Globalization: Influences of Economic Dependence on American, Chinese, and African Diplomatic Practices

Trading is easier than ever before. The rate at which global populations have been growing is far greater than at any point in the past. Through the advent of more advanced communication and transportation technology, our world is in the process of integrating internationally. An interchange of cultures and ideas has sprouted from this globalization. Beyond more cultural awareness, however, our constantly changing environment has permanently transformed the ways in which countries maintain relationships as well as the potential for economic growth. In turn, these changes in international relationships have forever altered the focal points of diplomacy. When at one point the landscape of diplomacy between nations was greatly influenced by old Great Power alliances, or at another point by a mutual fear of nuclear destruction, the landscape of diplomacy today, especially concerning the world’s superpowers, is most influenced by economic interdependence.

The last century has seen the birth of a new type of governmental body: the supranational institution. The formation of supranational institutions is one way in which smaller powers have been economically affected by globalization. The European Union, the World Trade Organization, the World Bank, and the International Monetary Fund all heavily influence the economic, and consequently political, growth of both developed and developing countries. A neofunctionalist’s analysis of these globalizing institutions’ efficacy  concludes that, “through [economic] programs and policies, a pattern of upward convergence initiates in which the less developed nations in the institution will gradually be impacted by the policies,”[1] resulting in their economic levels’ slow increase over time until, theoretically, they reach those of the institution’s more developed nations. Supranational institutions, however, are only one small example of globalization’s effects on the global economy and diplomacy. Evidently, such a neofunctionalist analysis only addresses the fates of small economic powers. I will focus on the effects of globalization and economic dependency on the largest powers.

The average person going about his life in Missouri likely does not think about power politics. When struggling with his personal day-to-day affairs, job opportunity and economic security are of a greater importance. In fact, when judging the efficacy of their government, Americans often base their presidential approval ratings on the effects a president’s leadership has had on unemployment rates and economic conditions.[2] Therefore, when considering how to approach relationships with certain economically vital nations, appealing to the average person making up the American constituency is essential. Political scientists have studied this audience reaction in the past.

James Fearon, a political science professor at Stanford University, posits that in times of crises, a leader’s decision to escalate or back down endures audience costs based on perception of his foreign policy skill.[3] The same conceptual response holds true for the consequences of economic collapse. In times of recession or market collapse, the public blames its federal government and subsequently questions the government’s economic policy strategy. For example, when the United States entered the Great Depression in 1929, although “his predecessors’ policies undoubtedly contributed to the crisis, which lasted over a decade, Hoover bore much of the blame in the minds of the American people.”[4] The United States’ economy did rebound. Now, decades later, it is the largest in the world, yet it struggles to maintain that status. While many believe diplomatic relationships between countries have historically been most influenced by security, I will attempt to marshal evidence toward supporting a new hypothesis:

Hypothesis: Trade and economic interdependency have replaced security as the biggest drivers affecting diplomatic relationships between great powers.

 

Case Study: United States & China

For decades, the United States had no diplomatic relations with China. In the first half of the 20th century, the Middle Kingdom held no place of economic significance in the world. Under the leadership of Deng Xiaoping, however, China quickly worked to improve its economic status. Deng set China on a path toward economic innovation, believing that the “only way to avoid a dead end is to deepen reform and opening both at home and with the world.”[5] Since then, China has morphed into the world’s largest exporter, becoming externally reliant on other countries to import its cheap products. The United States’ parallel need for those cheap products has thrust the two countries into a strong co-dependency built upon a fragile foundation. To be more specific, China “constitutes a $300 billion market for US firms if you combine both exports and sales in China by firms with US investment,”[6] according to the Congressional Research Service. The total trade between China and the US reached half a trillion dollars in 2013, which represents a very significant chunk of both countries’ total economic output.[7] The US’s relationship with China now, due to the economic interdependence previously summarized, is one of weakness. The US is forced to tolerate China and its slow but noticeable challenges to American global power because of China’s place in the global economy.

Daryl Press, Associate Professor of Government at Dartmouth College, proposes the existence of two theories of credibility: “past actions” theory and “current calculus” theory. The former, he argues, indicates that a nation’s decisions in maneuvering its diplomatic agenda depend on other nations’ records for either keeping or breaking commitments in the past.[8] The “current calculus” theory instead posits that each new decision is made independent of past actions so only balance of power and current slated interests should be considered.[9] China was the United States’ enemy when it was a rising power and when it was not vital to the United States’ economic interests. The United States did not tolerate Chinese territorial advancements in Korea during the Cold War in the way it is forced to tolerate, in some capacity, China’s advances in the South China Sea now. This is because, according to Press’s theory, current calculus theory holds that the economic advantages the United States will gain from continued diplomatic ties with China are too great to risk losing, which is a distinct possibility should the United States oppose China’s geopolitical decisions. Of course, worse relations between the two countries would be detrimental for China as well. Regardless, it seems the United States is unwilling to take the risk of making the first move against its antagonist. Despite the United States’ past actions of getting involved in other countries’ affairs, it exerts self-control regarding China in many other capacities.

In May of 2016, Chinese legislators passed a law granting police broad authority to begin supervising foreign nonprofit groups. It grants police the power to question NGO administrators, search residences and facilities, seize files and equipment, and have unrestricted access to organizations’ computers and bank accounts.[10] The American government immediately condemned the law, citing human rights concerns. The Obama administration, however, reacted quickly and sternly to the law’s passage, warning that it would constrict contacts between individuals and groups in the US and China.[11] Under this new level of Chinese police scrutiny, foreign individuals and organizations may just decide that it is too much trouble to carry out their activities in China, and simply move to another country instead.[12] Obama, while concerned about human rights, cannot afford to see the mass exodus of American NGOs from China as it would be deleterious to preserving the economic relationship that provides the United States with its stability. Beyond impacting the US’ diplomatic relations with China regarding NGOs, the US’s economic dependence on China also influences its conduct of policy regarding Taiwan.

During the Cold War the United States supported ruthless dictators multiple times to prevent the spread of communism. It fought valiantly for democracy in the past, yet now it refuses to formally stand with Taiwan, a democratic quasi-nation governed by the People’s Republic of China’s former government. China insists on denying Taiwanese sovereignty. While the United States at one point may have opted to be the champion of democracy for Taiwan, it will not now. The “cultural and economic ties between the United States and Taiwan are important, but limited. America is ever less likely to intervene on Taiwan’s behalf.”[13] Simultaneously, “China’s economy is now so big and so central to global trade and capital flows that the consequences of any disruption would be just as serious for America as for China.”[14] It is indisputable that fully supporting Taiwan would result in an aforementioned disruption. China would be forced to respond since, as Thomas Schelling explained in his work Arms and Influence, it is committed to defending its stance of continued Taiwan control as it cannot afford to lose face by backing down. In fact, doing so would cast doubt on its willingness to defend other ownership claims in the future, such as those hotly contested in the South China Sea.[15] The United States ensures no ambiguity by officially publishing on its Department of State website that “The United States does not support Taiwan independence.”[16] It did not even officially endorse Taiwan’s most recent democratic presidential candidate, Tsai Ing-Wen, because doing so would have enraged China. In both actions and rhetoric, the United States compromises its democratic values in its treatment of Taiwan. Curiously though, despite the fact that the United States chooses not to recognize Taiwan as an (independent) country for the purpose of appeasing China, it provides Taiwan with defensive weaponry.

According to the 1979 Taiwan Relations Act, the US may provide Taiwan with defensive weaponry “to enjoy a robust unofficial economic relationship.”[17] Taiwan is in fact the United States’ 10th largest trading partner. The US attempts to toe the line between supporting and not supporting Taiwan to maximize its economic gains. It compromises democracy by delegitimizing Taiwanese sovereignty yet also compromises security with China by providing Taiwan with defensive weapons. Money is a primary driving factor behind the United States’ diplomatic relationships with China and Taiwan. As the economic relationship between the United States and China drives their relative international diplomatic relationship, however, it also affects those nations economically displaced by the US’s newfound Asian relationship, particularly countries from Europe.

The European Union is so desperate to shift the United States’ priority and economic trade dependency back to Europe that it is supporting a trade law slapped with huge safety ramifications. The Transatlantic Trade and Investment Partnership (TTIP) will provide more benefits in trade between the US and the EU, but at a cost. The bill “is about reaching behind the barriers and removing the standards and rules big business don’t like dealing with, like labor standards, environmental standards, food safety standards.”[18] More specifically, the EU is pushing for an end to port inspections of imports and exports, which could lead to food safety problems, among other risks of exposure to overseas contaminants. This bill will harmonize the regulations and standards between the EU and the US, though it will not do so in the public’s favor. Since EU regulations are considerably stricter, instead of mandating heightened US regulations, it will deregulate the EU to American standards. Intimidated by the United States’ pivot to Asia, the EU is willing to sacrifice the immediate welfare of its citizens for economic gains. The bill has been described has having “irreversible impacts on health, food, labour, product safety, environmental, social standards [and] privacy standards.”[19] If the bill is successful, it will not only prove the influence economic interdependence between the US and China has over their own populations, but also over the 28 countries that make up the European Union.

China already holds over $1.2 trillion of US debt in bills, notes, and bonds, which is over 8 percent of total US debt, according to the Department of the Treasury.  If the United States does not build a better relationship and chooses to squabble over small issues with China, it will continue to rely on income from selling its treasuries to other countries. This will only continue as long as the US dollar remains the most valuable. If the United States doesn’t grow alongside China, the value of the dollar will continue to fall, as the currency of a country going further and further into debt will no longer be envied. Asymmetric rebalancing will become a very real danger if the US and China do not work together in coming years to converge to equal savings. This is contingent upon a growing trust. For these escalating reasons, the United States’ diplomatic decision-making will continue to be more heavily influenced by economic dependence moving forward.

 

Case Study: China and Africa

Amid China’s intense period of economic growth, its energy consumption rates have grown by more than twice the global average for the last ten years.[20] China and Africa do not share nearly the same level of interdependence as China and the United States do, yet China’s recent pivot to Africa is borne of necessity.

China is providing considerable loans to finance infrastructure projects in Africa, and African countries are choosing to work with China since Chinese loans do not possess the same political conditionality as those offered by international monetary institutions, like the IMF. The IMF’s limiting conditions “focus on politically contentious areas, such as public-sector wage cuts or private sector reform,”[21] and China’s dearth of required natural resources to fuel its rapidly growing economy has spurred this new diplomatic relationship. China’s newfound interest in Africa is primarily driven by three key considerations.

Firstly, China needs resources, notably crude oil, to power its modern, growing economy and to support its expanding industrial base. The rapid growth of its manufacturing sector has also “created increased domestic demand for natural resources including oil and gas, precious metals, aluminum, copper and iron ore.”[22] These are natural resources that Africa has in abundance.

Secondly, China views Africa’s population as a potential new consumer market for Chinese products. China’s growth relies heavily on its manufacturing sector. Just as the United States has played a vital consumer role in that interdependent relationship, China needs a new consumer to “satisfy its deep growth trajectory.”[23]

Thirdly, new economic policies in African nations have liberalized previously monopolized industries, drawing Chinese interest.

China is providing financial services to facilitate African infrastructure projects in a neo-colonialist way in exchange for the continent’s natural resources. It is not interested in African culture, a security position, or a budding friendship. It is siphoning materials like oil, iron, copper, and zinc from the continent to fuel its own burgeoning economy. It is creating a new economic relationship of interdependency. About one-third of China’s energy imports may come from Sub-Saharan Africa, though the Asian superpower is not the only party becoming entrenched in its investments.

African countries’ combined loan money from China in 2014 constituted 13 percent of the total loan money the continent received that year, and the countries have become so eager to receive further aid from China that they have actually started creating wish lists. “Unfortunately,” says a partner at the global law firm Dentons whose clients include African governments as well as private investors, “these aren’t necessarily projects that are bankable, or are sufficiently thought through, in order to attract and develop the financing. I looked over the Ivory Coast’s so-called wish list last week or so, and it really is becoming quite substantive.”[24] Governments are hurriedly compiling potential projects that are, in the opinion of a Wharton scholar, unfeasible, in order to attract further Chinese investment.

Furthermore, China has started mandating a quota for African workers on these projects. Speaking from a strictly utilitarian sense, this is good for both the Chinese and the Africans. The Chinese can take advantage of cheaper labor than they would find domestically, while Africans have access to more jobs. It is dangerous, however, for Africans to become dependent on Chinese infrastructure development jobs, as China is not helping Africa’s development out of selflessness. Instead, it is doing so to pocket resources. When China no longer has a need for Africa’s resources, what will become of the population dependent on these projects for work? The diplomatic relationships China is forging in Africa are constructed out of economic intent, and they have created an unbalanced interdependency that will only function for as long as China needs Africa’s resources. When a cheaper or more feasible siphon source gives the clarion call, China will have no more interest in the region.

 

Conclusion

Globalization has thrust countries all around the world into a rapidly spinning engine of interconnectedness. While this has led to more intercultural awareness and expanded global citizenry, it has also fueled the creation of many economically interdependent relationships. The demand for growth, and the level of growth made standard by modern superpowers has all but put leaders at the mercy of their economies. Constituencies demand economic progress, and the audience cost for a lack of progress is large, as posited by Fearon. This demand, in turn, often forces governments to make diplomatic decisions regarding relationships with other nations not out of amicable partnership or security, but out of the current calculus of economic necessity, as theorized by Press.

The United States and China sit at an interminable position defined by intractable economic problems. The United States cannot afford to lose any positive ground with China, and consequently lets its policy decisions in areas like NGO access and Taiwan be heavily influenced by what it believes to be China’s possible responses. China simultaneously is seeking new relationships in Africa, forcing the region to grow more and more dependent on its projects in order to maintain a reliable source of additional natural resources needed to fuel its own economy. As long as the world continues to become more interconnected, relationships will continue to be defined by economic interdependence, as policy decisions among two of the most powerful and influential countries in the world today have shown.

 

 

Works Cited

Ayodele, Thompson, and Olusegun Sotola. “China in Africa: An Evaluation of Chinese Investment.” Working paper, Initiative for Public Policy Analysis, 2014.

Bandow, Doug. “Arm Taiwan, America. But Don’t Defend It.” The National Interest. Last modified December 21, 2015. Accessed May 10, 2016. http://nationalinterest.org/blog/the-skeptics/arm-taiwan-america-dont-defend-it-14695

Cain, Sian. “What Is TTIP and How Does It Affect Us?” The Guardian. Last modified February 18, 2015. Accessed May 10, 2016. https://www.theguardian.com/membership/2015/feb/18/guardian-live-what-is-ttip-and-how-does-it-affect-us.

Chin, Josh. “China Gives Police Broad Powers Over Foreign Nonprofits.”  The Wall Street Journal. Last modified April 28, 2016. Accessed May 10, 2016. , http://www.wsj.com/articles/china-passes-law-clamping-down-on-foreign-ngos-1461853978.

“China’s Investments in Africa: What’s the Real Story?” Knowledge @ Wharton. Last modified January 19, 2016. Accessed May 10, 2016. http://knowledge.wharton.upenn.edu/article/chinas-investments-in-africa-whats-the-real-story/.

European Green Party, “TTIP – Too many untrustworthy promises and real risks.” Position paper, Green Electoral Convention, 2014.

Fearon, James D. “Domestic Political Audiences and the Escalation of International Disputes.” The American Political Science Review 88, no. 3 (1994): 577-92. doi: 10.2307/2944796.

“Herbert Hoover.” History.com. Last modified 2009. Accessed May 9, 2016.  http://www.history.com/topics/us-presidents/herbert-hoover

Hilton, Isabel et al. “The Future of NGOs in China.” ChinaFile. Last modified May 14, 2015. Accessed May 10, 2016.  https://www.chinafile.com/conversation/future-ngos-china.

Kleykamp, David L. “The Economy and Presidential Approval.” Working paper, Tamkang University, 2003.

Pigato, Miria, and Wenxia Tang. “China and Africa: Expanding Economic Ties in an Evolving Global Context.” Working paper, World Bank Investing in Africa Forum, 2015.

Press, Daryl G. “The Credibility of Power: Assessing Threats During the “Appeasement” Crises of the 1930s.” International Security 29, no. 3 (2005): 136-69. Web. 9 May 2016.

Roach, Stephen. “China and its Economic Relationship with the United States.” Lecture for Gateway for Global Affairs, New Haven, CT, October 16, 2014.

Schelling, Thomas C. Arms and Influence: The Art of Commitment. New Haven: Yale University Press, 1966.

Tillman, Kathrine, “Why States Seek Membership in Supranational Institutions.” Honors thesis, College of St. Benedict and St. John’s University, 2015.

“U.N. Human Rights Experts Have Called on China to Repeal a Law Tightening Controls over Foreign Non-governmental Organizations by Subjecting Them to Close Police Supervision.” U.S. News. Last modified May 3, 2016. Accessed May 10, 2016. http://www.usnews.com/news/world/articles/2016-05-03/un-rights-experts-criticize-chinese-law-on-foreign-ngos.

“U.S. Relations with Taiwan.” U.S. Department of State. Last modified February 12, 2015. Accessed May 10, 2016.

“U.S.-Russian Trade Relationship? There Really Isn’t One.” Fortune, March 18, 2014. http://fortune.com/2014/03/18/u-s-russian-trade-relationship-there-really-isnt-one/.

White, Hugh. “Will America Defend Taiwan?” The Interpreter. Last modified May 5, 2015. Accessed May 10, 2016. https://www.lowyinstitute.org/the-interpreter/will-america-defend-.

Yukhananov, Anna. “IMF Loan Conditions Grow despite Vows to Limit Them: Study.” Reuters. Last modified April 2, 2014. Accessed May 10, 2016. http://www.reuters.com/article/us-imf-conditions-idUSBREA311SZ20140402.

 

 

 

[1] Kathrine Tillman, “Why States Seek Membership in Supranational Institutions” (Honors thesis, College of St. Benedict and St. John’s University, 2015).

[2] David L. Kleykamp, “The Economy and Presidential Approval” (Working Paper, Tamkang University, 2003).

[3] James D. Fearon, “Domestic Political Audiences and the Escalation of International Disputes,” The American Political Science Review 88, no. 3 (1994): 577-92, accessed May 9, 2016, doi: 10.2307/2944796

[4] “Herbert Hoover.” History.com, 2009, http://www.history.com/topics/us-presidents/herbert-hoover (accessed May 9, 2016).

[5] Stephen Roach, “China and its Economic Relationship with the United States” (lecture, Gateway to Global Affairs, New Haven, CT, October 16, 2014).

[6] “U.S.-Russian Trade Relationship? There Really Isn’t One.” Fortune, last modified March 18, 2014, http://fortune.com/2014/03/18/u-s-russian-trade-relationship-there-really-isnt-one/.

[7] Ibid.

[8] Daryl G. Press, “The Credibility of Power: Assessing Threats During the “Appeasement” Crises of the 1930s.” International Security 29, no. 3 (2005): 136-69, accessed May 9, 2016, http://belfercenter.hks.harvard.edu/publication/634/credibility_of_power.html

[9] Ibid.

[10] “U.N. Human Rights Experts Have Called on China to Repeal a Law Tightening Controls over Foreign Non-governmental Organizations by Subjecting Them to Close Police Supervision.” U.S. News, last modified May 3, 2016, http://www.usnews.com/news/world/articles/2016-05-03/un-rights-experts-criticize-chinese-law-on-foreign-ngos (accessed May 10, 2016).

[11] Josh Chin, “China Gives Police Broad Powers Over Foreign Nonprofits.” The Wall Street Journal, last modified April 28, 2016, http://www.wsj.com/articles/china-passes-law-clamping-down-on-foreign-ngos-1461853978 (accessed May 10, 2016).

[12] Isabel Hilton et al., “The Future of NGOs in China.” ChinaFile, last modified May 14, 2015, https://www.chinafile.com/conversation/future-ngos-china (accessed May 10, 2016).

[13] Doug Bandow, “Arm Taiwan, America. But Don’t Defend It.” The National Interest, last modified December 21, 2015, http://nationalinterest.org/blog/the-skeptics/arm-taiwan-america-dont-defend-it-14695 (accessed May 10, 2016).

[14] Hugh White, “Will America Defend Taiwan?” The Interpreter, May 5, 2015, https://www.lowyinstitute.org/the-interpreter/will-america-defend-taiwan (accessed May 10, 2016).

[15] Thomas C. Schelling, Arms and Influence: The Art of Commitment (New Haven: Yale University Press, 1966).

[16] “U.S. Relations with Taiwan.” U.S. Department of State, February 12, 2015, https://www.state.gov/r/pa/ei/bgn/35855.htm (accessed May 10, 2016).

[17] Ibid.

[18] Sian Cain, “What Is TTIP and How Does It Affect Us?” The Guardian, February 18, 2015, https://www.theguardian.com/membership/2015/feb/18/guardian-live-what-is-ttip-and-how-does-it-affect-us (accessed May 10, 2016).

[19] European Green Party, “TTIP – Too many untrustworthy promises and real risks” (Position paper, Green Electoral Convention, 2014).

[20] Miria Pigato and Wenxia Tang. “China and Africa: Expanding Economic Ties in an Evolving Global Context.” (Working paper, World Bank Investing in Africa Forum, 2015).

http://documents.worldbank.org/curated/en/241321468024314010/China-and-Africa-expanding-economic-ties-in-an-evolving-global-context

[21] Anna Yukhananov, “IMF Loan Conditions Grow despite Vows to Limit Them: Study.” Reuters, April 2, 2014, http://www.reuters.com/article/us-imf-conditions-idUSBREA311SZ20140402 (accessed May 10, 2016)

[22] Thompson Ayodele and Olusegun Sotola, “China in Africa: An Evaluation of Chinese Investment.” (Working paper, Initiative for Public Policy Analysis, 2014).

[23] Ibid.

[24] “China’s Investments in Africa: What’s the Real Story?” Knowledge @ Wharton, January 19, 2016, http://knowledge.wharton.upenn.edu/article/chinas-investments-in-africa-whats-the-real-story/ (accessed May 10, 2016).

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