Dollar centrality caps all global conflict AND prevents great power war with Russia and China

Geopolitics is dead. Long live geoeconomics. Since the turn of the millennium, the geoeconomics of sanctions and sweeteners has slowly been replacing the geopolitics of diplomacy and war. With U.S. forces actively engaged across a wide swath of Africa and the Middle East, the transition from geopolitics to geoeconomics may not seem all that obvious. But on closer inspection, it becomes clear that military intervention these days is limited to places that lack functioning economies that can be effectively sanctioned. Most of the world, and all of the economically productive world, lies in the sphere of geoeconomics.

That economically productive section of the world, spanning the Atlantic and Pacific basins with North America at its center, incorporates more than 80 percent of global GDP into an interwoven fabric of transnational production networks. In this zone of integration, outright war is obsolete as a tool of foreign policy. Those who suggest that the “great powers” of today might repeat the mistakes of 1914 and stumble into war fail to understand that 21st century economic integration is much deeper than the international trade of the early 20th century. It’s hard to imagine China invading Taiwan when Taiwanese firms employ more than 15 million people in China itself.

The U.S. still maintains by far the most powerful—and most expensive—military force in the world. China will find it very difficult to catch up, even more so as its economic growth slows. But military power is less and less the main source of American influence in the world. If the U.S. was the preeminent geopolitical power of the 20th century, it is the geoeconomic behemoth of the 21st. The U.S. may account for a declining share of global GDP, but its corporations increasingly dominate global value chains and its institutions hold overwhelming sway at international forums. Just as important, the U.S. is at the center of the financial, technological, educational and other networks that form the backbone of the 21st-century global economy.

The centrality of the U.S. in the 21st-century economy makes it a new kind of sanctions superpower.

Geoeconomic power is generated more by centrality than by sheer size, and the centrality of the U.S. in the 21st-century economy makes it a new kind of sanctions superpower. Few people are even aware of EU sanctions that are not part of larger American-coordinated efforts. Countries don’t worry much about being the target of Russian economic sanctions, and China tends to offer economic carrots rather than punish with economic sticks. The EU, Russia and China all have some geoeconomic power, but only the U.S. has the power to exclude individuals, firms or even entire countries from participation in the larger global economy. In the realm of geoeconomics, the U.S. isn’t just a major player, or even the lone superpower. Quite simply, it exercises many of the functions of a global government.

The New Middle Kingdom

The U.S. is in effect the spider at the center of the web of the integrated global economy. This position makes it disproportionately influential and by far the most powerful player in the new great power game of geoeconomics. The dominance of the U.S. dollar is well known, and the global financial system has been centered on the U.S. since the end of World War I, when France, Germany and the United Kingdom all found themselves financially dependent on New York, America’s financial capital. But today the virtual infrastructure of the internet, operating systems, app stores and the entire online economy is also centered on the U.S., as are the worlds of higher education, science, medicine, publishing, business services and a host of other “post-industrial” industries.

From Asia to Europe, the giants of China, Japan and Germany also host key nodes in the 21st-century economy, but American firms and institutions predominate because they occupy leading positions not just in one or two fields, but in nearly every field simultaneously. This generates network effects that multiply American influence. What’s more, many of the leading firms and institutions that are not American are based in countries that are closely allied to the United States. Twenty-two of the 28 EU member states are also members of NATO; Canada, Australia, Japan and South Korea are all close U.S. allies; Taiwan is in effect a U.S. protectorate.

The world’s only major economic power that is not a U.S. ally is China, but China is highly dependent on investment from and exports to the U.S. and its allies. Many of the most productive and profitable niches in China’s own economy are foreign-owned, with China’s moribund state-owned enterprises claiming the majority of what remains. Even China’s world-class internet companies are locked into an American-managed industrial infrastructure. Google search may be blocked in China, but 99 percent of Chinese mobile phones run Google’s Android or Apple’s iOS operating system.

The centrality of the U.S. in what has been called the “zone of integration” created by the globalization of the world’s economy is a new phenomenon, but it’s not unprecedented. In the premodern era, before the emergence of a single global economy, the world was fragmented into separate regional economies. One of those regional economies was the East Asian economy centered on China. The English word for China descends from the ancient Roman and Greek name, “Sinae,” or the “the land of the Qin,” named for China’s founding Qin Dynasty (221-206 B.C.). But in Chinese, China is simply Zhongguo, the “Central State” or, more poetically, the “Middle Kingdom.” Premodern China was always at the center of its own world.

In all the other major languages of East Asia, China is also called by some variant of Zhongguo. Some other countries even defined themselves in relation to China. Japan is the “land of the rising sun”—as seen from China. The “nam” in Vietnam means “south,” placing Vietnam to the south of China. Japan and Vietnam, along with Korea, Mongolia, Tibet and much of Southeast Asia, once formed an integrated economic region centered on China. The Chinese name for this area, which represented the world as seen from China, was tianxia, meaning “sky-encompassed” or “all under heaven.”

By the time of the Ming Dynasty (A.D. 1363-1644), the Chinese tianxia was an integrated economic zone covering all of East Asia and extending at times into the Indian Ocean as far west as Somalia and Tanzania. This precursor to globalization with China at the center was the historical inspiration for Chinese President Xi Jinping’s One Belt, One Road initiative, known as OBOR. The two components of OBOR—the Silk Road Economic Belt and the 21st-Century Maritime Silk Road—are explicitly designed to put China back at the economic center of the Afro-Eurasian landmass. The Chinese government clearly appreciates the geoeconomic value of centrality.

The problem for China is that although the OBOR strategy of “build it and they will come” might work for the physical infrastructure of ports and railways, it is not an effective way to improve China’s position in the virtual infrastructure of the 21st-century economy. Centrality in human networks depends very little on physical connectivity. China can send all the rail cars in the world chugging across Central Asia to Western Europe, but it won’t change the fact that Western Europeans are more likely to use Facebook than WeChat—and more likely to educate their children in North America than in China.

The fact that Chinese parents are themselves beating down the doors to educate—and even give birth to—their children in North America makes the prospect of a new Chinese tianxia even more remote. Instead, as Chinese individuals seek out the most advantageous positions for themselves and their families in global economic networks, they reinforce the centrality of the U.S. in those networks. As a result, the U.S. is becoming a kind of new Middle Kingdom of what might be called an American Tianxia. The emerging American Tianxia is very different in language, culture and politics from the old Chinese tianxia, but it does share one crucial trait: the leveraging of network centrality into world-spanning geoeconomic power.

The Zone of Irrelevance

The historian Wang Gungwu, writing in 2013, was the first to suggest that the Chinese term tianxia might be applied to today’s American-centered world. He described the word tianxia as depicting “an enlightened realm that Confucian thinkers and mandarins raised to one of universal values that determined who was civilized and who was not” and suggested that today’s American Tianxia performs the same function. Replace “Confucian thinkers and mandarins” with “political pundits and NGOs” and you get the point.

The globalized people who participate in the networks of the American Tianxia—the journalists, think tankers, businesspeople, academics and other opinion leaders who are much more closely tied to the U.S. than to, say, Syria or North Korea—get to mold the image of nations and their leaders, with clear results. It’s no mystery what they think of Assad, Kim Jong Un or Abu Bakr al-Baghdadi—or even Vladimir Putin and Recep Tayyip Erdogan, who are skating on thin ice. By contrast, Saudi and Emirati attempts to stigmatize Qatar have fallen flat, since Qatar is in many ways the most liberal of the Gulf states. And with a reported 11,000 U.S. military personnel based in Qatar, it is unlikely that the U.S. would ever bring its full geoeconomic power to bear against the Qatari government. Reversing his initial condemnation of Qatar, even U.S. President Donald Trump is now offering to mediate the dispute.

China can send all the rail cars in the world chugging toward Western Europe, but it won’t change the fact that Europeans are more likely to use Facebook than WeChat.

The world may seem to be awash in conflict today, but terrible as those wars may be, they are concentrated in countries that are peripheral to the larger global economy. Conflict hotspots like Syria, Afghanistan, South Sudan, Ukraine, Myanmar and Yemen are only tenuously connected to the outside world and are completely excluded from sophisticated global production networks. They form what from a geopolitical perspective has been called the “zone of intervention” but which from a geoeconomic perspective might just as well be called the “zone of irrelevance.” Who wins these wars may make an enormous difference to the people who live in the countries affected, but it will have no meaningful impact on the larger global economy.

Geoeconomic stigmatization via the imposition of economic sanctions is also focused on countries that are relatively isolated from global economic networks. Autarkic Russia is routinely criticized for its democratic failures, yet globally networked China is not a democracy at all. It is perhaps no coincidence that while it costs the U.S. very little to sanction Russia, it would cost a fortune to sanction China. The distinction between civilization and barbarism in the American Tianxia may be based on the acceptance of universal values, but it is mainly American pundits and NGOs who make the distinction, and these days they’re much better networked with China than with Russia. As a result, China tends to get a pass from the Western expert class, at least for now. Russia does not.

The few remaining “hot” conflicts or crises that affect economically consequential areas of the world, like the ones in Iraq and North Korea, are legacies of 20th-century geopolitics. They also involve countries that are not themselves integrated into 21st-century value chains. Iraq may be oil-rich and North Korea surrounded by advanced economies, but neither is itself very well networked economically. Their very irrelevance, ironically, limits their susceptibility to geoeconomic pressure. Islamic State forces in Iraq must be confronted by military power precisely because they have no formal economy to govern, even if they have overseen a black market for oil. North Korea is similarly relatively immune to sanctions because its economy is so meager.

China is particularly careful to keep its geopolitical conflict zones clear of geoeconomic entanglements. China has broadly supported the U.S. in applying economic sanctions on North Korea because China no longer has any geopolitical use for North Korea. By contrast, in the South China Sea, where China does have geopolitical interests, it ensures that these do not interfere with the smooth functioning of important economic systems. It may be true that one-third of global ocean trade passes through the South China Sea, but it is less often pointed out that most of that trade is China’s. Thus China speaks loudly but carries a small stick when it comes to the possibility of real conflict in the South China Sea.

China’s recently resolved Doklam Plateau standoff on its border with India and Bhutan similarly illustrates China’s separation of geopolitics from economics. The Doklam Plateau is almost literally in the middle of nowhere. China’s road-building there was in many ways similar to its island-building in the South China Sea. Both represent the development of infrastructure in remote locations in order to establish a permanent Chinese presence in previously unoccupied territories. They are bold geopolitical provocations, but they are geoeconomically irrelevant. With China, as in the rest of the world, geopolitical conflicts are confined to the zone of irrelevance. In the parts of the world that matter, geoeconomics is the order of the day.

Belts and BRICS

With its OBOR initiative, China is at the forefront of moving from geopolitics to geoeconomics as the basis of its foreign relations. Unlike in the Doklam and the South China Sea, China has no territorial ambitions along its belt and road routes. Instead, it seeks to leverage economic statecraft for political gain. For example, not long after Chinese state-owned shipping company COSCO made a major investment in Athens’ port of Piraeus, the Greek government blocked an EU effort to criticize China’s human rights record. Similarly, at China’s behest the Dalai Lama has repeatedly been denied a visa to enter South Africa. South Africa is a major beneficiary of Chinese largesse that has gained entry into the BRICS summit club—joining Brazil, Russia, India and China—entirely at China’s behest.

The problem for China is that it does not control access to major global networks that people value for their own sake. As a result, China’s geoeconomic checkbook diplomacy is fundamentally transactional. This is very different from the classical Chinese tianxia, under which the countries of East Asia valued access to China’s learning, technology and unique products and thus were willing to accept the trappings of nominal Chinese suzerainty in exchange for the privilege of trading with China. In the old tianxia, China was the center of the world and could use that position to its advantage. In the new geoeconomics, China must pay full price to meet its foreign policy goals.

In its exercise of geoeconomic power, China rewards while the U.S. punishes.

The most recent BRICS summit in early September is a case in point. Just a week before the opening of the summit in Xiamen, in eastern China’s Fujian province, Chinese and Indian troops were facing off on the remote Doklam Plateau 1,700 miles to the west. But Xi presumably didn’t want to see the crisis disrupt an economic summit on his own home turf; early in his career he had served as deputy mayor of Xiamen and governor of Fujian. So he bought India off with a geopolitical withdrawal in order to meet his geoeconomic goals.

China can afford its many geoeconomic initiatives—the BRICS-sponsored New Development Bank, its own Asian Infrastructure Investment Bank, multiple OBOR initiatives, diplomatic offensives to isolate Taiwan—but the fact that it has to pay for them underlines the point that for China, geoeconomics is a costly game. China has to buy its friends. The U.S., by contrast, gets its friends for free. People are even willing to pay to join the U.S. “club,” as when countries buy U.S. airplanes or military hardware as the price of U.S. friendship.

In its exercise of geoeconomic power, China rewards while the U.S. punishes. That’s because the U.S. is in the enviable position that mere access to its geoeconomic infrastructure is valuable in itself. Countries are not paying China for the privilege of joining OBOR; China is paying them to join. China has effectively paid India to keep quiet and stay in the BRICS, paid Greece to plead its case at the EU, and paid dozens of African countries to allow Chinese state-owned firms to build infrastructure at below-cost rates. China even donated a new headquarters building for the African Union—and sent a Chinese crew to Addis Ababa to build it.

By contrast, more than a million international students—nearly a third of them Chinese—pay to study in the U.S., subsidizing American colleges while absorbing American values. More than 500 foreign companies are listed on the New York Stock Exchange, subjecting themselves to U.S. government oversight, and the U.S. dollar is on one side of the deal in 88 percent of all international currency transactions. The whole world relies on the American-dominated internet, the American-provided Global Positioning System (GPS) and American-owned computer and mobile phone operating systems. It is difficult to do business of any kind in today’s integrated economy without using U.S.-linked systems of one kind or another, which is why the U.S. is uniquely powerful in the imposition of economic sanctions.

Geoeconomics isn’t everything, and sanctions may not be able to solve all of the world’s geopolitical crises. Sometimes boots on the ground and missiles in the air are the only ways to achieve important policy and humanitarian goals. But geoeconomics is increasingly important, and in that realm, the U.S. is vastly more powerful today than postwar America was in its Cold War heyday. It is worth remembering that the U.S. at its geopolitical zenith struggled to contain an impoverished China in the Korean War and failed to contain an impoverished North Vietnam in Southeast Asia. Today, geoeconomic centrality gives the U.S. much more power to influence the policies and behaviors of other countries than military force ever did. Hegemony is dead. Long live centrality.