The world economy has been in a permanent crisis for more than ten years. First, trade and financial flows stagnated as a result of the global financial crisis, then the Covid-19 pandemic disrupted supply chains. At the same time, the influence of geopolitics on economic cooperation been on the rise, not only since the Russian war against Ukraine. For a long time, economic interdependence was considered an important principle for preventing conflict and advancing democratic transformation in autocratic countries. However, the rise of geopolitical conflicts has put the guiding principle of "change through trade" into question and in some cases even has the opposite effect.
In recent years, the People's Republic of China in particular has tried to exploit economic interdependence in order to suppress criticism, even abroad, of its own human rights violations or to silence any doubts about the One-China policy. Lithuania and Australia were most recently affected, but in principle, every country that is dependent on the communist one-party state is at risk. Chinese leaders have worked hard to make other states more dependent on China’s economy while becoming more independent from the global economy itself. Russia, too, has been pursuing this course of asymmetric dependence at least since the Crimea annexation in 2014. The Kremlin is now using Europe's enormous dependence on Russian oil and gas supplies to finance its war against Ukraine and sow discord among European Union member states. Thus, instead of moderating Putin's regime, the close economic ties are in part even contributing to an intensification of the conflict. What is more, for decades, Western financial centres have served as havens for kleptocrats, helping authoritarian regimes and their supporters to invest their money. In the process, the close business relationships with autocracies often lead to more concessions to their rulers rather than positive changes for the populations in the autocratic states.
Due to this development, the positive effects of economic interdependence are often overlooked and it would be ill-advised to abandon the international division of labour. What is important, however, is that liberal democracies are reducing unilateral dependence on authoritarian regimes. They face the challenge of protecting themselves from unfair trade practices, state capitalist investment policies, and a nexus of organized crime and kleptocracy, while at the same time maintaining economic openness by desisting from protectionism and misguided industrial policies.
In the interactive workshop “The EU as an Economic Engine - Strategic Sovereignty in the Wake of Geopolitics and Geo-economics” we will discuss with international experts how democratic states can find a common approach to dealing with authoritarian state capitalism. How can liberal democracies protect their critical infrastructure and increase the resilience of supply chains as well as anti-corruption and kleptocracy efforts? How can globalization be sustainable and, essentially, safe for liberal democracies?
Sven Hilgers is a consultant for international economics in the Global Issues Department at the Friedrich Naumann Foundation for Freedom.