The winner of Ukraine/Russia is China
As the world watches the horrific images of indiscriminate war, another story is unfolding in the shadows. Nato allied countries are unified in introducing comprehensive sanctions against the Russian federation. Western audiences cheer as bad man Vladimir Putin is seemingly erased from polite society and access to the global banking system. Over the weekend The Biden Administration and its European allies announced that Russia would be removed from SWIFT.
SWIFT is the international consortium of banks that allows nation-states to pay for resources. For instance, Russia sells gas to Germany, payment is processed through the SWIFT portal. What will be the impact on Western consumers? How will this impact the price of a barrel of gas? Can Europe afford to be disconnected from Russian oil and gas? These are all questions I will tackle later but for now, the focus will be on the indirect benefactor of sanctions: China.
As China was hosting the Winter Olympics with power plants as the backdrop for artificial ski slopes, a seemingly benign thing happened. Chinese leader Xi Jinping and Russian Prime Minister Vladimir Putin made a public embrace. This Embrace coincided with Washington and the State department’s release that Russia had amassed military personnel on the border of Eastern Ukraine and in Belarus.
Early last week the world watched as Putin made the call to invade western Ukraine. However to understand the current events and how China will profit and challenge the United States’ global hegemony we have to travel back to 2014.
Ukraine in 2014 was ripe with turmoil and corruption and the leader, pro-Russian, Viktor Yanukovych was in power. With the funding and aid of then-president Barack Obama’s administration an event now known as the Maiden revolution. This revolution saw the ouster of Yanukovych and the election of, pro-western, former comedian, and current president Volodymyr Zelenskyy. The Cato Institute did a great job documenting this history in better detail.
In 2015 as the United States was preoccupied with the rise of Donald Trump and Bernie Sanders and Russian hysteria domestically China was formulating an economic nuclear weapon. China’s Cross-Border International Payments System (CIPS) was born. CIPS allows nations to trade in the Chinese YUAN instead of the dollar which is the current reserve currency of the world and SWIFT.
On Friday, February 25th, 2022 China announced that it would allow Russia to use CIPS to bypass sanctions. If Russia is able to successfully move its trade away from the dollar would hurt Russia in the short term but be catastrophic for both the dollar and Western Europe and a gold mine for China.
As the world still recovers from the impacts of covid on supply chains and international commerce the Chinese Yuan has gained 8% on the dollar since March 2020. China’s consumer inflation rate stands around 1% year-on-year vs. 7.5% in the US, and the yuan to some extent has acted as a hedge against dollar inflation according to the Asia Times.
Aside from the current conflict, China launched The-Belt-and-Road-initiative which is a silk road of infrastructure investments and trade across Europe and Asia. European countries and the United States have become dependent on Chinese manufacturing of everything from hardware to vital medicine. Russia currently supplies 40% of the oil and gas to the European Union. As these nations form means of commerce outside the US dollar coupled with western dependence what effect do sanctions actually have?
It seems obvious now that Vladimir was given some assurance, before invading, when meeting with XI at the Winter Olympics. As we’re focused on Eastern Europe, most of the world’s semiconductor chips are manufactured in Taiwan. There is almost an identical situation between Russia and the breakaway provinces in Eastern Ukraine and China and Taiwan. What happens if China Invades and occupies Taiwan, are we going to sanction China and push them further away from the dollar and closer to Russia? What happens if China gains control not only of the world’s manufacturing but also the world supply of semiconductor microchips which are already scarce?
Everyone cheers have sanctions are levied against Russia but very few people are thinking about the impact on the United States and Western Europe. In this series, I'll be discussing how China and Russia became vital players in the globalized economy, how the Ukraine tragedy could have been avoided highlighting voices like Pat Buchanon and John Mearsheimer, and how the individuals responsible for the first 2 topics have failed their way into being in charge today.