By Kalim Siddiqui

I. Introduction

The ongoing war in Ukraine began with Russian aggression on 24 February 2022, and it has led to a massive pouring of weapons into Ukraine from the United States and European countries. No one could justify aggression against a sovereign nation. Moreover, the Ukraine conflict has spread, and now 32 nations, almost all NATO members, are supplying military assistance to Ukraine. And a huge amount of money is flooding to sustain the war. The possibility of a diplomatic solution to the conflict is currently being strongly opposed by the US. In these circumstances, the US and its allies are clearly aimed at fatally weakening, if not destroying, the Russian state (Politi, 2022). We should not ignore that by massively expanding its military presence all along Russia’s borders in Eastern Europe, NATO has signalled that it was prepared for tension and a military conflict.

The Russian attacks against Ukraine have sharply increased tension in Europe, but our study will focus on economic conflicts and rivalry between powers that are taking place at international levels due to changes in countries’ economic share in the global output, economic performance, and growth rates.

There appears to be growing speculation that the world is now moving towards a new period of Cold War. Some argue that it is due to the expansion of NATO toward Russia. The Russian government is convinced that the US was able to destabilise governments such as the Arab Spring of 2010, a demonstration against Putin in Moscow in 2011, and the uprising in Ukraine in 2014, and suggest that such sudden movements cannot develop without substantial assistance from foreign powers.

With the demise of the Soviet Union in 1991, it was viewed that the Cold War and the divide between the US and the Soviet Union came to an end. Francis Fukuyama has characterised this as the “End of History”, and he predicted that a new wave of democracy across the world would begin. According to him, what we are witnessing is not just the end of the Cold War or the passing of a particular period of post-war history, but the end of history as such that is the end point of mankind’s ideological evolution and the universalisation of Western liberal democracy as the final form of human government. He stated that history had come to its logical conclusion because humanity was finally able to deduce the most harmonious world order based on the ideals of liberal democracy and capitalism (Fukuyama, 1992). However, rather than the wealth spread through the neoliberal economic reform as it was expected that the wealth would trickle down, the world has experienced rising inequality and marginalisation of the poor in most countries.

The actual Cold War of 1945 to 1991 was a product of the reordering of spheres of influence across the world. It was justified by ideological differences as the two major blocs, namely the US and the Soviet Union, sought to dominate over their spoils. Professor Stephen Walt (2018) argues that the Cold War during the post-war period was an ideological war designed to defeat the other. It seems that, three decades after the collapse of the Soviet Union and the end of the Cold War, the world finds itself entering a New Cold War between the US, Russia, and China (Walt, 2018).

The methodology adopted in this study is based on the review of published articles, books, government reports, and international financial agencies’ data. I think this methodology is appropriate to meet the stated objectives of
this study.

In recent years, the Chinese economy has expanded and not only increased its share in trade but is able to acquire advanced technology in communication and manufacturing. And as a result, the US feels threatened (Siddiqui, 2021a) . For example, the Donald Trump administration began to adopt hostile policies toward China in the economic and trade spheres (Siddiqui, 2018a). But after Joe Biden became president, it was assumed that his administration would back away from Trump’s hostile policy towards China due to its “vital position in the global value chain” (Christensen, 2021). However, in March 2021, Biden met the governments of Australia, India, and Japan and formed a Quad military-strategic alliance under US leadership. This was seen as an attempt to build a military alliance, i.e., Asia’s NATO.

Furthermore, the US blacklisted five Chinese firms, including Huawei. China’s 5G programme was blocked by the US and in 2020 the US forced the United Kingdom to drop its contract with Huawei and imposed sanctions on the firm to stop its use of sourced components and access to advance US microchip technologies. For the Chinese, this move was to keep China away from high-tech fields. China responded by mobilising domestic resources to accelerate investment in high-tech research. Made in China 2025, it aimed to help the country to become technologically advanced, including acquiring next-generation information technologies, and also aiming to move China into the world’s leading power in manufacturing on the basis of domestic technology and skills (Economist, 2020).

In fact, when we look at China, the change in relative global economic power between the US and China is remarkable. The US’s position as a global leader in merchandise was overtaken by China in 2012. In 2001, China’s share in world trade was 20 per cent of that of the US. Moreover, in the last 10 years, US imports had fallen from 17 per cent of the world total to 12 per cent, while its percentage share of exports has fallen from 12 per cent to 8 per cent (Economist, 2020).

The period since 1991 is characterised by neoliberal globalised capitalism under the US-led unipolar world (Girdner and Siddiqui, 2008). Its origin can be traced to acquiring new markets and the supply of cheap labour and raw materials as returns on investments and demands in the West for consumer goods have stagnated. As a result, the tariff barriers were gradually removed under the neoliberal globalisation for a global single market and to open new profitable opportunities for their multinational corporations (MNCs) (Siddiqui, 2021b & 2021c).

This article attempts to analyse the current conflicts among major economies. Some analysts describe it as an analogy with the past Cold War, while others see it as merely an intra-core competition between major capitalist economies. The trade conflict between the US and China appears to be like a New Cold War, which in essence is like a competition between two economic rivals (Siddiqui, 2018b; Kennan, 1995).

The aim of this study is to contribute to the ongoing debate on the growing rivalry between the US, China, and Russia. To understand the changing global economic environment and the global power struggle to establish domination, we need to examine it logically. Such views focus on conflicts to achieve power which considers the importance of economic and military strength. There appears to be growing speculation that the world is now moving towards a new period of Cold War (Kennedy, 1987).

According to Kennedy, “there exists a dynamic for change, driven chiefly by economic and technological developments, which then impact upon social structures, political systems, military power, and the position of individual states and empires” (Kennedy, 1987: 439). The “independent” influence of the political over the economy and military is indicated, for example, by variations in how far a state can effectively monopolise control over its resources. In terms of the mobilising of resources, the position of Britain at the turn of the twentieth century, having a far-flung territorial empire, was quite different from that of Germany (Kennedy, 1987).

At a time when the nation-state has become a general political form, rather than confined to the West, which is marked by accelerating globalisation of communications and culture, and by the development of nuclear weaponry, this is in some respects quite different from pre-existing arenas of international relations. The USA may be declining relative to other nations economically but has forged a system of global alliances on a military level unparalleled in previous history.

The political and ideological drive to oppose communism and the Soviet Union is being reformulated as rivalry with the re-emergence of Russia and more recently China. During the 1950s, the anti-colonial movements also shook the former imperial order and European domination. The anti-imperialist movement of the developing countries at the Bandung Conference of 1955 was like the earlier demand for “equal rights” of the developing countries made by Lenin about the assertion of the self-determination of nations.

II. Theoretical Issues

Here I will briefly discuss academic views about the reason behind past major economic conflicts between economic powers. On this very issue, we begin with Kautsky and Lenin’s debate over the outbreak of the First World War and ultra-imperialism. V.I. Lenin observed the war as the natural outcome of intense and chronic capitalist rivalry, but Karl Kautsky saw this development as a new phase of consolidation of the capitalist countries into a super-national state. He hoped for a new ultra-imperialist policy, which most likely will begin the joint exploitation of the developing countries as joint financial capital in the place of mutual rivalries of the national capital.

However, Lenin disagreed that Kautsky’s assertions were based on the equal economic, industrial, financial, and military strength of the countries involved in the formation of the alliance. Lenin pointed out that, since the economies could develop unequally between countries, as a result their alliances would inevitably be unequal, and would lead to greater rivalry, conflict, and ultimately a war between capitalist countries. Kautsky did not clearly explain what form this capitalist integration would take under the phase of ultra-imperialism (Holloway, 1983).

The history of capitalism shows the rivalries between economic powers that have the potential to spill over from trade conflict to war. Lenin in his book Imperialism: The Highest Stage of Capitalism (2010) pointed out the inter-imperialist rivalry driven by intense inter-capitalist competition. In search of larger markets, capitalism intensifies clashes for controlling the world’s resources and markets and ultimately war. Historically, capitalism competed to control economic resources and spheres of influence of European countries in Asia and Africa and the US in Latin America. Lenin criticised Kautsky’s “Ultra-imperialism” theory. According to Kautsky, the core capitalist powers could avoid military conflict and rather form cartels to sustain their profits and to continue exploitation by creating peaceful cooperation, which he termed “ultra-capitalism”.

After the Second World War, the US emerged as the leading capitalist country and attempted to revitalise the capitalist economy by creating new conditions for the continuation of capital accumulation. Professor Charles Kindleberger (1973) wrote that the liberal and democratic order after the bipolar world would move towards greater global convergence with the introduction of democracy and liberalism in Russia. However, after the end of the Cold War in 1991, the US became more US-centric and thus, undermined any attempts to accommodate the dissenting views (Siddiqui, 2020a).

At present, China’s economic interests seem to be in a stable global order because the country has benefited immensely from it. China is expected to continue to support the capitalist system rather than seek to change to an unknown system. The rise of an emerging economic power will create a situation of conflict between the extant power and the challenger. This means that a war between the US and China is inevitable and a major war between two world economic powers would be unavoidable, which is known as the “Thucydides Trap”, which describes an apparent tendency towards war when an emerging power threatens to displace an existing great power as a regional or international hegemon. According to Thucydides in ancient Greece, countries went to war because of three main factors: fear, honour, and interest. “Thucydides Trap” refers to the theory that when one great power threatens to displace another, war is almost always the result (Siddiqui, 2020b).

There are various views about China as an emerging economic power. Some argue that China will change the neoliberal global order and introduce a more benevolent system, given its history of Confucian philosophy and values of social harmony. Arrighi says that China as an emerging power will be a progressive challenge to Western domination and will support reforms globally towards greater equitable and sustainable development (Arrighi, 2007). However, others suggest that China has not rejected neoliberalism and rather benefited from it. China gradually introduced market reforms in the 1980s. As Taylor and Cheng (2022) note, “In China, the non-capitalist market economy that existed in the 1980s had been transformed into a capitalist economy, where virtually all enterprises … operate according to capitalist principles. Indeed, the Chinese leadership has thus far been quite inclined to construct domestic societal and political values to be more in line with most extant global norms of capitalism” (Taylor and Cheng, 2022:246).

The rise of the Chinese economy in recent decades is a part of the historical process of “cycles of hegemony” in the nexus of comparative superiority in the global economy. The current US-China rivalry is between two different varieties of capitalism, which has reached a new phase of completion of the cycles of capital accumulation, where China is able to change competitive dynamics to challenge US economic domination. The question arises whether these two economic giants would eventually lead to disastrous war or would move into economic competition by forming cartels to control the global economy. These developments will shape the trajectory of the capitalist world order for many decades.

In the 1980s, taking advantage of capital and trade liberalisation, the availability of foreign capital led, and the reallocation of manufacturing was encouraged especially in East Asia and China, where a successful supply chain brought a continuous flow of commodities and products. China and India, which were unexploited markets until the 1980s, were integrated into the global capitalist market, controlled by MNCs largely based in the West (Siddiqui, 2019a).

China’s developmental strategy initially relied on “export-oriented industrialisation”, which focuses on participation in international trade by moving greater resources towards the export sector where the country has a comparative advantage. Such policy needs to keep the cost of production at its lowest, including subsidies to export industries and low taxation on investors. The West fully supported Chinese policy then and their companies not only provided capital and also technology and market access, but the West also benefited from cheap imports from China, which kept slow growth in prices (Siddiqui, 2009).

The global financial crisis of 2008 adversely affected the Western economies, and it also reduced the Chinese export growth in these markets. To counteract this, China launched massive infrastructure plans, within which domestic investment boosted the gross fixed capital formation from US$1.79 trillion in 2008 to US$5.95 trillion in 2019. However, this massive growth was accompanied by an oversupply of materials and created a bubble across the Chinese economy. China’s currency reserves rose dramatically from US$200 billion in 2001 to nearly US$3 trillion in 2014 (Siddiqui, 2020d; Economist, 2020).

The fact is that during the post-war period the Soviet Union was not part of the capitalist economy and there was little economic interaction that took place then between the Soviet Union and the US. But now the situation is quite different, and China is not like the 1960s Soviet Union.

As Leffler (2019) emphasises, “When the Cold War began, there was hardly any trade with or foreign investment in the Soviet Union, so the United States had virtually nothing to lose economically from isolating its rival. In today’s context of economic interdependence, complex supply chains, and Chinese lending and dollar reserves, Cold War policies would have sharply different consequences for the international economy and the health of the capitalist system” (Leffler, 2019). According to Leffler, the historical context in which the US operates today, the prevailing configuration of power in the international arena, and the ideological appeal of the rival regime are all entirely different. At present China’s economy is highly integrated into the global economy and the rise of its economy is leading to a shift in the global power balance. For instance, China is the second-largest economy in terms of GDP, and it is the largest consumer market, the largest holder of international hard currency, and also the largest holder of US Treasury bonds. China is also the world’s largest trading nation and even during the COVID-19, its export rose to 46.1 per cent by December 2020 with a trade surplus of US$75.4 billion (Siddiqui, 2020c). China is also the world’s largest supplier of finance, offering more loans than the World Bank. China is lending money for the development of infrastructure in Asia, Africa, and Latin American countries. By 2021, China had replaced the US as the EU’s largest trading country (Economist, 2020; Siddiqui, 2021).

Professor Immanuel Wallerstein (1983) emphasises that a capitalist economy can be seen as a “long wave” of growth, recession, and stagnation, which indicates the rise and fall of the hegemonic nation within the world economy as historical cycles of hegemony. According to him, the catch-up process of the rising economic power should emerge as a leader in three crucial areas: industry, trade and finance. China in the last 40 years has significantly improved in areas such as becoming a leader in manufacturing and international trade, and the world’s largest creditor nation, despite the fact that the US dollar is still the international currency and still widely used for trade and international reserves. However, experts believe that the Chinese renminbi will become the third-largest reserve currency by the end of this decade.

A country’s economy is measured in GDP, which measures the total goods and services produced in a country in a year. At present, in the economic sphere, Russia is not the main challenger to the US. For instance, Russia’s GDP in 2021 was US$1.5 trillion, against the US GDP of US$21 trillion. In fact, this is not a fight of equals. China’s GDP is US$14 trillion for the same year and its economy is two-thirds of the US and this is the reason that China can challenge the US. China has also developed advanced technology in telecommunications and other vital areas. Moreover, during the pandemic, China emerged as far better able to manage its economy than the US. At present, the US power stems not from industries, but from financial and military might, while China is still increasingly investing in industries and has emerged as the manufacturing centre of the world.

III. Market Reforms in Russia

After the collapse of the Soviet Union in 1991, Russia under IMF supervision adopted a neoliberal economic policy also known as “shock therapy”, which resulted in a rise in unemployment, inflation, economic instability, and capital flight. The International Monetary Fund’s neoliberal reforms included the privatisation of public industries, cuts in welfare spending, and capital and trade liberalisation. Such policy provided incentives for asset-stripping and led to the devaluation of the Russian rouble and a rise in interest rates. During that period, poverty and deaths rose sharply.

The decline of the manufacturing sector in Russia employs significantly fewer employees than during the pre-reform period. There has been a 36 per cent decline in the number of employees in industries and a sharp decline in the number employed in R&D, while the trade and finance sectors experienced a high growth in the number of employees. In the 1990s and 2000s, the depressive social development indicators highlight this, e.g. high rates of mortality, and a fall in educational levels, food consumption, and living conditions.

The sectoral structure of the Russian economy changed dramatically and looked more like the structure of a pre-industrial economy. Regressive shifts can also be observed within the industrial structure of employment. The changes thus have occurred in sectors that have the potential to add maximum value and in the case of the machine-building and engineering sector, in addition, the ability to provide technological progress. However, from the 2000s Russian economy began gradually to increase output, as figure 1 indicates.

Neoliberal reforms in Russia were followed by the transition from a state-controlled economy toward free-market capitalism, which was supposed to improve living conditions including incomes and wages. But it did not happen. As Stiglitz writes, “By the time of the rouble crisis of August 1998, output had fallen by almost half and poverty had increased from 2 per cent of the population to over 40 per cent. A transition that lasts two decades, during which poverty and inequality increase enormously as a few become wealthy, cannot be called a victory for capitalism or democracy. Moreover, the longer-run prospects are far from rosy: with investment a mere 10 per cent of what it was in 1990, even if that investment is better allocated, how can growth be sustained? … This was a remarkable confession: these officials evidently believed that their policies had wrecked nearly half of Russia’s economic capacity in the space of just a few years. …they ignored a World Bank analysis showing that fresh IMF loans would not restore economic growth but would only leave the country deeper in debt” (Stiglitz, 2003).

Finally, from the 1990s onwards, Russia witnessed deindustrialisation. And with the launching of the market reforms, most of its exports now come from the export of natural resources such as oil and gas. And the country still has not developed as a “normal” market economy, but rather into a peculiar form of crony state capitalism.

Editor’s Note: Second part will be published in the next issue.

About the Author

Dr. Kalim Siddiqui is an economist specialising in International Political Economy, Development Economics, International Trade, and International Economics. His work, which combines elements of international political economy and development economics, economic policy, economic history and international trade, often challenges prevailing orthodoxy about which policies promote overall development in less-developed countries. Kalim teaches international economics at the Department of Accounting, Finance and Economics, University of Huddersfield, UK. He has taught economics since 1989 at various universities in Norway and the UK.