According to a new NBC News poll, US voters now consider “threats to democracy”
the most important issue facing the nation, which is both disturbing and a
welcome sign that people are paying attention. This is not just an American
issue. Democracy is eroding worldwide; according to the latest survey from the
Economist Intelligence Unit, there are now 59 fully authoritarian regimes out
there, home to 37 percent of the world’s population.
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Of these 59 regimes, however, only two — China and
Russia — are powerful enough to pose major challenges to the international
order.
The two nations are, of course, very different.
China is a bona fide superpower, whose economy has by some measures overtaken
the US’. Russia is a third-rate power in economic terms, and events since
February 24 suggest that its military was and is weaker than most observers
imagined. It does, however, have nukes.
One thing China and Russia have in common, however,
is that both are running very large trade surpluses. Are these surpluses signs
of strength? Are they evidence that autocracy works?
No, in both cases the surpluses are signs of
weakness. And the current situation offers a useful corrective to the common
notion — favored, among others, by Donald Trump — that a country that sells
more than it buys is somehow a “winner”.
Start with Russia, whose trade surplus has ballooned
since Vladimir Putin invaded Ukraine. What is that about? The answer is that it
is largely a result of Western economic sanctions, which have been surprisingly
effective — albeit not in the way many expected.
When the invasion began, there were widespread calls
for an embargo on Russian exports of oil and gas. In reality, however, Russia
has had little trouble maintaining its oil exports; it is selling crude at a
discount, but high global prices mean that plenty of money is still coming in.
And while there has been a sharp fall in Russian gas exports to Europe, this
reflects the Putin regime’s efforts to put pressure on the West rather than the
other way around.
What sanctions have done, instead, is undermine
Russia’s ability to import, especially its ability to buy crucial industrial
inputs. One example of the problem: reports indicate that Russian airlines are
grounding some of their planes to cannibalize them for spare parts they can no
longer buy abroad.
So Russia’s trade surplus is actually bad news for
Putin, a sign that his country is having trouble using its cash to purchase
goods it needs to maintain its war effort.
China’s problem is different: its trade surplus is a
result of long-running internal problems that may, finally, be coming to a
head.
Outside observers have long noticed that too little
of China’s national income filters down to the public, so that consumer
spending has remained weak despite rapid economic growth. Instead, the nation
has maintained more or less full employment by channeling cheap credit into
increasingly unproductive investment spending, above all a bloated housing
market supported by ever-growing private debt.
Today, however, the world economy is suffering from inadequate supply, which has led to high inflation in many countries.
China has managed to keep this ultimately
unsustainable game running for a remarkably long time. At this point, however,
China’s housing market appears to be crashing and consumer demand appears to be
plunging. This is dragging down the country’s imports — which makes its trade
surplus bigger. Again, a surplus can be a sign of weakness, not strength.
Two more points about China. First, its economy is
also suffering from the government’s refusal to revisit a failing COVID
strategy, relying on relatively ineffective domestic vaccines and a disruptive
policy of draconian lockdowns to contain the pandemic.
Second, under current conditions, weak Chinese
demand is, unintentionally, a boon to the rest of the world.
A dozen years ago, the world economy was suffering
from inadequate demand, and Chinese trade surpluses made the problem worse by
sucking purchasing power away from the rest of the world. Today, however, the
world economy is suffering from inadequate supply, which has led to high
inflation in many countries. In this context Chinese weakness is actually good
for the rest of us: falling Chinese demand is putting a lid on the prices of
oil and other commodities, reducing global inflationary pressure.
So what can we learn from dictators and their trade
surpluses?
As I said, we are getting a demonstration that
exporting more than you are importing does not mean that you are winning: in
different ways, both Russia’s and China’s trade surpluses represent failure
rather than success.
And at a broader level, we are seeing the trouble
with dictatorships, where nobody can tell the leader when he is wrong. Putin
seems to have invaded Ukraine in part because everyone was too afraid to warn
him about the limits of Russian military power; China’s COVID response has gone
from role model to cautionary tale, probably because nobody dares tell Xi
Jinping that his signature policies are not working.
So autocracy may be on the march — but not because it works
better than democracy. It does not.
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