No. 45




The Fight Between the US and China for Leading Role in Global Economy

06 June 2022


RiTo No. 45, 2022

  • Urmas Varblane

    Urmas Varblane

    Member of the Academy of Sciences, Professor in International Entrepreneurship, Academician, University of Tartu

  • Mathias Juust

    Mathias Juust

    Doctoral Student, University of Tartu

The economic power struggle between the USA and China has been going on for years, but the COVID-19 pandemic and the new Russian aggression have made international strategic economic dependencies an even more acute problem.

China’s new economic and geopolitical rise has been underpinned by globalisation of economy and a national export-led growth model. In the developed countries, the unequal distribution of globalisation revenues and the stagnation of working-class incomes have led to populism, which has weakened democratic economic systems on both sides of the Atlantic Ocean. Moreover, we have reached a situation where the West is both economically dependent on and in a conflict of values with certain countries. The confrontation between China and the USA simultaneously reflects the struggle for the leading role in global economy and an ideological conflict of values.

Since the end of Cold War, China’s regional geopolitical ambitions have become global, with the final aim of overthrowing the USA from the position of hegemony. In economic sphere, China’s new ambitions are illustrated by the international Silk Road project and the strategy that focuses on achieving competition advantages for strategic industries. More serious response from the USA came during the reign of President Trump, when the process of bilateral decoupling and trade war began. The struggle over the development of strategic technologies has led to technological nationalism, according to which government intervention in markets is justified as a defence against hostile foreign state and private actors.

As a manifestation of technological nationalism, the USA has suspended the investments of its companies in China in a number of strategically important areas, such as the development and manufacturing of chips, and has blocked knowledge transfer to China. During the reign of President Biden, the approach relating to China has remained more or less the same, although more attention is paid to strategic allied relationships. At the heart of China’s response is the policy of Dual Circulation aimed at supporting the development of the internal market, eliminating dependence on Western technological inputs and achieving economic independence.

Geopolitical tensions and problems with the supply security of long value chains have made both countries and multinational companies look for alternatives. When deciding the location of their production units, companies have to strike a balance between the cost, risk and performance levels in the destinations of their activities. In the event of a significant increase in the level of risk in one country, it therefore becomes realistic to move production to countries with increasingly higher costs. Based on the desire of the Western countries and companies to increase the performance of their value chains, Estonia may have an opportunity to establish itself in new strategic sectors. This would support both national development of economy, and security. For example, rare-earth metals, the vast majority of which currently come from China, are necessary for many technological devices. However, in this area of huge demand, Estonia is the second largest import partner of the USA at 6%, which illustrates Estonia’s potential to be selected as a vital part of the strategic value chains of the West.