The Current Intensifying Sino-US Rivalry and Its Impact on the Possible Future Scenarios About the International Economic Order

Abstract

The growing rivalry between the US and China over trade, investment and technology, and their intensification of military, diplomatic and ideological differences of opinion have increased the prospect of decoupling between the two largest economies in the world. The “socialist market economy with Chinese characteristics” has changed significantly since the 20th National Congress of the CCP in October 2022. In foreign relations, the aim is to improve China's national security by struggling to gain dominance on the international stage. This policy can be described as a continuation of the “dual circulation” strategy referred to an effort to rebalance the Chinese economy by reducing its reliance on net exports and fixed asset investment, both of which have become unsustainable to boost growth. Dual circulation means reducing the role of foreign trade in powering the Chinese economy while improving the quality of trade. The increased emphasis on self-sufficiency and strengthening domestic science and technology also means that foreign importers may face tougher competition from Chinese companies. This includes diversifying trade away from reliance on the US and Europe and improving supply chains in China and promoting the role of private consumption and services within the Chinese economy. In that regard, China is taking a two-pronged approach by continuing to open up to the world while enhancing self-reliance and reducing vulnerability to external shocks. Domestically, this means more self-sufficiency to strengthen the economy driven by consumption and innovation. The Sino-US competition and accompanying difficulties and economic tensions leading to the economic decoupling between China and the US may become a new normal and reshape the global economic landscape. For this reason, it is significant to focus on the possible scenarios, considering the most gentle, through intermediate solutions, to far-reaching and most radical processes. The most typical decoupling scenarios embrace: cooperation despite some antagonism, selective economic decoupling, gradual loosening of ties and comprehensive escalation. The Sino-US relations have a great impact on the processes in the international economy. If the comprehensive escalation scenario is implemented, the other countries would be forced to choose sides, and the world will be divided into two camps. A new cold war is possible which could lead to wasted resources, and harm long-term prospects for peace and prosperity. Also, a kind of multipolarity of the economic and political world is possible.