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Energy & Economics
Emblems of European Union and China

How might China hit back over the EU’s electric vehicle anti-subsidy investigation?

by Alicia García Herrero

China’s silence towards the European Union’s electric vehicle probe could mean that a more harmful retaliation is on its way During her State of the Union address on 13 September, European Commission President Ursula von der Leyen announced that the European Union would undertake an anti-subsidy probe against the Chinese electric vehicle (EV) sector. This signalled a major step in the EU’s shift to a more aggressive trade defence against China and raises the question of how China will react, given the importance of the Chinese market to key sectors of the European economy (including the auto and luxury sectors), and also given China’s crucial role in providing goods to the EU for the green transition? An EU-China High Economic and Trade dialogue on 25 September in Beijing, between EU Trade Commissioner Valdis Dombrovskis and his Chinese counterparts, may have given a glimpse into China’s mindset. There were fears Chinese officials would respond aggressively to von der Leyen’s announcement during Dombrovskis’s visit but this was not the case. Nevertheless, the silence may be deceptive. Three main factors should be taken into account when considering potential Chinese retaliation. Subtle but harmful retaliation First, China might file its own anti-subsidy investigation at the World Trade Organisation against key European sectors. This would not be difficult since Europe has ramped up its subsidies massively since the pandemic, and more recently has attempted to gain more ‘strategic autonomy’ in sectors including semiconductors. There is very little the EU can do about this potential retaliation, which would be costly for the sectors targeted and for the EU’s image as a free-trade and WTO champion. Second, China could try to persuade EU governments that the Commission-led investigation should be withdrawn. A similar probe happened in early 2014, when the EU launched an anti-subsidy investigation into solar panels produced in China. President Xi Jinping visited then Chancellor Angela Merkel right after the anti-subsidy investigation was announced. Subsequently, the issue was settled quickly, with the Commission withdrawing the case from the WTO. Based on this previous experience, China might prefer to take up the issue bilaterally, possibly with Germany again, rather than enter discussions with the Commission. But a major difference this time is the relative importance of the auto sector in the EU compared to solar power. The auto sector accounts for 14 million jobs in Europe and a good part of the EU’s exports. Exports of cars and components are heavily concentrated in a few EU countries, especially Germany. These exports to China have plummeted in 2023, with a close to 30% drop, and Chinese competition in third markets and even the EU market, has become much more intense. Third, also unlike the solar-panel probe, it is the Commission and not the sector being harmed that has filed the case. It will be harder for the Commission to withdraw the investigation because it would lose credibility. Merkel decided to accommodate Xi Jinping’s request in 2014 because she wanted to save the auto sector, even at the cost of hurting a smaller part of the German economy – the solar panel companies. The new investigation aims to protect the automotive sector. There could be consequences for major European auto companies producing electric vehicles in China, but jobs in Europe are now more important than the future of those companies in China. In any case, the future of European manufacturers is bleak; they seem to have already lost the EV race to their Chinese competitors. China will find it much harder to move the EU away from its decision to pursue an anti-subsidy investigation, differently to what happened in 2014. Lessons to learn There might be a lesson for Europe in what happened to Apple in China in September. Days before Apple’s launch of its new iPhone 15, Huawei launched its Mate 60 with upgraded functionalities which require high-end semiconductors. Beyond raising doubts about the effectiveness of US-led export controls on advanced semiconductors, this announcement constituted a direct challenge to Apple’s phone sales in China. Chinese officials were also prohibited from using iPhones and rumours spread in Chinese media in advance of the Apple launch about the underwhelming quality of the iPhone 15. Investors dumped Apple stock globally and the company lost about 6% of its value in a few days. China’s retaliation against the Commission’s anti-subsidy investigation might not be as direct and transparent, but it will still be harmful and might offer less room for the EU to respond. Europe’s strategic dependence on China is greater than in 2014 and this probe has the potential to cause a bigger fall-out for the EU. China has strengthened its position as a global power and uncompetitive behaviour could hit European core sectors harder because China has more power to retaliate. On the flip side, the stakes are higher for the EU given the importance of the auto sector in terms of jobs and exports. For that reason, China may not manage to deter the EU’s investigation as easily as it did in the past. But this may prompt China to threaten even larger retaliation.

Energy & Economics
Emblems of European Union and China

How might China hit back over the EU’s electric vehicle anti-subsidy investigation?

by Alicia García Herrero

China’s silence towards the European Union’s electric vehicle probe could mean that a more harmful retaliation is on its way During her State of the Union address on 13 September, European Commission President Ursula von der Leyen announced that the European Union would undertake an anti-subsidy probe against the Chinese electric vehicle (EV) sector. This signalled a major step in the EU’s shift to a more aggressive trade defence against China and raises the question of how China will react, given the importance of the Chinese market to key sectors of the European economy (including the auto and luxury sectors), and also given China’s crucial role in providing goods to the EU for the green transition? An EU-China High Economic and Trade dialogue on 25 September in Beijing, between EU Trade Commissioner Valdis Dombrovskis and his Chinese counterparts, may have given a glimpse into China’s mindset. There were fears Chinese officials would respond aggressively to von der Leyen’s announcement during Dombrovskis’s visit but this was not the case. Nevertheless, the silence may be deceptive. Three main factors should be taken into account when considering potential Chinese retaliation. Subtle but harmful retaliation First, China might file its own anti-subsidy investigation at the World Trade Organisation against key European sectors. This would not be difficult since Europe has ramped up its subsidies massively since the pandemic, and more recently has attempted to gain more ‘strategic autonomy’ in sectors including semiconductors. There is very little the EU can do about this potential retaliation, which would be costly for the sectors targeted and for the EU’s image as a free-trade and WTO champion. Second, China could try to persuade EU governments that the Commission-led investigation should be withdrawn. A similar probe happened in early 2014, when the EU launched an anti-subsidy investigation into solar panels produced in China. President Xi Jinping visited then Chancellor Angela Merkel right after the anti-subsidy investigation was announced. Subsequently, the issue was settled quickly, with the Commission withdrawing the case from the WTO. Based on this previous experience, China might prefer to take up the issue bilaterally, possibly with Germany again, rather than enter discussions with the Commission. But a major difference this time is the relative importance of the auto sector in the EU compared to solar power. The auto sector accounts for 14 million jobs in Europe and a good part of the EU’s exports. Exports of cars and components are heavily concentrated in a few EU countries, especially Germany. These exports to China have plummeted in 2023, with a close to 30% drop, and Chinese competition in third markets and even the EU market, has become much more intense. Third, also unlike the solar-panel probe, it is the Commission and not the sector being harmed that has filed the case. It will be harder for the Commission to withdraw the investigation because it would lose credibility. Merkel decided to accommodate Xi Jinping’s request in 2014 because she wanted to save the auto sector, even at the cost of hurting a smaller part of the German economy – the solar panel companies. The new investigation aims to protect the automotive sector. There could be consequences for major European auto companies producing electric vehicles in China, but jobs in Europe are now more important than the future of those companies in China. In any case, the future of European manufacturers is bleak; they seem to have already lost the EV race to their Chinese competitors. China will find it much harder to move the EU away from its decision to pursue an anti-subsidy investigation, differently to what happened in 2014. Lessons to learn There might be a lesson for Europe in what happened to Apple in China in September. Days before Apple’s launch of its new iPhone 15, Huawei launched its Mate 60 with upgraded functionalities which require high-end semiconductors. Beyond raising doubts about the effectiveness of US-led export controls on advanced semiconductors, this announcement constituted a direct challenge to Apple’s phone sales in China. Chinese officials were also prohibited from using iPhones and rumours spread in Chinese media in advance of the Apple launch about the underwhelming quality of the iPhone 15. Investors dumped Apple stock globally and the company lost about 6% of its value in a few days. China’s retaliation against the Commission’s anti-subsidy investigation might not be as direct and transparent, but it will still be harmful and might offer less room for the EU to respond. Europe’s strategic dependence on China is greater than in 2014 and this probe has the potential to cause a bigger fall-out for the EU. China has strengthened its position as a global power and uncompetitive behaviour could hit European core sectors harder because China has more power to retaliate. On the flip side, the stakes are higher for the EU given the importance of the auto sector in terms of jobs and exports. For that reason, China may not manage to deter the EU’s investigation as easily as it did in the past. But this may prompt China to threaten even larger retaliation.

Energy & Economics
EURO vs. Yuan. European and Chinese flags

Overcoming an EU-China trade and trust deficit

by Shairee Malhotra

Beijing seeks normalisation of ties with Europe; however, for Brussels, reconciliation will be conditional on Beijing’s willingness to address fundamental divergences On 7-8 December, European Commission President von der Leyen and European Council President Charles Michel will be in Beijing for the 24th European Union (EU)-China summit, but the first in-person one in four years, taking place at a critical juncture in EU-China ties. At the previous EU-China virtual summit in April 2022, the Ukraine conflict was the primary talking point for the Europeans and other issues such as climate and economics were relegated to the back burner. This time, the focus is likely to be economics. A relatively constructive meeting between United States (US) President Joe Biden and Chinese President Xi Jinping on 15 November, which led to the resumption of US-China high-level military dialogue and Xi’s assurances on Taiwan, has contributed to paving the way for the EU to focus on ironing out economic irritants. Deficits, dependencies and de-risking With daily EU-China trade amounting to 2.2 billion euros, the EU is concerned about its widening goods trade deficit with China—400 billion euros in 2022—referred to by EU Ambassador to China, Jorge Toledo, as the “highest in the history of mankind”. In the context of China’s restrictive environment for foreign companies, the EU is keen for a level playing field and greater reciprocity in trade. Another major area of contention is Chinese overcapacity through subsidies in key industrial export sectors such as electric vehicles (EVs) that are undermining European automotive industries. The European Commission has already launched a probe for the EVs sector and is now considering other major sectors including wind energy and medical devices. In addition, Europe is heavily dependent on critical raw materials such as lithium and gallium from China, which are intrinsic to its green transition. While over 90 percent of the EU’s supply of raw materials comes from China, the EU aims to address this dependency through its Critical Raw Materials Act. Factors such as Chinese aggression in the South China Sea, human rights violations in Xinjiang, and pandemic-era supply chain disruptions have deteriorated European perceptions of China. The downswing in EU-China ties was further accentuated by Beijing’s posture in the Russia-Ukraine conflict and the failure of European leaders to coax China to positively use its influence with the EU’s most immediate security threat, Moscow. Thus, a major trust deficit has accompanied the trade deficit. On 6 November, only a month before the summit, von der Leyen in her speech warned against “China’s changing global posture” with its “strong push to make China less dependent on the world and the world more dependent on China”. While acknowledging China as Europe’s most important trading partner, she emphasised the “explicit element of rivalry” in the relationship. Another dialogue of the deaf? The EU and its member states are recalibrating their China policies, with countries such as Germany even releasing China-specific documents outlining their approach. The EU’s “de-risking” strategy aims to reduce dependencies in critical sectors, and through an expansion of its policy toolbox, the Union is implementing a range of measures including greater scrutiny of inbound-outbound foreign investments, anti-coercion instruments, and export controls for dual-purpose technologies. In this context of an evolving European approach, the upcoming summit is a much-anticipated one for EU-China watchers. Despite the strain in relations, high-level diplomatic exchanges have continued in full swing, many of which, such as von der Leyen’s visit to China in April, EU Trade Commissioner Valdis Dombrovskis’s visit in September, and EU Foreign Policy Chief Josep Borrell’s visit in October were conducted in preparation for this summit. A sluggish Chinese economy gives Europe room to wield its economic leverage. However, grey areas in Europe’s China policy remain, especially with regard to the implementation of measures and the need for more effective coordination, often compromised by a lack of unity amongst member states and tendencies of leaders such as French President Emmanuel Macron and German Chancellor Olaf Scholz to prioritise business interests over all else. Thus, straddling the fine balance between economic opportunities and security risks will continue to be a test for how Europe manages its interdependence with the lucrative Chinese market. Previous EU-China summits have not produced a joint statement, and according to sources, this summit is unlikely to produce one as well. Yet it is an opportunity for the EU to put forward unresolved concerns and forge some common ground. Without concrete deliverables, the upcoming summit risks being another “dialogue of the deaf” as Borrell famously described the previous one. Amidst renewed transatlantic solidarity, Beijing’s rhetoric indicates that it seeks normalisation of ties with Europe and a more independent European policy towards China away from Washington’s influence. Yet for Brussels, reconciliation will be conditional on Beijing’s willingness to address fundamental divergences.

Energy & Economics
Chinese Yuan on the map of South America. Trade between China and Latin American countries, economy and investment

Ahead of the curve: Why the EU and US risk falling behind China in Latin America

by Ángel Melguizo , Margaret Myers

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском As Beijing’s investment approach to Latin America focuses on industries of strategic importance, the EU and US will need to contend with growing Chinese competition China is pouring less foreign direct investment (FDI) into Latin America. But while this may seem like a sign of Beijing’s disinterest in the region, data suggests that Chinese companies are simply recalibrating, not retreating. In doing so, they are becoming important players in sectors key to Western interests: critical minerals, fintech, electric vehicles, and green energy. While the European Union and the United States have long been top investors in Latin America, increased competition with Chinese investment now jeopardises their interests in the Latin American industries that will become most crucial to the digital and green transitions. The number of Chinese projects in Latin America grew by 33 per cent from 2018-2023, compared with the previous five-year period of 2013-2017, even as the total value declined. In other words, Chinese companies are making more investments in the region but are pursuing smaller-scale projects on average. These investments are also more focused on what China calls “new infrastructure“ (新基建), a term which encompasses telecommunications, fintech, renewable energy, and other innovation-related industries. In 2022, 60 per cent of China’s investments were in these frontier sectors, a key economic priority for the country. Beijing also views smaller projects in these industries as incurring less operational and reputational risk, especially compared to some of the large-scale infrastructure investment projects often associated with the Belt and Road initiative. Like China, the investment priorities of the G7 grouping – particularly the US and the EU – are centring on critical minerals, fintech, electric vehicles, and green energy as they aim to grow and reinforce existing economic and political partnerships in Latin America. However, both the US and the EU risk falling short of China’s investment strategy in the region. The US has signalled want for greater economic engagement with the region, especially in sectors of strategic interest. However, to date, US efforts to compete with China remain largely focused on building US domestic capacity in these strategic sectors, even as some US companies, such as Intel, are increasingly focused on including regional partners in their supply chains. Some see opportunity for Latin America in Joe Biden’s landmark legislation, the Inflation Reduction Act (IRA), which is aimed at incentivising the energy transition while also de-risking critical supply chains. For example, certain countries in the region may benefit from preferential market access for their lithium or other key inputs to new energy and technology supply chains. However, the reach of the IRA – which remains a largely domestic policy – does not stretch as far as China’s current investment reshuffle. The Americas Act, announced by members of Congress in March could generate promising new investment opportunities for the region, as it encourages US companies and others to move their operations out of China, to which Latin America stands as a promising replacement. But Americas Act reshoring would primarily incentivise textiles and potentially medical equipment manufacturing, with less overall focus on the range of “new infrastructure” industries that China is prioritising. Chinese interests in information and communication technologies reveal a similar story. While the US has focused its policy on 5G equipment sales, China is undertaking a process of vertical integration in Latin American tech sectors that will dramatically boost its competitiveness. For instance, Chinese company Huawei is rapidly expanding its focus to include data centres, cloud computing, cybersecurity, and other services, especially in Argentina, Brazil, Chile, Colombia, Mexico, and Peru. (Computing accounted for a sizable 41 per cent of total Chinese information technology investment in the region between 2018 and the first half of 2023.) At the same time, Global Gateway, the EU’s proposal for a global investment initiative is yet to reach its potential in the region. Brussels is looking to be Latin America’s partner of choice by building local capacity for making batteries and final products like electric vehicles, as European Commission president Ursula von der Leyen noted last year. Yet even as the EU signals renewed commitment, China is becoming increasingly dominant in the electric vehicle market in Latin America and other regions. China surpassed the US in electric vehicle sales in 2023, with Chinese companies accounting for 45 per cent of total global sales and three times that of Germany’s. What is more, China has invested $11 billion in lithium extraction in the region since 2018, as part of a bid to control a third of global lithium-mine production capacity. Meanwhile the EU has secured some access to lithium as part of trade deals with Chile, alongside other nations, but this pales in comparison to what will be required to fuel the future of EU battery production. Latin America as a whole accounts for an estimated 60 per cent of the world’s lithium reserves. Based on its current levels of engagement in the region, the EU risks falling short of lithium, stalling its battery production and subsequently, its electric vehicle sales, just as China advances in this field. The window is closing for the EU, the US, and other partners looking to both maintain market share and compete with China in these Latin American industries, despite still-high rates of US and EU investment in and trade with the region. Indeed, US automakers increasingly see Chinese competition across the globe as an “extinction-level event.” Ensuring competitiveness in “new infrastructure” and related sectors will require a continuous commitment by partners to building and supporting project pipelines, and to delivering products and services at price points that can compete with China’s subsidised offerings. Both the EU and the US remain critical economic partners for Latin America and are contributing in ways that China is not. Still, complacency risks allowing China to take the lead in emerging industries in the region, some of which weigh heavily in the EU’s green and digital transformation. To protect their own future industries, the EU and the US need to first take a longer look at Latin America’s – especially as China vies for a dominant position.

Energy & Economics
USA and China trade war concept. suitable also as South China Sea conflict

Are tariffs, of all things, the salvation of free trade?

by Jan Cernicky

한국어로 읽기Leer en españolIn Deutsch lesen Gap اقرأ بالعربيةLire en françaisЧитать на русском We can talk about selective tariffs - but not about protective tariffs - Concerns about the effects of economic dependencies are increasingly overshadowing the benefits of open global trade. - In the current geopolitically charged situation, there may be situations in which trade policy dependencies - for example in the case of rare earths - can be mitigated by state intervention. - In such cases, selective tariffs are the best choice. Subsidies to build up own production capacities are significantly less efficient, more expensive and undermine the market principle. - Protective tariffs for industries whose products are sufficiently available on the global market, such as the automotive and steel industries, should be rejected. - The fundamental goal should be the preservation of rule-based world trade in accordance with WTO rules. Any kind of state intervention must be justified on the basis of solid data. Background During Chinese party leader Xi Jinping's visit to Europe in May, there was once again a lot of talk about economic dependencies. They are seen as a threat to the "economic security" of Germany and Europe. What often seems to fade into the background is that the arguments for a global division of labor remain valid: it enables general prosperity precisely because certain countries and regions concentrate on the production of individual goods and consequently do not produce others themselves. On the other hand, it is also true that the economic damage more than compensates for these advantages if a state such as China uses economic dependencies as political leverage and, in the worst case, stops supplying goods for which it has a monopoly. In principle, China has achieved such a monopoly for refined rare earths and some other smelted metals.1 However, this clearly does not apply to electric cars, steel or solar cells. The reason for such quasi-monopolies is simple: Chinese companies export the products in question so cheaply that production elsewhere in the world is not worthwhile. If this were solely due to the fact that Chinese companies produce better, the only correct response would be to roll up our sleeves and become better ourselves. In the case of rare earths from China, however, the advantage of Chinese manufacturers is largely due to direct and indirect subsidies. In such an environment, in which Chinese producers have massive cost advantages due to politically granted benefits, it is not worthwhile for private companies outside China to build up their own capacities for the production of rare earths, for example. Even if prices were to rise and economic production were possible, this would not be rational; state-supported Chinese companies can easily survive periods of low prices. The usual market mechanism, whereby companies with the most competitive solutions survive, does not apply here. Even technologically superior production methods do not prevail due to Chinese subsidies. Possible reactions The best economic solution is undoubtedly for the state not to react at all and to see the availability of very cheap products that are available for domestic consumption or for further processing as an advantage. The fact that the products in question have been made cheaper by Chinese taxpayers' money can be gratefully accepted. It would be a genuine and courageous system competition not to respond with the same instruments, but to maintain a market economy system and thus exploit the weaknesses of the counter-design. Shaping the economic framework conditions politically in such a way that innovations that provide alternatives to the use of the raw materials in question can be developed more easily would be a reaction that is still justifiable within the framework of the social market economy. This would be, for example, favorable recycling processes. In most cases, such innovations are possible. However, their introduction and application is significantly more expensive than importing standard products from China. If dependence on China is really not justifiable in individual cases,2 there are two possibilities for state intervention in the form of subsidies or tariffs, which may be justifiable in rare individual cases, but are not provided for within the framework of the World Trade Organization (WTO). Important indicators for the assessment of dependencies are, for example, the lack of substitutability of the imported good, the degree of concentration of supply in a country and the relevance of the good in question for the domestic economy. However, state intervention to protect domestic production sites, such as is being discussed for electric cars or steel, appears to be explicitly unjustifiable. There is a sufficiently diversified supply of such products on the global market and there is no dependency on just one country. Economic effects of tariffs and subsidies Tariffs and subsidies both aim to compensate for the price difference to cheaper foreign competitors. Tariffs make imports more expensive, while subsidies make domestic production cheaper through state subsidies. Both have a negative welfare effect, but the correlation is more harmful in the case of subsidies. Figure 1 uses a schematic example, which is not based on empirical data, to illustrate the effect if the costs of producing rare earths in Germany were reduced to the level of the import price from China (country 1) through subsidies.   With the subsidies, it is now economically viable for the subsidized companies to produce the rare earths from ore in Germany. The actually cheaper ways of importing rare earths from alternative countries or using other technical solutions remain more expensive and would hardly be used. The goal of reducing dependencies would therefore be achieved in a very expensive way. Large sums of taxpayers' money would be spent on this. In this example, the most expensive possible route is discussed in order to clearly demonstrate the negative consequences. In reality, however, it is very unlikely that the cheapest route in economic terms will be subsidized. This is because there are always many different providers and technical solutions, which means that all the options are often not even known or can only develop in the long term. It is therefore very unlikely that the optimal subsidy recipients will be selected. A benefit is created for a specific, relatively arbitrarily selected application, but not for others. The effectiveness of the market is thus distorted and the competitiveness of the location decreases as a result. As the subsidies compensate for a competitive disadvantage, it is unlikely that high additional tax revenues will be generated. The funds spent are no longer available for other state investments. The result is a loss of welfare on this scale. Only the subsidized companies benefit from this. The price at which rare earths can be purchased in Germany does not change. It is also possible to subsidize production abroad in order to reduce dependence on one country. Such models are being attempted via "raw material partnerships", for example. Such an approach can be significantly cheaper than subsidizing domestic production. In the example (Figure 1), only the significantly lower import price from country 2 would have to be subsidized. However, the other disadvantages of subsidies listed above also apply in this case. In particular, it is even more difficult to obtain all the necessary information for projects abroad and therefore even less likely to choose the most cost-effective option. The targeted tariffs discussed here are intended to respond to dependencies on supplies from a specific country. They are therefore only imposed on imports from this country. Other imports are not affected. To stay with the example, the importer pays a surcharge on the imported rare earths. This makes his product, for which he processes rare earths, more expensive domestically. Manufacturers abroad who are not affected by the duty become more competitive in comparison.    If the tariff rate were set in the same way as above so that the competitive disadvantage for the most expensive option - metal processing in Germany - is compensated for in terms of price, the tariff rate on imports from China would be very high. However, consumers of rare earths in Germany would still have access to the significantly cheaper other options. Metal processing in Germany would therefore remain unprofitable, while imports - now no longer from China, but from country 2 - would continue to be significantly cheaper. However, the price difference to the cheapest processing variant in Germany, in the example (Figure 2) recycling, would no longer be so great, so that this variant would be easier to make economically viable by scaling up or using innovative technical solutions. In reality, the introduction of customs duties would not divert all procurement to a single country; there is no capacity for this anywhere. The result would be a mix of different suppliers, which would make it more worthwhile to drive innovation in Germany. Changes in the price structure between the different providers and processes over time can be tracked by customers in this model - the best process (or the second best, if the best is used in China) then prevails on the market. The welfare loss here arises from the fact that consumption or further processing of the imported products becomes more expensive by at least the difference to the second cheapest source of supply. However, the volume of the welfare loss is significantly lower than in the case of subsidies. It can be argued that tariffs make the prices of downstream products in the supply chain more expensive, whereas subsidies do not. While this is true, it overlooks the fact that the much larger group of companies and consumers who are not directly affected do not suffer any direct additional costs in the case of tariffs, but bear the costs of subsidies through their taxes. Political effects of tariffs and subsidies In terms of their political and structural consequences, subsidies are more harmful than targeted tariffs. This is simply due to the procedure at the end of which individual companies receive a subsidy decision. An "objective" allocation is hardly possible here. On the contrary: the procedure is susceptible to personal relationships, political influence and direct corruption. Furthermore, subsidies that are only granted in one country of the European Union jeopardize the integrity of the European Single Market. Similar problems can arise with customs duties. This happens when they are used to protect certain domestic industries. In the case of targeted, selective tariffs, which are based on clearly defined, objective categories, such as the degree of dependence on a product from a country, there is little scope for political influence once the criteria have been established. Tariffs cannot harm the European single market either, as they can only be imposed at European level anyway. WTO conformity The reduction of tariffs and subsidies within the framework of the World Trade Organization (WTO) and the predecessor agreement GATT are a central reason for the reduction of global poverty in recent decades and one of the cornerstones of Germany's prosperity. It is therefore self-evident that tariffs and subsidies not only contradict the idea of the WTO. They also contradict its two basic principles: Subsidies for domestic production contradict the non-discrimination principle3, tariffs against individual countries violate the Most Favorite Nation Clause4. There are exceptions for both in the WTO rules. For example, WTO members must notify subsidies so that they can be examined and other countries can object to them if necessary. In principle, subsidies are only intended - and within a narrow framework - for developing countries, which still includes China. However, the notification of subsidies to the WTO hardly works any more. For example, 64 countries (around a third of members) have not even notified their subsidies for 20175. Nevertheless, some of China's subsidies may indeed be legal according to the letter of the WTO rules. But they are certainly not legitimate, as the aim of the WTO is to liberalize world trade and not to cement the opposite. And even if subsidies are known, the WTO cannot take legally binding action against them due to the dispute settlement mechanism blocked by the USA. Consequently, the USA has not reacted to the unresolved problem of China's subsidies within the WTO framework. Although tariffs have been imposed on some Chinese imports, the Inflation Reduction Act (IRA) is a huge subsidy program. If the dispute settlement mechanism were to work, the IRA would almost certainly have to be declared WTO-incompatible. However, as this path is blocked, many countries and regions of the world - including Germany and the EU at the forefront - are reacting with their own openly WTO-incompatible subsidy programs. The current subsidy race is constantly creating new reasons to impose subsidies in response to the subsidies of others. This will further damage the multilateral trading system, which has been very successful for Germany in particular. Targeted tariffs, on the other hand, which can be used to eliminate competitive disadvantages caused by subsidies and which are therefore only levied on goods from the subsidizing country, are in principle in line with the basic idea of the WTO. This is because it balances out a distortion of the world market created by subsidies. Therefore, tariffs are generally permitted as a reaction to dumping and subsidies6. A reaction to subsidies via tariffs within the strict WTO framework is currently hardly possible for the reasons mentioned above. In this situation, it should be actively communicated that in an unsatisfactory legal situation, the path of the least evil will be taken with tariffs. At the same time, serious efforts should be made to reform the WTO. Conclusion The argument: "We want to have the production of certain things in Germany because we believe that we would no longer be supplied with them in crisis situations" is not an economic argument. Production for strategic reasons is always a financially subsidized business. Because if there was money to be made, the private sector would do it. Politically, this line of argument is perfectly legitimate - as is the attempt to steer the economy directly in a politically acceptable direction through subsidies. However, this has nothing to do with a social market economy, but rather the opposite. However, if Germany and Europe are to remain committed to the social market economy and open multilateral trade, the only economically sensible response to problematic dependencies from abroad (if one has to respond at all) is to impose targeted, selective tariffs - but certainly not protective tariffs for domestic production sites. The German government should work within the EU to set a clear framework for this and at the same time work on a reform at WTO level to finally reduce the rampant subsidies. Because these - and not tariffs - are currently the biggest threat to the open global trading system that is so important to us. References 1 Vgl. etwa die Darstellung der Abhängigkeiten von für die Energiewende nötigen Metallen in Cernicky (2022): https://www.kas.de/documents/252038/16166715/Energiewende+und+Protektionismus+-+Wie+gehen+wir+pragmatisch+mit+China+um.pdf/442ba770-d504-43cc-25f1-eaf7d970dfc1, genaue Zahlen vgl. etwa die Auflistung des BDI: https://bdi.eu/publikation/news/analyse-bestehender-abhaengigkeiten-und-handlungsempfehlungen/ 2 Zum Versuch einer entsprechenden Bewertung vgl. etwa die von der KAS und dem Ifo-Institut durchgeführte Studie zu Abhängigkeiten in Lieferketten, Flach et al (2021): https://www.kas.de/de/analysen-und-argumente/detail/-/content/globale-wertschoepfungsketten 3 Art. III GATT 4 Art. I GATT/ WTO 5 WTO | 2023 News items - Members reiterate concerns on lack of transparency with subsidy notifications: https://www.wto.org/english/news_e/news23_e/scm_02may23_e.htm 6 GATT Art VI, Dumping und Ausgleichzölle Publisher: Konrad-Adenauer-Stiftung e. V., 2024, Berlin Design: yellow too, Pasiek Horntrich GbR Produced with the financial support of the Federal Republic of Germany. This publication of the Konrad-Adenauer-Stiftung e. V. is for information purposes only. It may not be used by political parties or election campaigners or helpers for the purpose of election advertising. This applies to federal, state and local elections as well as elections to the European Parliament. The text of this work is licensed under the terms of "Creative Commons Attribution-ShareAlike 4.0 international", CC BY-SA 4.0 (available at: https://creativecommons.org/licenses/by-sa/4.0/legalcode.de).

Energy & Economics
The concept of a fragile, vulnerable, unstable world order.

World Order Transformation: Economy, Ideology, Technology

by Aleksandr Dynkin

한국어로 읽기Leer en españolIn Deutsch lesen Gap اقرأ بالعربيةLire en françaisЧитать на русском The concept of a multipolar (or polycentric) world order [1] was first coined by Academician Yevgeny Primakov in 1996 [Primakov 1996]. Like everything new, it was not immediately accepted, but ultimately became a significant contribution to both domestic and world theory of international relations, offering a compelling alternative to Western approaches, particularly the one proposed in Samuel Huntington’s The Clash of Civilizations [Huntington 1993]. It informed the idea of trilateral cooperation between Russia, China and India, implemented by Primakov and later embodied in the BRICS group. By now, the idea of multipolarity has been recognized in global political science, has entered the conceptual framework and the language of international diplomacy and is used in Russia’s doctrinal documents. In 2015, we proposed the scenario of a new bipolarity [2] as one of the possible trajectories for global development. Today, many scholars, both Chinese and American, [3] suggest that China-centric and U.S.-centric poles are emerging. This article discusses the “multipolarity — new bipolarity” dichotomy. Long Global Macro-Transformations World history shows that a new world order typically emerges after the end of a major war (see Table 1). Table 1. International system (world order)    Source: systematized by A.A. Dynkin, IMEMO RAS Europe was usually the “kitchen” where the world order was cooked. Take the last 200 years. After the end of the Napoleonic Wars, the Concert of Europe emerged and lasted for 100 years. The century-long stability of that system could be explained by the homogeneity of the political organization of its guarantor states. All members of the Concert of Europe were monarchies. World War I produced the Versailles system, which lasted only 20 years. One of the reasons for its short life was the exclusion of the Soviet Union, Germany and China. The Yalta-Potsdam system was formed by the victors in World War II. Its guarantors were the “Big Three” powers—the Soviet Union, the U.S. and the UK—along with France and China. The three defeated powers—Germany, Japan and Italy—were discriminated and disenfranchised. This system existed for 45 years and was initially thought to be polycentric, but quickly degenerated into a bipolar order, and the Cold War commenced. With the collapse of the Soviet Union and dissolution of the Warsaw Pact, the system became unipolar, dominated by the West, primarily the U.S. It disregarded Russia’s interests and, from 2018 onward, began discriminating against China as well. February 2022 can be considered the formal date of the unipolar world’s demise. However, today’s predictions suggest it will take at least 10 years before the new post-unipolar system becomes stable. The economic center of gravity is a spatial indicator of the economic strength of states, borrowed from physics. To put it simply, this is a geographical point of equilibrium for GDP, trade and investment flows of different countries. Figure 1 shows a map of how the world’s economic center of gravity shifted for over a thousand years. It appeared in Central Asia, on the territory of the Ghaznavid Empire (modern-day Afghanistan). The center then migrated northwest, while the devastation in post-war Europe forcefully pushed it (within just 10 years) to the West, toward Greenland. Then it turned east again. The sharpest shift, to the southeast, occurred in 2000–2010 and is associated with the rise of China. The economic center of gravity has almost returned to the same meridian but remained more than 2,000 km north of the starting point, which indicates a return to the millennial balance of economic power between the West and the East. Figure 1. “Journey” of the three-dimensional economic center of gravity    Source: Dobbs R., Remes J., Manyika J. et al. Urban world: Cities and the rise of the consuming class. McKinsey Global Institute, 2012. https://www.mckinsey.com/featured-insights/urbanization/urban-world-cities-and-the-rise-of-the-consuming-class. Statistic calculations by IMEMO RAS for 60 years of peace (1960–2021) indicate the stability of the center’s latitudinal (horizontal) position. This suggests a relatively consistent proportion of GDP production by the countries in the Global South and Global North, under the economic leadership of the Northern Hemisphere. The shift to the East has also been clearly confirmed. According to our projections up to 2050, the future position of the globe’s center of economic activity will lie on the border of India and China. This method of analysis reveals a high level of inertia in time and geographic monotonicity of changes in the balance of economic power of states. It also shows that wars can drastically disrupt the natural course of events. The center of gravity method can also be applied to the arsenals of strategic and tactical weapons (see Figure 2). For example, during the Cuban Missile Crisis, the U.S. had a huge advantage, but then there was a clear pivot to the northeast—the creation of superior nuclear capabilities in the Soviet Union. With the onset of arms control in 1993, a reversing loop emerged, heading southwest. This was followed by a curve to the east with an implied southward inclination, which reflects the growing nuclear stockpiles of India, Pakistan, North Korea, and the rapid buildup of strategic and tactical nuclear forces in China. The military center of gravity follows its economic peer with a lag of 20 years, reflecting the geopolitical ambitions of Asian powers. These interpretations also clearly demonstrate the end of unipolarity and point to the rise of multipolarity. Figure 2. Movement of the nuclear center of gravity Source: calculations by K.V. Bogdanov, Center for International Security at IMEMO RAS, based on the data from the Bulletin of the Atomic Scientists. https://thebulletin.org/nuclear-notebook/. Technology. Politicians tend to be techno-optimists. Barack Obama predicted that 3D printing would transform the entire world. [4] George W. Bush promised that decoding the human genome would revolutionize medicine. [5] All false starts. Economists traditionally measure the rate of technological progress (TP) using the total factor productivity (TFP) index. To put it simply, this is the part of economic growth driven not by an increase in inputs—labor and capital—but rather by improvements in the efficiency of their use. Technological progress means not only the generation of new scientific and technological ideas but also their mass replication. Without economic validation of the impact of wide dissemination of innovations, scientific or technological achievements remain in history as brilliant breakthroughs with only local economic effects, giving rise to journalistic generalizations at best, such as the “Fourth Industrial Revolution” or “the sixth techno-economic paradigm.” Statistical metrics rely on data of technologically advanced nations, while catching-up countries have room for growth by approaching the TP frontier, i.e. adopting and improving existing ideas and technologies. Technological leaders spend more resources pushing the TP frontier, while those catching up can accelerate at lower costs, effectively staying in the “wind shadow” of the leaders. The TFP index growth rate has been steadily declining in developed countries for many years, but this has been especially conspicuous since the mid-2000s. Today, the growth is below 1.5% and even 1% per year (see Figure 3). Figure 3. Average annual growth of total factor productivity, % Source: calculations by IMEMO RAS based on the data from the International Productivity Monitor. No. 38, Spring 2020. http://www.csls.ca/ipm/ipm38.asp#:~:text=Martin%20Neil%20Baily%2C%20Barry%20P.%20Bosworth%20and %20Siddhi%20Doshi%0ALessons%20from%20Productivity%20Comparisons%20 of%20Germany%2C%20Japan%2C%20and%20the%20United%20States%C2%A0; Innovative China: New Drivers of Growth. World Bank Group, and the Development Research Center of the State Council, P.R. China. 2019. Washington, DC: World Bank. https://doi.org/10.1596/978-1-4648-1335-1. License: Creative Commons Attribution CC BY 3.0. https://documents1.worldbank.org/curated/en/833871568732137448/pdf/Innovative-China-New-Drivers-of-Growth.pdf. A similar pattern of dramatic TFP deceleration was observed in China. The consensus interpretation of these figures is that the main effects of the Third Industrial (i.e., computer) Revolution have largely been exhausted, and no new general-purpose breakthrough technologies (such as electricity, internal combustion engines, or computers and mobile communications) have emerged. However, it seems that the intellectualization of technologies and approaches to project management, as well as informatization, simply do not fit into the traditional factor-based view of progress that was established many years ago. The scale of knowledge is growing, new professions are springing up, the role of emotional intelligence and cognitive functions is increasing. All this dramatically changes the structure of capital assets (see Figure 4). From the beginning of the 21st century and until the 2008 crisis (2000–2007), equipment accounted for over 50% of the increase in capital’s contribution (investment) to output growth, whereas in 2019–2021, almost 63% of this increase was attributable to intellectual property assets. This result of our research suggests a refocusing of technological progress from final products to intellectual technologies, enabling the production of a range of innovative goods and services tailored to highly segmented demand. Figure 4. Transformation of the capital structure in the U.S. private sector Source: Total Factor Productivity for Major Industries—2022. U.S. Bureau of Labor Statistics. https://www.bls.gov/news.release/archives/prod3_03232023.htm. There are now hopes that the pace of technological progress may accelerate due to the development of artificial intelligence (AI) technologies, which will spark a new industrial revolution. An indirect sign of its imminence is the sharp rise in the rate of business births and deaths in the U.S. economy in 2020–2022. [6] The spillover of labor from companies that are losing efficiency to corporations with increasing market shares has also accelerated. These are some sort of leading indicators that suggest the structural results of TP are approaching. Similar developments occurred 30 years ago, on the cusp of the computer revolution. The above-mentioned intellectualization of fi ed capital, where trusted AI will be applied, adds credibility to these hopes. In addition, AI is one of the critical areas of technological sovereignty. It is no coincidence that Vladimir Putin described AI as “crosscutting, universal and essentially revolutionary technology.” [7] The Russian President announced the preparation of a new edition of the National AI Development Strategy and a respective decree. I believe that this prioritization is justified. China’s experience in the semiconductor race is a good model to be emulated (see Figure 5). Its distinguishing feature is the focus on companies as drivers of development, with massive, cumulatively growing state support. Figure 5. Focusing on China’s priorities (nanometer chip race) Source: Systematized by I.V. Danilin, IMEMO RAS The U.S. strategy of curbing technological development of Russia (in all areas) and China (in semiconductors, artificial intelligence and quantum computing and electric cars) leads to stiff competition in high technology, which is fraught with fragmentation, diversification of technical standards, legal norms and rules. And this is another argument in favor of a new bipolarity. Demographic processes. According to UN projections, by the middle of the 21st century, Russia will drop from its current 9th place to 14th in terms of population, while remaining the most populous country in Europe. [8] A more significant problem for Russia is population aging. The proportion of elderly people, who are typically not part of the labor force, is increasing. Japan, Spain and Italy are leading this process today, but neither China nor India will be spared. Nigeria appears to be the only major country where population and the share of young people will continue to grow until the end of the 21st century. As of December 2023, one in 10 people worldwide was aged 65 or over, with health spending taking up 10% of global GDP. [9] In this context, the importance of medical technologies cannot be overstated, as they can extend not only people’s life expectancy but also the duration of their healthy and socially active life, thereby easing labor market pressures. Needs always steer technological progress toward overcoming economic growth constraints tied to the scarcest resource in any given historical period. A serious risk associated with the problem of aging is a slowdown in innovation, since it is people under 40—the age group that will shrink throughout the 21st century—who are the primary drivers and consumers of innovation. So far, this risk has been mitigated by the large youth cohorts in China and India. This is why these two nations are experiencing almost exponential growth in patenting, massive reengineering and, consequently, in middle-class numbers. Demographics give India an edge until around 2060, which is already evident in the growth rates of Indian economy. Combined with the influx of hi-tech investments and the contribution of the Indian diaspora, India has good prospects, making its position crucial to the future architecture of the world order, regardless of how it evolves. The U.S. understands this and has been figuratively “clinging” to this nation for the past 20 years. I believe that the Russian Academy of Sciences should significantly bolster scientific and educational ties with India and its dynamically developing neighbors in Southeast Asia—Vietnam, Malaysia and Indonesia. The anticipated tension in the global market of new generations of innovators aggravates inter-country competition for this scarcest resource. I think that the international reputation of the Russian Academy of Sciences is a powerful tool to attract and retain young people and foster their creative motivation. We should reassert this as we celebrate the 300th anniversary of the Academy of Sciences. Ideology. Dirigisme [10], or statism, is the main trend in both economic theory and economic policy of the West. A pivot to a more state-controlled economy began with the disappointing outcomes of the Washington Consensus, which aimed to guide post-socialist countries from planned to market economies. The 2008–2009 financial crisis cemented the trend toward statism, and the COVID-19 pandemic elevated it to unprecedented proportions. In the U.S., Democrats are among the most vocal proponents of greater government intervention in all spheres of life, but they are not alone. Republicans are also actively advocating industrial policy, repudiation of free trade, as well as strict control over Big Tech, among other measures. The popularity of the so-called cultural Marxism is on the rise. [11] Its origins go back to the critical theory of the Frankfurt School (H. Marcuse, E. Fromm and others). These ideas are moving from the realm of ideological and theoretical confrontations into political activism. For example, the leaders of the BLM movement publicly self-identify as “trained Marxist organizers.” The essence of the strategy inspired by “cultural Marxism” is the rejection of direct political struggle on the barricades, since the proletariat has been “bought off by the bourgeoisie and is no longer capable of anything,” and the ranks of the classic proletariat are rapidly thinning. The direction of social change is set, on the one hand, by intellectuals with personal power and, on the other hand, by marginalized groups seeking to assert their “right to identity.” The strategy of activists who form this paradoxical combination of intellectuals and marginalized individuals is the creeping takeover of the main institutions of power and society by planting “correct” ideas in the mass consciousness. In the U.S., the fighters for political correctness have already hijaked the school system, university campuses, major media outlets and the entertainment industry (Hollywood). Civil servants are forced to take courses in critical race theory, which postulates not only the socially constructed nature of race and the recognition of systemic racism [Delgado, Stefancic 2017: 45] but also a sense of guilt in one part of society toward another. This, in turn, allegedly requires addressing moral and material injustices by organizing public life in line with such an ideology. Similar concepts are being pushed into public discourse as well. It is already dominated by the ideas of radical feminism, cancel culture, anti-systemic racism and postcolonialism, the fight against global warming and the green agenda, which claims to be universal and non-negotiable. As a result, the energy transition is motivated more by ideology than by the comparative market efficiency of energy supplies. Different environmental-political discourses—eco-nationalism, eco-imperialism and green growth—are competing in shaping the green agenda, eroding the attractiveness of the dominant sustainable development model. Another universal weapon in fighting any dissent is political correctness. Large corporations, government agencies and universities are developing and implementing strategies to promote DEI (Diversity, Equity, and Inclusion) principles, which are nothing but tools of ideological control over employees. Universities are required to fi reports on their compliance with such principles and efforts to promote them, which causes mounting criticism as they violate academic freedom and cultivate ideological conformity. [12] However, ideological censorship has already taken deep root in various spheres of public life, and questioning its compatibility with democracy is deemed politically incorrect. Revising cultural norms has become a cultural norm in and of itself, deepening divisions in modern polarized societies, primarily in the U.S., but also in Old Europe [Semenenko 2023: 27-35]. Another curious phenomenon is associated with the new agenda. In the 20th century, the left championed progress, advocating faster economic growth, rapid technological advancement and better social welfare. Now the ideas of zero or even negative growth and post-growth are popular among them. [Buchs, Koch 2017: 218]. Such ideological narratives exacerbate the question of how to treat the poor countries of the South, but also their own poor: the welfare state for all no longer fit into this agenda. On the contrary, it becomes a selective tool of backing the “right” minorities. This creates a breeding ground for stronger positions of populist forces. Such contradictory internal political processes distort public consciousness as well as domestic and foreign policy decision-making. The new elites are extremely ideologized. The U.S. political system is becoming less effective at regulating the economy. Two rating agencies, Standard & Poor’s and Fitch Ratings, have downgraded the U.S. credit rating to AA+ from the top mark of AAA. In November 2023, Moody’s lowered its outlook on the U.S. credit rating to “negative” from “stable.” All three agencies agree on the main reason for the downgrade: the growing dysfunctionality of the political system. In foreign policy, the U.S. has withdrawn from 16 major international treaties and agreements on arms control, global trade, climate and the Arctic since the beginning of the century [Dynkin 2020]. In other words, the unipolar world order with its unbridled appetite for expansion has brought the world into a zone of extra-high risks. And the paradigms that are dominant in the West have proven incompatible with either Russian or Chinese value-oriented political projects. Therefore, the ideological sphere will inevitably see increased confrontation, marking another step toward bipolarity. IMEMO RAS researchers have repeatedly warned about the West’s miscalculated strategic hopes: 1) that Russia would face an economic catastrophe because of an unprecedented sanctions war in modern history; 2) that the unipolar world order would remain unchallenged; 3) that a global blockade of Russia’s export-oriented economy would be feasible. And we were not the only ones who made these warnings. In response, we only heard propagandistic clichés like “a gas station masquerading as a country,” “a regional power” and “Russia is isolated with its economy in tatters”. This kind of “expertise” led the Washington establishment to believe that Russia is a “declining power” whose strategic interests could be safely neglected. This “strategic lunacy” is a consequence of a universalist mindset—a product of the West’s political experience and culture, which tends to elevate Anglo-Saxon and European historical tradition to absolutes—and of a failure to understand the shifts in the balance of power in the 21st century. Today, Russia is the world’s fourth-largest economy by purchasing power parity (PPP), while the top fi e global economic powers include three BRICS nations and none from the blooming “garden” of Josep Borrell, the EU foreign policy chief who has recently been fired. Now a new narrative has been launched into the propaganda orbit: “Russia is about to attack Eastern Europe.” The logical gap between the image of a declining power and that of an “aggressive bear” is conveniently ignored. This primitive, one-dimensional perception of complex non-linear processes can only lead to disappointment—just as it did when the West lulled itself into believing that Chinese reforms would eventually lead to political pluralism. As a result, the West has an inexhaustible stream of surprises. It appears that their experts are increasingly out of touch with Russian (and any other non-Western) realities. Figuratively speaking, they are staring into a distorting rearview mirror constructed by their own rhetoric and propaganda. But the main real surprise was the fantastic resilience of the Russian economy. I dare say that no other economy in the world, not even China’s, could withstand such aggressive pressure. The high resistance of the Russian economy to external shocks can be explained by three fundamental reasons. First, it is the result of difficult, sometimes agonizing institutional and structural reforms. These efforts have ultimately produced a self-sufficient, adaptive and highly diversified market economy. Second, the crisis of 2022 was the fifth (!) in the history of post-Soviet Russia. The government, federal regulators and the Bank of Russia have accumulated hard-earned professional experience in crisis management and counter-cyclical strategies. The same can be said about business. Our economic entities have demonstrated time and again that there are always more effective solutions than there are problems. Finally, the West miscalculated its ability to isolate our economy. The dual containment of Russia and China, in fact, only strengthens ties between the BRICS member states. Transformations of the 2020s. The first half of the 2020s has fi y buried what was once known as “European security.” It is impossible to glue this “broken cup” back together without Russia. The unwillingness of the Ukrainian side and the West to stop the armed conflict at its very beginning, the dangerous escalation, NATO’s constant violation of its own “red lines” and the accession of Sweden and Finland to the North Atlantic Alliance are all symptoms of the European security system transforming into a transatlantic one. Meanwhile, the Eurasian security system is taking shape. The outcomes of Russian President Vladimir Putin’s visit to China hint that the “political East” is starting to form, if not as an alternative to the long-standing “political West,” then at least as an equal partner. Without considering its interests, any debate about “rules-based” global security will be mere fantasy. Indian Prime Minister Narendra Modi’s first visit to Moscow after his recent reelection is in the same vein. Of course, geography cannot be changed, and Russia has been and will remain a European power. However, it is also the geographic center of Eurasia, providing the infrastructure backbone for the Eurasian partnership—from the Northern Sea Route and up to the Trans-Siberian Railway, Baikal–Amur Mainline, Trans-Asian Highway and cross-continental pipelines. The “post-Ukrainian” world seems to be moving toward a new, indivisible Eurasian security architecture, relying on existing institutions: the Union State, CSTO, EAEU, CIS, BRICS, SCO and ASEAN. Minsk has put forward an initiative to develop a Eurasian Charter for Diversity and Multipolarity—a strategic vision for a new system of international relations to replace the “rules-based” world order. An important event of 2024 in this context is the expansion of the BRICS club (see Figure 6). Its combined economic power could potentially reach $67 trillion, surpassing the total GDP of the G7 countries. Figure 6. Economic potential of BRICS countries Source: calculations by A.A. Dynkin, IMEMO RAS, based on the data from the IMF, Food and Agriculture Organization, World Steel Association, Energy Transition Institute, Statistical Review of World Energy 2023, International Energy Agency. And there are still 28 more countries on the “waiting list”. In several important markets such as metals, automotive industry, oil and mineral fertilizers, BRICS already matches or exceeds the potential of the G7 nations. Russia, which took over the BRICS rotating presidency in 2024, faces the task of energizing the harmonized economic and technological policies of the members. This approach is the institutional cornerstone of the future polycentric world. What will the coming world order look like? It is difficult to say which of the two trends—bipolarity or polycentrism—will prevail in the end. It is more likely that they will coexist: for example, rigid bipolarity in the Global North and polycentrism in the Global South. Signs of military, economic and technological bipolarity are already visible in the North. Interestingly, New Delhi tends to categorize China as a country of the North [Jaishankar 2020: 240]. This viewpoint has substance, as China is far ahead of other countries of the Global South in terms of GDP per capita ($12,541). For comparison, India’s GDP per capita is $2,612. [13] The decoupling of the U.S. and Chinese economies has not affected trade flows yet, but only technology and investment. In 2023, China saw a reversal of foreign direct investment inflows, with funds previously invested being withdrawn. Negative trends took hold, and the outflow approached negative $1.5 trillion (see Figure 7). Meanwhile, the Asia-Pacific macro-region is gaining greater internal dynamics, unlike Europe or North America. Figure 7. U.S.–China Economic Decoupling Source: UN Comtrade Database. https://comtradeplus.un.org/; State Administration of Foreign Exchange (SAFE) of the People’s Republic of China. https://www.safe.gov.cn/en/. Meanwhile, the trend toward political polycentricity persists. For example, New Delhi and Ankara were initially poles apart on the Palestinian–Israeli conflict. This is also the dawning of post-unipolarity, where the new centers of power are increasingly guided by their own interests in decision-making rather than by any “rules” or advice from Washington, Beijing or Moscow. It would be unrealistic to expect that the future world order will be free of conflict. The world will retain its diversity, with different potentials of countries and their competition. It is crucial that, despite their differences, the interests of larger and smaller nations are respected, and problems are solved through constructive dialogue. Russia was the first to challenge the notorious unipolar world order. Today we can state that most countries in the Global South have responded to this challenge and refused to subscribe to the Western interpretation of the conflict in Ukraine . The future world order is taking shape right before our eyes. I am sure that a multipolar world is preferable for Russia as a developed, self-sufficient and sovereign nation. But this world also requires a new system of global governance, development and strengthening of its institutions, such as BRICS, G20, SCO and EAEU. For instance, the EAEU member states (Russia, Belarus, Kazakhstan, Armenia, Kyrgyzstan) are faring much better than the five other post-Soviet countries. In 2022, GDP per capita in the countries of the Eurasian Economic Union was 3.5 times higher than the average for the fi e other CIS states that are not part of the EAEU (Azerbaijan, Moldova, Tajikistan, Turkmenistan, Uzbekistan) (see Figure 8). Our strategy in these organizations requires a solid approach and “stereoscopic” vision from socio-economic, scientific, technological and political perspectives. Here, the Russian Academy of Sciences should play a major role as a leader of scientific and expert community. Figure 8. Economic trends of EAEU and CIS countries Source: EEC. https://eec.eaeunion.org/?ysclid=lr7rtdg7np631919243; IMF. https://www.imf.org/; World Bank. https://www.worldbank.org/.  Conclusion In conclusion, there are compelling arguments both for multipolarity and for a new bipolarity. Leading U.S. experts are asking similar questions: “What order will replace the crumbling US-led system is far from certain. Will China push aside the United States as the global hegemon to lead a world according to rules written in Chinese characters? Will the world become bipolar, divided between two more or less rigidly defined blocs led by the United States and China? Will a genuinely multipolar world emerge based on several states or coalitions of more or less equal strength?” [Graham 2023: 272]. These questions are yet to be answered, and definitive conclusions in this case are premature. Given this high uncertainty, one should be prepared for any scenario. The essential prerequisite for such readiness is Russia’s strategic autonomy based on military-strategic parity with the U.S. The fundamental question to which the author has no answer today is: how likely is the emergence of a new world order without a major war? In 2024, presidential or parliamentary elections will take place (or have already taken place) in 50 countries, which account for more than 45% of the world’s GDP and population. Perhaps their results will clarify our vision of the near future. Dynkin A.A. (2024). World order transformation: economy, ideology, technology. Polis. Political Studies, 5, 8-23. https://doi.org/10.17976/jpps/2024.05.02 This article was prepared with the support of a grant from the Ministry of Science and Higher Education of the Russian Federation for major scientific projects in priority areas of scientific and technological development No. 075-15-2024-551 “Global and regional centers of power in the emerging world order”. The author expresses gratitude to his colleagues at IMEMO RAS R.I. Kapelyushnikov, V.D. Milovidov, I.S. Semenenko, I.V. Danilin, S.V. Zhukov, K.V. Bogdanov, A.P. Guchanova for consultations and assistance in preparing this article. References Büchs, M., & Koch, M. (2017). Critiques of growth. In M. Büchs, & M. Koch. Postgrowth and Wellbeing: Challenges to Sustainable Welfare (pp. 39-56). London: Palgrave Macmillan. https://doi.org/10.1007/978-3319-59903-8_4 Delgado, R.,& Stefancic, J. (2017). Critical race theory. Anintroduction. New York: New York University Press. Graham, T. (2023). Getting Russia right. 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The world order or international system is a stable set of institutions and norms of military-political and economic relations, which is institutionalized and legitimate in the international legal sense. The world order remains stable during the active life of at least one generation—a universal measure of social time. However, in the wake of geopolitical macro-crises, illegitimate systems emerge, forcibly imposed by the winner. This was the case with the unipolar world order. 2. Dynkin A., Burrows M. Here’s the Playbook for Getting U.S.–Russian Cooperation Back on Track. The National Interest. 07.12.2015. https://nationalinterest.org/feature/heres-the-playbook-getting-us-russian-cooperation-back-track-14527. 3. For example, see: [Yan Xuetong 2016; Kupchan 2021]. 4. Remarks by the President in the State of the Union Address. The White House. President Barack Obama. 12.02.2013. https://obamawhitehouse.archives.gov/the-press-office/2013/02/12/remarks-president-state-union-address. 5. President Bush Calls on Senate to Back Human Cloning Ban. Remarks by the President on Human Cloning Legislation. The East Room. The White House. President George W. Bush. 10.04.2002. https://georgewbush-whitehouse.archives.gov/news/releases/2002/04/20020410-4.html. 6. Private sector establishments birth and death, seasonally adjusted. U.S. Bureau of Labor Statistics. 25.10.2023. https://www.bls.gov/news.release/cewbd.t08.htm. 7. Artificial Intelligence Journey 2023 conference. President of Russia. Official website. 24.11.2023. http://www.en.kremlin.ru/events/president/transcripts/72811. 8. World Population Prospects 2024, Online Edition. United Nations, Department of Economic and Social Affairs, Population Division (2024). https://population.un.org/wpp/Download/Standard/MostUsed/. 9. Global Health Expenditure database. World Health Organization. https://apps.who.int/nha/database. 10. Dirigisme is a policy of active state intervention in the national economy, pursued by France and the UK in mid-1940s. 11. Mendenhall A. Cultural Marxism is Real. The James G. Martin Center for Academic Renewal. 04.01.2019. https://www.jamesgmartin.center/2019/01/cultural-marxism-is-real/. 12. AFA Calls for an End to Required Diversity Statements. Press Release. AFA. Princeton, NJ. 22.08.2022. https://academicfreedom.org/afa-calls-for-an-end-to-required-diversity-statements/. 13. World Economic Outlook Database (October 2023 Edition). International Monetary Fund. 10.10.2023. https://www.imf.org/en/Publications/WEO/weo-database/2023/October.