Eurasia is on the rise. Will the US be left on the sidelines?

As featured in the Boston Globe | April 9, 2017

The world’s biggest geopolitical trend today is not America First, or the global war on terror, or Brexit, or the renewed Cold War with Russia. It is the economic integration of Europe with Asia, especially the European Union with China. Europe and Asia co-inhabit the world’s largest landmass, Eurasia. They are increasingly connected economically as well. Trump’s protectionism and bellicosity will speed up the integration of Europe and Asia, and threaten to leave the United States on the sidelines.

Geologists tell us that as a landmass Eurasia has existed for around 70 million years. And demographers tell us that Eurasia has been home to roughly two-thirds of humanity during the past 2,000 years. Trade, migration, wars, and ideas have linked Europe and Asia throughout history (and pre-history). As Jared Diamond pointed out in his wonderful book “Guns, Germs, and Steel,’’ the diffusion of technologies between Asia and Europe has been facilitated by Eurasia’s broad east-west orientation along climate zones. For example, wheat is grown in Western Europe, Eastern Europe, Western Asia (e.g. Turkey, Iraq, and Iran), the northern stretches of South Asia (e.g. Pakistan and India), and East Asia (e.g. Myanmar and China), a wheat zone stretching 10,000 kilometers.

Throughout history, technological breakthroughs in one part of Eurasia have gradually diffused to others. Between 500AD and 1500AD, technological dynamism was mostly in Asia (e.g. China), and technologies flowed from China to Europe. After 1800AD, the technological dynamism was mostly in Western Europe, with technological innovations flowing from Europe to Asia. Now both Europe and Asia are innovators, and new technologies are flowing in both directions.

During the 1500s to the 1700s, economic interactions between East Asia and Europe were scant; both China and Japan limited contacts with Europeans as a matter of national security. With the beginnings of European industrialization, interactions intensified, but not so happily for Asia. Britain and France conquered large swaths of Asia, and forced China at gunpoint to open its borders to trade, including the import of opium, forced on China by British opium traders and the British government. As the costs of transport and communications continued to decline with improvements in technology, European-Asian trade intensified, but with the military power and market advantage on the side of the Europeans.

The prospects for Asian development improved with India’s independence in 1947 and the birth of the People’s Republic of China in 1949. Both countries embarked on campaigns of mass literacy as a foundation for industrialization. Then, China opened to international trade in 1978 and India in 1991, giving those population giants a massive positive jolt to economic growth. China’s GDP grew at around 9.7 percent per year between 1980 and 2016, with cumulative growth of national income of around 28 times. India economy grew fast but less dynamically, at around 6.3 percent per annum, with cumulative GDP growth of around 9 times. Recently, India’s economic growth of around 7.6 percent per year has been slightly higher than China’s.

From 1950 to 2000, the United States was the world’s leading economy, and the main builder of global production networks. American multinational companies expanded their operations in both Europe and Asia (especially East Asia), with the United States the hub of new technology, global finance, and military security.

During the heyday of US economic dominance, Europe’s exports were directed mainly toward the US market. In 1980, for example, Europe’s $44 billion in exports to the United States were much larger than its $33 billion in exports to East, South, Southeast, and Central Asia. Yet with the dramatic rise of the Asian economies after 1980, Europe’s exports are increasingly heading towards Asia. By 2015, Europe’s $446 billion in exports to the United States were less than its $659 billion in exports to East, South, Southeast, and Central Asia.

The costs of trade between Europe and Asia are falling rapidly with continuing advances in information and communications technologies, and related improvements in air, sea, and land transport and logistics. And as China’s economy has soared, China’s increasingly competitive multinational companies are stepping up their search for other markets, first in Southeast and Central Asia, but also in the Middle East, South Asia, Russia, resource-rich Africa, and Western Europe. For this reason, China is now actively building long-distance transport, communications, and energy infrastructure links with other parts of Asia and between Asia and Europe, in the same way that the United States once supported Europe’s and Japan’s infrastructure development after World War II in order to foster export markets and production sites for American companies.

As China builds its trade and infrastructure links within Asia and with Europe, it harks back to history for inspiration. Chinese leaders describe the infrastructure efforts as building the new Silk Road, referring to the ancient trade routes that connected China by land with Central Asia, South Asia, the Middle East, and Europe for almost 2,000 years, until the 1600s:

“For thousands of years, the Silk Road Spirit — ‘peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit’ — has been passed from generation to generation, promoted the progress of human civilization, and contributed greatly to the prosperity and development of the countries along the Silk Road …. In the 21st century, a new era marked by the theme of peace, development, cooperation, and mutual benefit, it is all the more important for us to carry on the Silk Road Spirit in face of the weak recovery of the global economy, and complex international and regional situations.”

China has recently proposed an important initiative it calls “One Belt, One Road” to build transport, communications, and energy infrastructure to connect the various regions of Asia, and Asia with Europe. One important group of beneficiaries will be the regions lying between Western Europe and East Asia, including much of Russia and Central Asia. The new infrastructure will link these middle-Eurasian countries more effectively with both Western Europe and East Asia.

The terms “belt” and “road” are a bit counterintuitive. The word “belt” refers to land-based infrastructure such as roads, rail, optical fiber, and power transmission lines, while the word “road” refers to sea routes and sea ports. For both the land belts and the sea roads, China’s initiative aims to build linkages both within Asia and between Asia and Europe.

Interestingly, global warming will probably add another important sea route between East Asia and Western Europe, the so-called Northeast Passage in the Arctic Ocean north of Russia and Norway. With the sea ice disappearing from the Arctic Ocean for more months per year, sea-based trade between East Asia and Europe will be increasingly re-routed from the Indian Ocean and Suez Canal to the Northeast Passage. This will cut shipping distances by around 25 percent and shipping times by up to half. The Northeast Passage is not an argument for global warming, which will create huge losses overall, but it is a likely beneficial impact among many large negative impacts.

China has not only put forward this new infrastructure vision, but has also put forward new institutional mechanisms to finance it. The most important of these is the new Asian Infrastructure Investment Bank, or AIIB, established by China to co-finance Asia’s infrastructure, and capitalized by the bank members at $100 billion. Fifty-two countries, including countries of both Europe and Asia, have become members of the bank and another 18 are in the queue to join. The United States and Japan have held back, but this hasn’t slowed the rest of Europe and Asia (and recently Canada) from signing up. In 2014, China also invested $40 billion into a Silk Road Fund dedicated to financing One Belt, One Road projects.

In addition to the investment funding, China is also promoting new trade and investment agreements. These include the Regional Comprehensive Economic Partnership, a proposed 16-country free-trade agreement that would include China, the 10 countries of southeast Asia, and Australia, India, Japan, Korea, and New Zealand.

While Trump is busy proclaiming America First and growling at other countries for their supposed abuses toward the United States, China is making a massive diplomatic and negotiating effort to build trust, trade, investment, and goodwill among the countries of Europe and Asia, not to mention Africa that China also targets in several investment initiatives.

The Chinese government has explained its outward-oriented vision in the following terms:

“The world economic integration is accelerating and regional cooperation is on the upswing. China will take full advantage of the existing bilateral and multilateral cooperation mechanisms to push forward the building of the Belt and Road and to promote the development of regional cooperation.” Moreover, “The Belt and Road cooperation features mutual respect and trust, mutual benefit and win-win cooperation, and mutual learning between civilizations. As long as all countries along the Belt and Road make concerted efforts to pursue our common goal, there will be bright prospects for the Silk Road Economic Belt and the 21st-Century Maritime Silk Road, and the people of countries along the Belt and Road can all benefit from this Initiative.”

China emphasizes the win-win character of strengthened trade and investment in language that the United States would once have used:

“The connectivity projects of the Initiative will help align and coordinate the development strategies of the countries along the Belt and Road, tap market potential in this region, promote investment and consumption, create demands and job opportunities, enhance people-to-people and cultural exchanges, and mutual learning among the peoples of the relevant countries, and enable them to understand, trust and respect each other and live in harmony, peace and prosperity.”

The closer integration of Europe and Asia is an important and logical step in Eurasia’s continued economic development, and potentially a key to the transition by both Europe and Asia to low-carbon energy systems. The One Belt, One Road infrastructure should be built to promote access to renewable energy through long-distance transmission lines; low-carbon transport via advanced technologies for vehicles, rail, and shipping; and energy efficiency through ubiquitous Internet-based smart systems. Notably, China’s industrial strategy aims for major technological advances in all of these areas by the mid-2020s, and OBOR investment projects will provide a huge market for these advanced technologies.

Each announcement by Trump against global trade, and each accusation by Trump directed at the European Union or China, have pushed these two giants toward each other in a warmer embrace. German Foreign Minister and Vice Sigmar Gabriel recently put it this way:

“(Trump’s protectionism) will be very expensive for Americans — the economy doesn’t run on pressure and orders from politicians. “For Europe, I see opportunities if Trump distances himself not just from China, but all of Asia. Europe should quickly come up with a new Asia strategy. We need to exploit the spaces America is opening up now.”

Taken together, Eurasia’s economy and population are both around 70 percent of the world, while America’s share of world output is now at around 16 percent (down from 22 percent in 1980) and around 4.4 percent of the world population. Trump may fancy America as still calling the shots, but that era is over. If the United States willfully absents itself from global rules on trade, climate, biodiversity conservation, and arms treaties, America will find the 101 countries of Eurasia and the 54 countries of Africa moving on without it, with Eurasia constituting the new dynamic center of gravity of the world economy. Both Europe and Asia remain hopeful of continued open trade and investments with the United States, but the countries of Eurasia will not agree to an America First agenda that breaks the rules of the international economy for America’s purported advantage.

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