The re-establishment of the West. How Russia, China, and COVID-19 unite us

For years, technology giant Apple has been routinely blamed for its overconfidence in China’s economy and communist rule, largely because it has directed more and more investment to the country.

The company continued to invest even when it became clear that the environment was deteriorating and the authorities began to put more and more aggressive pressure on Western companies. Without much fuss, however, the iPhone maker reversed its strategy, apparently aware of the growing risk.

How did this turnaround come about?

To leave the “kingdom of heaven”

The company has asked three of Taiwan’s largest suppliers to export 30 percent of its production outside China, and Foxconn has invested more than $ 1 billion to expand its production capacity in India.

Other Apple makers are already building new plants in Vietnam, Thailand, and Indonesia. From next year, the US company will make over 30% of its AirPods in Vietnam, not China.

A 2020 USB Evidence Lab survey found that 76% of US companies with factories in China are considering or already exporting. South Korean companies are already doing the same. Samsung also closed its last factory in China in 2019, and LG Electronics is constantly reducing its presence.

Japan, on the other hand, has a multibillion-dollar program in support of its companies leaving the “kingdom of heaven.” Moreover, a study by the German Ifo Institute two months ago found that half of all German companies exposed to China are already implementing measures to reduce their dependence on the country.

A similar process of distancing is already evident in Russia. Although most commentators continue to talk about a “sanctions regime” taken as a whole, the measures against Moscow are aimed at maximally unleashing the Russian economy.

Here, the most obvious sanctions, such as the exclusion of Russian banks from the SWIFT system, are not the most indicative. The most long-term effect will be the departure of key energy companies such as BP and Shell, but also those that support the energy infrastructure itself: Halliburton, Schlumberger, and Baker Hughes.

A study by Yale Business School found that more than 1,000 large multinationals have already left Russia or frozen their activities due to reputational risk. EU-US export controls in key sectors will continue for many years and accelerate the disengagement from Moscow.

“Something fundamental is happening.”

In the field of energy, this will be the most impressive. French bank Societe Generale has already given up its business there, and Raiffeisen Bank is considering doing the same. Indian giants Tata and Infosys have also left the country.

The political horizon of Western-Russian relations has virtually disappeared, and their divergence will intensify in the coming years, similar to what is happening with China. Something fundamental is happening.

A re-establishment of the Western world is underway and this process will take time until the end of the current decade. In essence, it represents the expansion and consolidation of the Western political and economic space, both geographically and functionally.

It also includes value elements related to opposing autocracies, strengthening one’s democratic institutions, and sustaining the self-destructive deconstruction of Western culture and historical heritage.

In fact, what is happening is a crossroads of several trends in recent years. One of them is the ever-growing revisionism of China and Russia, the deepening cooperation between them, and the escalating aggression that is now culminating in the war of February 24, 2022.

“The Re-founding of the Western World”

A similar register includes Beijing’s actions in the South China Sea and on China’s periphery, such as its recent entry into northern India.

The second trend is the transition from globalization to regionalization, which in practice accelerates the reintegration of various Western organizations such as the EU. It is complemented by increasing production and investment diversification from China, not just back to the West, but also in different parts of Asia.

Reversing the logic of production and supply chains also has a significant effect. The shift from efficiency to sustainability, from ‘just-in-time’ to ‘just-in-case’ is rearranging the global business map.

COVID-19 also played a role, as did the awareness of the need for more organized and focused policies within the various ongoing transitions – energy, technology, and industry.

Political dissatisfaction with various aspects of globalization in the Western world also plays an important role. However, there is no doubt that the return of the war in Europe and the consolidation of the Russia-China authoritarian axis catalyze the re-establishment of the Western world.

“Wide Political West”

Russia’s second invasion of Ukraine has accelerated the political consolidation of the Western world on several levels: within the EU, between the EU and the US, between the US and many partners in Asia, against the Western Balkans, and within the G-7.

We are witnessing unprecedented coordination and synchronization of sanctions against Russia, parallel political rhetoric, and a commitment to strengthening various Western international organizations. Even detached from the EU, Britain has found a way to co-operate with the organization and other allies.

We are on the verge of the sixth wave of sanctions against Moscow, which are becoming deeper and more comprehensive. Relations between the United States and Europe have not only been restored but are increasingly engaging key allies in Asia such as Japan, South Korea, Australia, Taiwan, Singapore, New Zealand, and others.

In this sense, we can already speak of a broad political West, which can function as a political community at many levels, in different structures, in a common coordinate system. However, the most visible changes are in the field of security. NATO is about to adopt a completely new strategic concept, which will have a much greater focus on Russia and China and will provide an entirely new approach and infrastructure for the protection of the eastern flank.

There is no doubt that Sweden and Finland will abandon their centuries-old traditions of neutrality and join the Alliance. Even in Switzerland, 52% of people already support membership in the organization.

Rearmament and integration of production within the western countries are forthcoming, as well as a new wave of joint military developments and new investments. The EU will not just increase military spending, it is already talking about a “security union”. In Asia, the AUKUS security pact is expanding, and Japan and South Korea are stepping up and expanding their military cooperation with Washington.

The trends of western consolidation are increasingly spreading to the economic space.

Beyond the already well-known process of returning production, the EU and the US are stepping up their cooperation in many sectors within their Trade and Technology Council. The new European industrial policy is practically horizontal and implies economic integration at the micro-level. Eastern and Southeastern Europe have a new chance to deepen their integration into Western production chains in various industries.

Energy is rapidly becoming an area of ​​deepening cooperation, both within the EU and between the EU and the US, and between Europe and Western partners in Asia, which are partially redirecting quantities. A new energy network is being created between them.

Another dimension of Western economic consolidation is the redirection of investment, for example, from Japan, South Korea, and Taiwan to Europe and the United States, but also Western investment from China to countries that are gradually moving closer to the West – Indonesia, Vietnam or already have good relations, Singapore, Thailand, and others.

The shortening of production chains will increasingly be done within a common, western, and geographically wide economic space. The United States is about to launch a new “framework for economic cooperation” in Asia, which will provide a platform for this consolidation. Talks are underway on a new digital commerce agreement that will further speed up the process.

Of course, the ongoing re-establishment of the West has many unknowns and is about to gain sustained momentum. But the trend is clear and is based on fundamental shifts. We are on the verge of a wave of consolidation in the Western world.

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