Imaginary threats
David Dodwell says the world economy today is fraught with all manner of risk, but not the dangers that Washington is currently hallucinating about
The world of geopolitics is awash with talk of “de-risking” – a concept that seems as muddled as it is popular. Talk to any American politician, and “de-risking” is all about China. Talk to a German industrialist and it is more to do with electric cars, lithium batteries and reliance on Russian gas. For others, it is about supply chain vulnerabilities after the pandemic, or reducing global warming.
In reality, we are living in a profoundly risky world, and “de-risking” is a complicated business. No wonder some academics are talking about a world “polycrisis”.
It’s surely obvious that none of us can “de-risk” before we have audited the risks that surround us and decided which of them threaten us most.
The new Washington consensus seems to be that the existential danger on this Richter scale of risk is China. Not gun violence or a debt crisis; not the floods and wildfires fuelled by global warming. Just China – whether it is lithium or rare earths, TikTok or Chinese students at US universities.
All of which seems simplistic. It’s true that all of us – not just the United States – have over the past four decades of globalisation allowed ourselves to become heavily reliant on a breathtaking list of Chinese products, inevitable when China nowadays supplies a huge chunk of the world’s traded goods.
As Quartz recently reminded us, US consumers rely on China for 99 per cent of their electric blankets, 98 per cent of their collapsible umbrellas, 97 per cent of plastic flowers, 97 per cent of electric toasters and 95 per cent of their prams. But presumably these are dependencies most Americans can live with – unless they believe Chinese electric blankets contain chips that are tracking their sleeping patterns or sex lives.
Other dependencies are more troubling: the US relies on China for 90 per cent of its antibiotics. Much of the fentanyl at the heart of the US opioid crisis is thought to come from China. The US relies on China for the rare earths used to make the powerful magnets embedded in consumer products.
Worse is the perceived threat to the car industry from the dependence on electric vehicle batteries, and the ingredients needed to make them, including lithium and cobalt. Given the millions of jobs at stake, this is a vulnerability that also keeps Japanese and German carmakers awake at night.
But the “de-risking” lesson here must surely be to diversify sources, work on substitutes and simplify supply chains, ensuring resilience by stockpiling where needed.
If you look at what is clearly the world’s most vulnerable supply chain – that for chips – then the US may not be wrong to be worried about Chinese companies developing dual-use technologies using today’s tiniest and most powerful chips.
But surely the main risks lie elsewhere: that companies like Arm in the United Kingdom, Taiwan Semiconductor Manufacturing Company in Taiwan and ASML in the Netherlands have command over the design and manufacture of the most powerful chips, and the machines that print them; that a tiny group of companies in just six countries have dominant roles in the chip industry that would have anti-monopoly authorities pouncing into action if the relevant markets were national rather than global.
Those truly concerned about risks might think about internationally coordinated efforts to build a global competition authority to tackle unacceptable concentrations of market power, rather than simplistically pointing fingers at China.
A truly focused effort to mitigate the main risks that face us would also be drawing lessons from the pandemic and the dangers arising from climate change. It would be identifying the global collateral risks from financial sector dislocation.
It would mean recognising that grave threats emerge where you least expect them. Who would have thought that China’s high-speed rail network – at 42,000km by far the newest in the world – could be vulnerable to a crisis over sewage treatment facilities being overwhelmed? The stations simply don’t have the capacity to deal with all the human waste being discharged during the trains’ stops.
Those genuinely focused on reducing risk should also be concerned that the protectionism and unilateralism at the heart of the current US preoccupation with “de-risking” contain serious risks of their own, with tariffs, reduced international competition and export barriers threatening the future competitiveness of domestic businesses.
By obsessing over a single risk which is far from the most threatening for many governments, the US is not only doing a disservice to the world. It is making an enemy of a country that has none of the malign motivations being hallucinated in Washington. It is weakening the global economy when it is already weak. And it is distracting attention from truly existential dangers like climate change. Defining “de-risking” is a messy business.