A change in global order: China and US at odds

The world has changed rapidly since the Russia-Ukraine war began last year in February. While the Ukrainian citizens were at the receiving end of the heaviest blows, the shockwave of the war could be felt in the farthest corners of the world.

What came to the fore was a series of strict sanctions on Russia by the West, including but not limited to freezing Russia's dollar-denominated assets, targeted sanctions on Russian oligarchs, allegedly destroying parts of the Nord Stream pipeline and so on. 

The subsequent disruption of the global supply chain and trade dynamics, as well as a strong dollar, clobbered developing nations. And a few trends began to emerge to counteract the adverse effects of the war. 

Firstly, developing nations, mostly led by China and Russia (to a larger extent, by BRICS), began adopting different plans to reduce their over-reliance on the US dollar and the euro. Secondly, diplomatic and economic blocs like the BRICS (Brazil, Russia, India, China and South Africa) are likely to become more influential than ever. Ties between China and Russia seem to have deepened as well.

Dethroning the dollar

Around $300 billion worth of Russia's dollar-denominated assets were frozen by the West. While the US and its Western allies hoped that the sanctions would crumble the Russian economy, Russia had prepared well for the war by diversifying its foreign reserves and reducing its reliance on the US dollar. This also sent the message that it was possible to survive without subscribing, wholly, to the Western economic establishment.

For example, in the months following the Western sanctions, Ruble-Yuan trade skyrocketed from only ¥11.8 billion in February 2022, to ¥201 billion in December. In May 2022, China also signed a 25-year energy agreement with Russia, seen as a sign of growing cooperation and solidarity between both nations. 

However, this enhanced cooperation did not materialise out of nowhere. China and Russia have been dreaming of a multipolar world for the past decade or more. First, the two countries have been exploring the possibility of creating a joint payment system to bypass the US-dominated SWIFT system since 2014. In 2015, they signed a memorandum of understanding and have been actively working on developing the system. In recent years, the need for such a system has become more pressing due to the increasing use of US sanctions as a foreign policy tool.

Apart from the dollar being a powerful weapon in the Western military arsenal, a strong dollar (especially when there is a global crisis) also adversely affects trade in developing countries, making imports expensive and pushing pressure on their foreign reserves. 

Consequently, many developing countries such as India, Turkey, Brazil, etc. are looking to trade in local currencies with their largest trading partners. For instance, Brazil and Argentina are discussing the creation of a common currency. UAE and India are exploring the use of rupees to trade non-oil commodities. BRICS countries are also planning to launch a common currency for trade between the partners. 

Infograph: TBS

BRICS looking to expand

As mentioned, China had been planning to dethrone the US from its self-appointed guardian role for a long time. Whether it was the multi-trillion dollar Belt and Road Initiative (BRI) or the Regional Comprehensive Economic Partnership (RCEP), it was mostly alone in its pursuit of a bipolar world and most partners were in it for their benefits and not to achieve an overarching geopolitical goal.

But in the aftermath of the Ukraine war, even these partners seem to have reluctantly joined the efforts to reduce their overreliance on the Western financial system.

Among the developing nations, China's BRICS partners and BRICS as a bloc are becoming increasingly important in the post-Ukraine war geopolitical landscape. Apart from China, India has also maintained close ties with Russia despite US sanctions. To contextualise, prior to the Ukraine War in February 2022, Russia accounted for less than 1% of India's imports; after the war, that percentage increased to almost 35% in February of this year. 

The five countries now constitute a higher share of global GDP compared to the G-7 and are looking to expand and include more nations. 

Iran and Saudi Arabia have already formally requested to join BRICS while dozens more have informally discussed the possibility of joining. Given that nearly all BRICS nations are either actively plotting to dethrone the US and its Western allies or at least reduce their reliance on the US-based financial system, their increasing influence should worry the West. 

The battle over Middle-East

Saudi Arabia, a long-term ally of the United States, is also thinking of reducing its reliance on the West. There are reports that Saudi Arabia and other oil-rich Middle-eastern countries are considering receiving payments in yuan instead of dollars, a striking shift in an economy run by the petrodollar. 

Saudi Arabia is not only cosying up to China, but also to its allies in Russia. Despite US sanctions, the kingdom has been buying millions of barrels of diesel from Russia. 

It is worth noting, Saudi Arabia has enough diesel of its own and does not need to import from Russia. Such decisions not only signal Saudi ambivalence towards its relationship with the West but also renders US and Western sanctions on Russia redundant.

A stronger tie between Russia and China

China had always maintained a neutral stance, at least when it came to military conflicts. However, that seems to have changed in the first 12 months of the Ukraine war, as a weakened Russia, backed into the corner, found a friend in need in China. Russia-China has also held military exercises together (although they had done this before the war too) twice in 2022 in the South China Sea and the Sea of Japan. Russia has also allegedly been buying back its old weapons from China to help support the war effort. 

As the Biden administration claimed in February, China is also considering sending modern weapons, ammunition, and drones to Russia. 

Interestingly, this decision came just a few weeks after the US Navy shot down a Chinese balloon, supposedly spying on the US. These recent developments would likely escalate tensions between the US and China further.

A US-led counter-resistance

The US had realised China's globalist ambitions long before the Obama administration and adopted the famous "pivot to Asia" policy in 2011 to counteract China's rising influence in the Asia-Pacific region. 

As part of its pivot to Asia, the US led the efforts to form the Trans-Pacific Partnership (later CP-TPP). Unfortunately, during the Trump administration, it withdrew from the treaty citing domestic labour rights and is unlikely to rejoin the treaty anytime soon. 

That is not to say that the US will allow China and its allies to run rampant in the region; the US hosts several military bases in the Pacific, namely in Japan, South Korea, Guam, Hawaii, etc. It has also formed several security alliances such as the AUKUS and the Quadrilateral Security Dialogue (QUAD) with partners in the Asia Pacific to tackle Chinese influence within the region. 

However, China also remains far from being able to challenge the West in terms of military might. Instead, it is China's influence over the least-developed countries in Asia and Africa which should worry the US most. China, by restructuring its debt, has also taken control over cobalt mines in countries like the DRC. So, it came as no surprise when Kamala Harris began a three-country tour (Ghana, Tanzania and Zambia) in Africa on 26 March to discuss Chinese debt restructuring and attempts to control the region.

So far though, it seems that the US has no plans to rival China or its allies economically and that may come back to bite them in the near future.