The dream in the years after the fall of the Berlin Wall was that we would replace the rigid power blocs of the Cold War with the interconnected world of globalisation and the internet.  At the heart of that were global supply chains.  Thomas Friedman, a New York Times columnist, talked about the “Dell theory of peace”, arguing that no countries that were connected in a supply chain, such as the ones to make Dell computers, would go to war with each other.  And no two countries were more connected than China and the US.  Their complementary economies were so tightly bound that we came up with an aggregate name to describe them: Chimerica.  But today, they are locked in a global competition for influence and are “decoupling” their economies rather than bringing them together. 

In 2016 Britain held a referendum about independence in a world organised around cooperative nation states and free trade, before falling into a long and solipsistic Brexit dream or nightmare (depending on your perspective).  When it awakes and prepares to leave the European Union, Britain will be exiting into a totally different world, one defined by competing blocs and protectionism rather than cooperating states. 

When Britain went to the polls to vote on the Europe question in 2016, Barack Obama was US President and there was debate about a so-called G2 world, where China and the US, the two biggest economies, would find ways of managing their differences to the benefit of the world.  David Cameron and George Osborne hoped to maintain the “special relationship” with the US while also declaring a new golden age with China.  There was talk of a transatlantic trade and investment agreement, a transpacific partnership, and the Paris climate accord and the Iran nuclear deal were avatars of the possibility of cooperation. 

The argument of the Brexiteers was that as the fifth biggest economy in the world, the UK should strike out on its own.  By leaving the EU it could regain control of its borders and migration system.  But this would not stop the UK from getting access to the single market, while forging even closer relationships with countries outside the bloc, starting with China and the US. 

Many of the claims of the Leave campaign were obviously false, but there was an internal logic to the idea that Britain could cut free and seek to be “Singapore on steroids”, as the former Tory and Ukip MP Douglas Carswell is credited as saying.  The problem is that somewhere between 23 June 2016 and today, the world they wanted to enter died. 

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The rise of Donald Trump, with his promise to “make America great again”, and Xi Jinping, with his dream of national rejuvenation in China, symbolise the new era: two strong men competing for primacy.  And as the world descends into a new bipolar confrontation, the EU is preparing to become a third pole. 

Few doubt that Trump is presiding over the relative decline of his great nation.  It is not that the current order does not benefit the US: the problem is that it benefits others more in relative terms.  This means that every year the gap between China and the US shrinks. 

Trump’s response is one of creative destruction and his aim is to undermine existing institutions – such as the World Trade Organization (WTO), Nafta and Nato – as a first step towards bilateral renegotiations of world order on terms more favourable to Washington, DC.  He wants to do this while the US is still the dominant power and can deal with all others from a position of strength. 

There is deep consensus among American elites that the policy of engaging China has failed.  By allowing China to join the WTO in 2001, they had hoped that China would grow wealthier and open its market to American companies.  As its middle class grew, they would demand greater freedom and the role of the Communist Party would subside.  On the global stage, they expected a grateful China to become a “responsible stakeholder” in the US-led world order from which China had so recently benefited. 

But the reality is that this approach is failing to deliver on any of its goals.  As China becomes richer, the Communist Party and the state become more important.  Rather than opening its market to American companies, China is copying their technology and seeking to undermine them with subsidised Chinese versions, not just in China but in every market around the world.  More than this, China is trying to build its own world without the West, rather than supporting the American order. 

A few years ago, I interviewed Tom Daschle, former majority leader in the US Senate.  He said that the natural state of US-China relations was one of conflict; indeed, almost every interest group in the US – labour unions, the human rights community, security hawks – was primed for it.  The business community was already starting to move back from China at that time because of technology transfer and market access.  But, he said, Obama in the White House wanted to maintain a stable relationship. 

***

Many in the West dismiss Trump as a self-defeating buffoon, but in Beijing he is considered a master strategist and tactician. “ The trade wars are just the tip of the iceberg,” I was told by He Yafei, a former Chinese deputy foreign minister, who came to international prominence when he wagged his finger at Obama at the Copenhagen climate conference in 2009.  He is much less dismissive of Trump, whom he claims is challenging China economically, militarily and ideologically. 

The Chinese do not consider the policy of America First to be a retreat from the world but rather a recalibration of the US’s engagement.  After the Iraq and Libya debacles, the US is trying to lessen its footprint on the ground and disentangle itself from the high cost of occupations that have sapped the relative advantages of American power and diminished public support for its foreign policy.  Just as important is the rethink on globalisation.  Trump’s goal, the Chinese believe, is to make use of American economic power and its unbalanced position in the international trade system to renegotiate the nature of its relationships with other players.  It is, they claim, “a retreat to advance”. 

China is also on the move.  President Xi Jinping is recasting the economy, political system and foreign policy in his image.  Through the Made in China 2025 initiative he aims to move from a low-tech manufacturing economy to a technological leader that sells world-beating services and artificial intelligence by gradually acquiring Western technology while driving the West out of the Chinese market. 

This technological revolution will allow China to become a big data dictatorship with a new kind of surveillance state that is being tested in the majority-Muslim Xinjiang province, where a million citizens are being held in detention camps.  All of this goes along with a new foreign policy centred on the Belt and Road Initiative that aims to build pipelines, ports, roads, railways and a digital network that will make China the primary partner for 65 countries. 

Beijing recognises the US’s strategic advantages in the short term.  Washington continues to monopolise the international financial system; it has unparalleled alliances around the world and it is still a leader in global technology.  It has a near monopoly on key components such as microchips, while its role in international organisations allows it to set the global agenda.  But many Chinese analysts think that while the American hare is doing the running at present, it will be the Chinese tortoise that ends up prevailing. 

If the US continues to weaponise the global financial system, other countries will simply bypass it by creating their own payment systems and avoiding using the dollar, they say.  If the US pursues its tech cold war, it could harm its own technological development.  The more that Trump talks about America First and takes unilateral measures, the more he alienates his allies and encourages them to develop relationships with other countries, including with China. 

In the long term, they believe the world is going China’s way and that the decline of the West will continue.  With this in mind, it comes as no surprise that Chinese experts recommend their leaders exercise strategic patience.  The biggest challenge is to avoid a crisis before China is more powerful than the US.  They also want to decouple as fast as they can, to stop the US putting pressure on them.  And they think that in the nightmare scenario of a war between China and the US, they will be better off if they are less economically dependent on the US. 

***

As the world descends into blocs and empires, all the great powers are considering how to increase their reach beyond their borders.  Vladimir Putin has centred his foreign policy around “Russkiy Mir” – Russia’s world – offering protection to ethnic Russians outside Russia and Slavs across the former Soviet bloc.  This is the justification he had to annexe Crimea, invade the Donbas region of Ukraine and annexe Abkhazia and South Ossetia in Georgia.  As well as using Russian TV and the internet to spread disinformation, he has built networks of corruption that go across the whole post-Soviet world and right into the West. 

Putin has positioned Russia as the “other Europe”, challenging the move to multiculturalism, gender diversity and liberalism in western Europe, and appealed to populist parties across the continent.  He has set up the Eurasian Economic Union as a counterpart to the EU and worked with China to establish the Shanghai Cooperation Organisation as a kind of anti-Nato.  Most importantly Putin has proved very adept at weaponising Russia’s oil and gas markets, and visa regimes, using trade blockades, energy cut-offs and forced expulsions of workers to put people under pressure. 

Another Eurasian power that is attempting to emancipate itself from the West is Turkey.  President Recep Tayyip Erdogan has tried to carve out a separate profile for Turkey in the Balkans, Central Asia and across the Middle East.  He is using trading relationships, visa-free travel and links to Turkoman peoples and Islamist organisations. 

The Middle East is also home to two great imperial projects.  Iran has positioned itself as the global champion of the Shia people, supporting militia groups across the region from Yemen and Bahrain to Iraq, Syria and Afghanistan.  The mirror image is Saudi Arabia’s attempt to position itself as the leader of global Sunnis, waging proxy wars against Iran across the region and using its immense oil wealth to offer credit to sympathetic regimes such as Abdel Fattah el-Sisi’s Egypt. 

India is another huge empire with nearly one fifth of the world’s population.  It does not have the same external reach as some of these other players but it has important influence through a diaspora of as many as 18 million Indian citizens who are successful and hyperconnected. 

***

Yet there is only one other empire that has the same reach and ability to shape the global system as the US and China: the EU. 

Europeans have looked on in horror, while their two biggest trading partners –China and the US – have gone from being advocates for globalisation to the “decouplers”.  The most important structural feature of our world is not the multilateralism the EU dreamed of but rather a competition between China and the US, our two most important economic partners. 

As a result, the nature of globalisation is changing.  Because neither China nor the US wants a conventional war, their most powerful weapons are to manipulate the architecture of globalisation.  In both countries there is a merging of geoeconomics and geopolitics.  Increasingly the US is politicising what we once thought of as global public goods: the US financial system, the WTO, the internet, the IMF.  And the Chinese are using investments strategically, manipulating markets through state aid and undermining the EU’s voice on the world stage by destabilising multilateral institutions and undercutting the EU in third countries.  Rather than being a barrier to conflict, interdependence is increasingly being weaponised. 

As the German foreign minister Heiko Maas said in a speech in 2018 , Europe would need to learn to become a player if it wanted to avoid becoming the chessboard on which China and the US played out their contest for power and glory. 

Europe continues to be divided between north, south, east and west, but there are some moves afoot in Brussels to make the EU a third power bloc that can help its members resist pressure from the competing giants.  Many European states realise that the only way of defending their national sovereignty from secondary sanctions is through common action.  Angela Merkel has said that Europeans could not fully rely on the US for security any more.  Emmanuel Macron has called for a “strategy of audacity” and is pursuing rapprochement with Russia to balance China.  And Ursula von der Leyen, the new European Commission President, has declared her administration will be a geopolitical one. 

The EU has signed a series of new trade deals with Japan, Canada, South Korea and Vietnam.  It is shoring up European defence by moving towards a defence union and a powerful fund for common military projects.  The Germans have launched an “alliance of multilateralists” that aims to defend the liberal world order.  The European Commission has responded to this new age of great power blocs with ten ambitious action points both to engage and confront China. 

***

Many Brexiteers believe that Europe is a paper tiger, and yet the EU has shown that it was able to move the needle in some important areas.  Its data privacy code (GDPR) has set global standards for regulating data flows and privacy in the new great power competition, leading some experts to declare that it is the “Brussels effect” of global rule-setting that makes Europe a third bloc rather than a vassal in the Sino-American power competition. 

The EU’s powerful trade commissioner Cecilia Malmström has led an impressive push-back against Trump’s tariffs and restrictions of transatlantic trade, with EU counter-tariffs and credible threats of what would happen if the US were to escalate the transatlantic trade war. 

All of this reinforces the strategic dilemma for the UK in the world of blocs after Brexit.  Will European sovereignty be something that the UK is part of or will it be organised against Britain? 

The experience with the European Galileo GPS system – where Europeans forged ahead without the UK – shows that being left outside European projects and decision-making can be tough.  The same sort of dilemmas could develop in other areas.  For example, there has been a debate about whether we will to be forced to eat chlorinated chickens for our Sunday roast and open up the NHS to the US’s big pharma industry once we leave the EU.  The US might demand that we open an embassy in Jerusalem or that we abandon the Joint Comprehensive Plan of Action, the Iran nuclear deal.  Will Brexit Britain have to swallow a poison pill in trade with the US as Mexico and Canada had to? 

The same kind of challenges will also be coming from Beijing.  Would China sign a free-trade agreement with Britain and take lectures about its treatment of activists in Hong Kong?  Will they be relaxed about Chinese companies such as Huawei being shut out of British telecoms markets or will Britain have to sacrifice national security concerns for maintaining stable economic relations with the great Chinese bloc? 

Until now, Britain was part of these questions of European sovereignty and was seen by other European countries as an ally in trying to avoid being squashed between the warring great powers in Beijing and Washington.  It was the strategic goal of several previous British governments.  But with the prospects of Brexit it is not clear how Britain will fit into European sovereignty.  Rather than taking back control, in a world of great power blocs Britain may find itself at the mercy of other powers.  In the place of European sovereignty we may have DIY servitude. 

Mark Leonard is director of the European Council on Foreign Relations and author of “What Does China Think?”