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The Opportunity of a Reset

Like most of my colleagues, I am following very carefully Russia’s war on Ukraine. It is heart-wrenching to watch the destruction of property and infrastructure. It is even sadder to read about families and children being killed in this naked act of aggression. It is hard to imagine either side winning in the end. In spite of all the destruction, there is something positive that could come out of the conflict, indirectly related to Russia and Ukraine – the resetting of China’s diplomatic and trade relationship with the world.

China has put itself in the position of being the number one apologist and supporter of Russia. On the very first day of the 2022 Winter Olympics, Chinese President Xi Jinping and Russian President Vladimir Putin jointly issued a statement that, “Friendship between the two States has no limits, there are no 'forbidden' areas of cooperation." They also stated that, “Their relationship was superior to any Cold War Era Alliance.” The announcement outlined the areas that they would cooperate on, including climate change, space, artificial intelligence, and control of the internet. Quickly thereafter, China agreed to increase its purchases of wheat from Russia, which in turn announced that its two state-controlled energy companies, Rosneft and Gazprom, would strike billion-dollar energy deals with China.

It is clear in the short-term that China is Russia’s lifeline for its economy, which has been hit with embargos and sanctions since its aggression began. In the long-term, Russia sees China as a replacement for trade that it will lose with the West, and an ally to alleviate its isolation in the world. China imports more than 60 percent of its crude oil and uses coal to produce more than 60 percent of its electricity. It sees Russia as a big gas station to fuel its economy. This alliance allows China to refrain from condemning Russia’s actions.

However, democracies throughout the world can use China’s support of a bully to reset their relationship with that country. Traditionally, China is hypersensitive about its global image, going as far as to threaten nations, companies, and individuals when they state something negative about human rights violations of their own citizens, restrictions on free press, and its threatening stance on Taiwan’s freedom. China should not get a free ride about its behavior of diplomatically and economically supporting Russia. As it has done with Russia, the Western world can send a strong message to China from a diplomatic and economic standpoint.

For the past few years, the U.S. has been engaged in a trade war with China, with many goods traded between the two nations having had damaging tariffs slapped on them. However, do we really want to buy products from a country that essentially endorses Russia’s ruthless attack on a smaller, weaker country? Two things are apparent. The first is that democracies throughout the world need to strengthen trade ties and decrease their reliance of trade with China. This requires multilateral cooperation among nations, and the U.S. and the European Union need to become leaders in this effort. If China wants to encourage criminal activity, it should not be rewarded by being able to readily sell its products in democratic countries. It should be made to see how successful it will be having Russia as its major trading partner and ally.

Secondly, the average American citizen has the power to vote against China’s behavior by exercising choice when it comes to purchasing decisions. There are certainly a lot of Chinese-made consumer products in American stores, but Americans don’t necessarily have to buy them. How many of us make it a habit to look at the label of product to see where it was produced? The Chinese-Russia alliance should start making us do exactly this. I know it is easier said than done to substitute similar products from other countries, especially if they are more expensive. This is especially difficult for consumers living on limited means. However, if we as individuals could decrease our purchases of Chinese goods by 25 percent, imagine what an economic impact that would have on China and what a signal it would send.

It also has occurred to me the role that the Trans-Pacific Partnership Agreement could have played to push back on China and Russia. This was a trade agreement that was negotiated between twelve Asian, South American, and North American countries, including the U.S., and could have been a strong tool in imposing sanctions and restricting trade with the two partners.

The treaty was negotiated, and then-President Donald Trump opted not to join. The other nations subsequently formed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, but it is obviously not as strong a force as it would have been had the U.S. been included. It is precisely these types of trade agreements with other democracies that would be helpful now.

Finally, I question how long the Russia-China bromance can last. Autocracies end up being suspicious of each other and alliances break apart, as was the case with the Russia-China alliance after WWII. Dictators have huge egos and paranoia. Jinping and Putin live every day being suspicious of their own countrymen taking them out, much more so of a powerful neighbor who shares your own ruthlessness.

Jerry Pacheco is President of the Border Industrial Association and Executive Director of the International Business Accelerator.