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10 May 2023

Ukraine might win its war – but it won’t help the West’s wider struggle against autocracy

Led by hawks in the Biden administration, liberal democracies are stumbling into a commercial cold war with Beijing.

By Wolfgang Münchau

There are two wars fought in and around Ukraine – the war on the ground, and a bigger war between the East and the West. There is a scenario that Ukraine and its Western allies win the land war against Russia, and that China wins the bigger war: the creation of a militarily powerful, technically sophisticated and economically prosperous alliance of countries, led by China, that define themselves through opposition to Western values. President Xi Jinping said at the end of his recent visit to Moscow: “There are changes that haven’t happened in 100 years. When we are together, we drive these changes.” That’s the other war.

I keep an open mind about the military outcome in Ukraine. I am not a military expert, but I know the military experts have been consistently wrong. Many did not believe that Vladimir Putin would invade. They then overestimated the Russians in the war’s early stages, and underestimated them later. Ukraine’s chances of success depend on continued Western military supplies and financial aid – though I don’t know how many tanks and anti-aircraft systems it will take for Ukraine to succeed.

[See also: Why China and its trading allies are well placed to topple the dollar]

Let’s assume for now that Ukraine wins, according to some definition. Then what?

A victorious Ukraine will want to become a member of the EU and Nato. France and Germany are resisting a full EU membership and are probably not alone. They are sticking to their present position of linking further expansion to internal EU reforms – such as extending decision-making by majority vote to foreign policy, an area that currently requires approval from all member states. Not everyone will agree. Hungary’s prime minister, Viktor Orbán, surely won’t. Poland and Italy, too, have populist-led governments. The resignation of Slovakia’s pro-Western prime minister, Eduard Heger, on 7 May has prompted an election later this year that could see the return of Robert Fico as another pro-Russia EU leader. When Ukraine knocks on the door, the divisions between the pro-European liberals and the nationalist conservatives will come out into the open like never before.

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The EU has been the biggest multilateral experiment in history. What distinguishes it from other multilateral organisations is the presence of its own independent political layer and legal system. Brexit was a defeat not only for pro-Europeans in the UK, but for liberal multilateralists everywhere. I find that those who are still fuming the most, and loudest, about Brexit are often some of my friends in the US.

Liberal multilateralism was the success story of the 1990s, right up until the global financial crisis, with an afterglow that lasted into the early Obama years. One of the big political questions of our time is: why has the liberal world order run into so much trouble in so many countries so rapidly?

There are several reasons, but two stand out. The first is a tendency to apply short-term fixes to long-term problems. We knew quantitative easing and large fiscal stimulus together would eventually result in inflation. We did it anyway, and here we are. Inflation drives inequality. Rising economic and social inequality benefits extremist parties.

[See also: Like zombies, eurozone states are lurching towards their next financial emergency]

The second reason is the increasing use of economic, financial and political sanctions against autocratic regimes. The EU’s so-called rule-of-law sanctions are one example – in December the European Council voted to withhold €6.3bn in funding from Hungary. The problem is the EU is still dependent on Orbán for decisions that require unanimity, and he has been resisting EU sanctions against Russia.

But it is the sanctions imposed by the West against China that are now driving a wedge through our globalised world. The most extreme version is the US’s sanctions on third countries that do not comply with US policy. In order to comply with the US high-performance semiconductor ban, the Netherlands was recently forced to ban exports to China of lithography machines for chip production. The European Commission is also about to toughen its export regime to China. Led by the China hawks in the Biden administration, the Western world is stumbling into a commercial cold war with Beijing.

The business community in the US and Europe is absolutely not on-board for this existential fight. It takes years to build production lines, supply chains and distribution networks. Much of Western industry is heavily invested in China. The Mercedes CEO, Ola Källenius, has reminded us that 37 per cent of his company’s sales are in China. You can’t simply switch this off without huge economic consequences.

Herein lies the internal contradiction of the liberal globalist perspective. In our eagerness to defend liberal multilateralism, we ignore the sticky interdependencies our system has created. One person who personified that conflict was Angela Merkel. She was the quintessential globalist, once celebrated as the leader of the Western world. It was only towards the end of her reign that her fan-boys outside Germany realised her country had made itself dependent on Russia and China. To be able to prosper inside the system, liberals like Merkel needed to coddle dictators. When Olaf Scholz, her successor, sided with the US over Ukraine, Germany lost a business model in the process. There is a price for everything. I am not sure the German electorate is willing to pay that price.

The West still has formidable strengths: money, technology, defence. These may well help Ukraine in its battle against Putin. Even that is not certain. But we are not doing nearly so well in the much bigger, and much more existential battle – the one against Xi’s 100-year project.

[See also: The EU cannot afford to take sides in the contest between the US and China]

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This article appears in the 10 May 2023 issue of the New Statesman, What could go wrong?