America’s displacement anxiety and the decade of living dangerously

Feb 3, 2024
American and Chinese flag on a world map representing bilateral relations and trade.

The 2020s was once described by former Australian prime minister Kevin Rudd as a “decade of living dangerously”. He was talking about the bilateral tensions between the U.S. and China. I would suggest that it’s a dangerous decade in large part because the collective west, led by the neocon political elite in Washington, are experiencing a protracted bout of “displacement anxiety”*.

The “displacement” I speak of is underpinned by long run structural transformations that are taking place (1) domestically in the heretofore dominant transatlantic worlds of North America and Europe (including the UK) and (2) in the contours of the international order of things. Geopolitical economic developments, coupled with a clear demise of American military omnipotence, are again challenging the unbridled power of the West.

The contours of international economic interactions

For the last five years or so, the U.S. has increasingly pushed a policy regime aimed at isolating China from key technologies and reshaping the geographical distribution of global supply chains. All of this has taken place under the rubric of decoupling, de-risking and friend-shoring.

Yet, despite these efforts, China’s economic integration with economies around the world is intensifying, not diminishing. China’s trade with the U.S. and EU continues to grow. What has changed is that China’s integration with non-transatlantic economies has intensified at an even greater pace. China’s trade with the countries of the global south (including BRICS) now surpasses its trade with the U.S., EU and Japan combined. ASEAN is now China’s largest trading partner, surpassing the EU in 2021. On the back of the BRI, China’s trade with participating countries has grown at rates far greater than those experienced with the mature economies of the world. In short, the global south now represents the economic growth centres of the world.

As for capital markets, the evidence is that while the U.S. capital markets, revolving around the NYSX and NASDAQ remain the world’s largest, the capital markets of Asia (China, Japan and Korea) have now surpassed those of the UK and Europe in scale. This has taken place over the last two decades.

China’s capital markets are still in their relative infancy, and institutional and policy work is beginning to accelerate their maturation and internationalisation. This goes beyond Hong Kong, with the various mainland bourses entering into equity, technical and regulatory collaborations with exchanges in central and west Asia – the UAE and Saudi Arabia in particular. Increasingly, West Asia will replace the U.S. as China’s largest source of foreign investment.

Transnational institutional developments will also contribute to new patterns of economic value flow. BRICS has not only expanded in 2024 to include energy resource-rich nations, it is also focused on developing a cross-border payments system to enable trade to take place efficiently and effectively through the use of national currencies. The BRICS-created New Development Bank is also stepping up efforts to increase its national currencies financing capacity, with successful bonds issues made in Rand (August 2023) to complement previous RMB-based capital raising. Financing in Brazilian Real is expected to follow during 2024.

All of these developments point to an ongoing process of currency multipolarity (or dedollarisation), further enabled by the presence of currency swap agreements in place between various countries’ central banks, alternative payment systems to SWIFT and currency digitalisation. Recent research from Sputnik indicates that ⅓ of United Nations member states are preparing to increase their trade settlements using national currencies. The fact that China-Russia trade (~$200 billion and growing) effectively dedollarised in the space of 24 months suggests that the process could take place in many situations far quicker than once imagined.

Domestic economic dynamics

Despite incessant mainstream western media claims of China’s imminent economic collapse, China’s economy is expected by the IMF to grow at 5%+, delivering over 30% of global economic growth to 2028.

The Chinese economic structure is undergoing a restructuring process, which is seeing a reallocation of national capital from the residential real estate sector to high tech and related manufacturing industries. This is a necessary restructure to mitigate risks of financial bubbles and misaligned national economic development capabilities.

China’s manufacturing sector is increasingly automating, driven by big data and AI, and is shifting up the value curve in global supply chain networks. Lesser value work is now migrating to other countries, closer to markets and which can also obviate U.S. tariffs. This is why we are seeing rapid growth in Vietnamese and Mexican exports to the U.S. while Chinese trade surpluses with these two nations also grows.

The EU and the UK are experiencing their own economic restructuring. The principal catalyst has been energy cost inflation, which has spurred on a process of deindustrialisation. This is most pronounced in Germany but is evident elsewhere across the European landscape. European industries are also being lured to the U.S. by generous American subsidies.

The U.S. economy is more fragile than the face value growth, inflation and unemployment data would suggest. The fragility is shown by evidence of rising corporate and private bankruptcies, which grew 18% in 2023, to the highest levels since 2019. Analysts expect this trend to pick up pace into 2024 and 2025, as high private debts coupled with high interest rates cripple businesses and households. Financialisation has increased system fragility, a point observed by the Atlantic Council.

Put another way, an economic system increasingly dependent on fictitious capital for growth, masks an underlying weakness in the real economy.

The relative decline of American manufacturing has been a concern since the 1970s. Recent Biden administration subsidies may create some headlines but are well short of turning the decline around. U.S. foundational economic infrastructure is also in a funk, as observed in the Infrastructure Report Card from the American Society of Civil Engineers.

America’s failed wars

America’s economic wars have failed. Sanctions, tariffs and the so-called “chip wars” have not delivered the anticipated effects.
The U.S. and the EU launched the most aggressive sanctions war against Russia in early 2022. The U.S. President Joe Biden promised to turn the Ruble to rubble. The EU commission president Ursula von der Leyen promised to crush the Russian economy, denying it access to the latest technologies and markets. The Russian economy withstood the barrage and has since adapted, returning to growth levels higher than those of both the EU and the U.S.

The tariffs on Chinese exports have led to some spatial relocation of some activities, to places like Vietnam, Mexico and Thailand, but they have not dented China’s aggregate exports. China’s trade surplus with the U.S. has not narrowed despite the trade barriers; and China’s global trade surplus has reached new record levels. This latter fact is accounted for by the relative and absolute growth in China’s trade with the markets of the global south, which are now more important to it than the traditional transatlantic markets.

The “chip wars” may have slowed Chinese technology development but ultimately it has not curtailed it. Rather, as is becoming increasingly clear, the prohibitions have hastened China’s own high-tech capabilities. Evidence shows that Chinese firms have overcome critical barriers to develop their own 5nm chips, and China is expected to lead the world in expanding semiconductor production, with 18 new fabs expected to begin production in 2024.

America’s “hot” wars are also failing. Despite the claims by U.S. Defence Secretary Lloyd Austin that the U.S. still retains the world’s “most lethal military force”, the growing evidence points to a military industrial complex that is besotted by its own marketing but comes up short in the field.

After 20 years and $2 trillion, the U.S. were forced from Afghanistan. According to the Council on Foreign Relations, the U.S. has provided more than $75 billion in aid to Ukraine as part of its proxy war, of which $46 billion (61%) has been military aid. How much more aid Congress provides in 2024 remains open to speculation, but as the proxy war has drawn out, the battlefield results are increasingly clear: a Russian victory is on the cards.

Not only have a succession of western Wunderwaffe failed the test of battle, the production systems that back the frontlines have also been exposed in their limitations. From a time when the western mainstream media spoke of the imminent exhaustion of Russia’s missile supplies, the reality has been the opposite: western shortages and capacity limitations on the one hand, and rapidly growing Russian output on the other.

The western propaganda sought to create its own reality but the consequences of the actual reality couldn’t be avoided forever. This is now progressively being lamented by observers in the west. It’s also a point made powerfully by former U.S. ambassador Chas Freeman.

Most recently the debacle and genocide in Gaza has exposed the limitations of America’s “kinetic first” instincts. Its refusal to back calls for a ceasefire has seen the U.S. increasingly isolated diplomatically in the region and in the UN. The U.S. continues to send military aid to Israel. The Biden Administration has bypassed Congress to authorise arms sales to Israel. What was meant to be a rapid military defeat of Hamas has turned into a grinding war in which over 20,000 people have been killed in Gaza in 3 months.

American authority has been severely dented.

Displacement Reactions

Global economic contours are shifting inexorably towards the countries of global south. The U.S. and EU markets are less important to China, relatively speaking, than are the growth markets of the developing world. And for the developing world, China is a more important partner than most others.

Trade and investment flows have been trending in this direction for some time already, aided by initiatives such as the BRI as well as the recently launched Asian free trade zone – the Regional Comprehensive Economic Partnership. The growing interlinking of Chinese capital markets with those of Saudi Arabia and the UAE are creating the new pipelines for capital flow between China and West Asia.

The consolidation of a Eurasian economic sphere, including the energy-rich nations of West Asia, is creating new opportunities for value growth and flow. Trade growth is being complemented by capital circulation by way of investment flows denominated in national currencies. The ability to trade OPEC oil with national currencies is enabling these nations to evolve away from dependence on the USD.

Economic decentering is one feature of the collective west’s displacement anxiety. The reality that its claimed military preponderance is more rhetoric than real brings a “hard power” edge to these anxieties.

These material factors are buttressed by deep rooted Manichaean frames in which racialised exceptionalism is ever-present. This is most pronounced in the Millenarian zealotry that underlies American exceptionalism. The idea of decentering is bad enough; it’s made all the worse as the new centres are found in the Orientals of the “near- and far east”.

Against this backdrop, we can expect the transatlantic neocons to intensify their attempts to hang on to what’s left of western colonial hegemony and American primacy. The neocon playbook has been to generate regional instability whenever and wherever it feels threatened. This “divide and conquer“ strategy has played out in numerous “colour revolutions” and “coups” over the decades; in short, regime change operations aimed at installing pliable regimes.

Colour revolution risks across Eurasia are likely to intensify over the next few years. China’s President Xi was prescient last year when he warned Shanghai Cooperation Organisation members of these risks.

Additionally, preparations for proxy wars in Asia, borrowing from the Ukraine 2014-2022 playbook, are also likely to continue, as I have previously described. The Philippines is being groomed, as is Taiwan.

As the US and NATO face defeat on the steppes of Ukraine, NATO has set its sights on becoming a global military force; and that means it will continue to seek ways of asserting a presence in Asia. Its attempt to secure a foothold in Japan was rebuffed by the French, but this is unlikely to be its last attempt to turn the “A” from meaning “Atlantic” to meaning “Asia”.

The transatlantic neocons have been decentred, economically and geopolitically. Five centuries of colonial dominance, coupled with seven decades of American Primacy are coming to an end. This is doubtless a discomforting experience.

Antonio Gramsci once observed: “The old world is dying, and the new world struggles to be born: now is the time of monsters.” Today, the monsters Gramsci spoke of are those that torment the collective west and its neocon political elite as they confront their anxieties of being displaced by a Multipolarity that is struggling its way forward.

This is why the 2020s is the “decade of living dangerously”.

*Thanks to my friend Mahmud Ali for this core conceptual observation. Mahmud is Associate Fellow (ex-Adjunct Professor) at Institute of China Studies, University of Malaya. I hope I have done justice to his insight, and perhaps added something to it.

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