of OBOR. Through this financially domesticated bargaining geography, the Asian giant will be able to acquire and / or deploy further maritime and land-based assets in the region, and this will increase Eurasian dependency on Beijing’s macroeconomic steering wheel. This would lay the infrastructural foundations of  regional connectivity dominance, an enterprise with long-term strategic returns far beyond immediate cost-calculations.

The strategic utilisation of economic malaise to achieve long-standing connectivity edges versus rival powers is not new for China. In the recent past, Beijing has managed to achieve significant advances in infrastructural command by capitalising on financial precariety to take control of critical connectivity hubs abroad. The recent take-over of Pakistan´s strategic port of Gwadar and the surrendering of the port of Hambantota by Sri Lanka, of the Piraeus by Greece and of several coastal positions by Venezuela reveal a consolidated modus operandi which, until this day, has only been exploited passively. However, given the aforementioned circumstances, this geopolitical stance could change. Following its long-term strategic outlook, Beijing can approach ongoing trade strife at the current global macroeconomic critical juncture as a plastic lever by which it can actively manufacture the conditions upon which its financial bargaining power can prove politically irresistible. In this regard, despite growing international concerns over Chinese infrastructural penetration, broad-spectrum macroeconomic pressure could well override existing barriers to connectivity submission.

The EU´s strategy to compete against Beijing’s dominance over the physical links connecting China to Europe by sea, road, rail and pipeline faces formidable scalar and political caveats which render self-defence and strategic macroeconomic containment precarious. Domestically, the Eurozone architecture spurred self-reinforcing cycles of stagnation and fiscal anemia means that the EU is actively manufacturing the macroeconomic and political conditions under which demand for Chinese financial penetration has risen significantly. With European economies tied to the binomial of monetary scarcity and fiscal independence, Chinese investment and credit (through sovereign bonds purchases) constitutes a high-leverage instrument which can and is being used by Beijing’s for tech-capture and connectivity grappling purposes. Particularly for the fiscally choked Mediterranean periphery, the political appeal of Chinese foreign reserves constitutes a national strategic path against which it is increasingly difficult to argue domestically.

Due to the EU´s macroeconomic posturing and structure and its non-vigilant and un-coordinated defence against Chinese strategic penetration, Beijing already controls a vast array of infrastructural outposts from Southeast Asia to the North Sea. Epitomised by China’s state-owned COSCO take-over of the port of Piraeus and the mass investments which followed (1bn US$), Beijing now holds a formidable presence within Europe’s sea-line infrastructure. China’s state-owned giants now rule over 10 per cent of Europe’s port capacity with high penetration rates in the macroeconomically-battered Greece, Italy and Spain and presence in critical maritime chokepoints like Rotterdam (35% participation), Antwerp (20%) and Hamburg where a new China-funded terminal is being developed. In this regard, if a new recessive episode drags the EU into a fiscal and monetary impasse equivalent to the chaotic intergovernmental developments of 2011, the strategic consequences will certainly be severe.

Beyond European domestic vulnerability and counter-insurgent under-performance in the wake of this threat, the EU´s international bargaining position should China intensify connectivity efforts through disruptive means is equally poor. Little inter-EUMS coordination abroad, comparatively scarce financial scale, the dominance of normative caveats and the interpretive rule of the inflexible liberal rule of state-market relations ensure that Beijing will have the upper hand when marketing solutions. As a result, as the global macroeconomic environment deteriorates and the overcapacity question becomes increasingly central to both sides, Beijing not only holds an enviable position to manufacture political appeal, it can also deliver Eurasian infrastructural and economic hegemony relatively unopposed.


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