According to a new NBC News poll, US voters now consider “threats to democracy” the most important issue facing the country, which is both disturbing and a welcome sign that people are paying attention.
It’s also worth noting that this isn’t just an American problem. Democracy is eroding around the world. According to the latest Economist Intelligence Unit survey, there are now 59 fully authoritarian regimes, which house 37% of the world’s population.
Of those 59, 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 veritable superpower, whose economy, in some ways, has surpassed that of the United States. Russia is a third-rate power in economic terms, and events since February 24 suggest that its armed forces were and are weaker than most observers realized. However, it has nuclear weapons.
One thing that China and Russia have in common, however, is that they both have very large trade surpluses. Are these surpluses signs of strength? Is it evidence that autocracy works?
No, in both cases surpluses are signs of weakness. And the current situation offers a useful corrective to the common idea – favored by Donald Trump, among others – that a country that sells more than it buys is somehow a “winner”.
Start with Russia, whose trade surplus has skyrocketed since Vladimir Putin invaded Ukraine. What caused this? The answer is that it is largely the result of Western economic sanctions, which have been surprisingly effective — though not in the way many had hoped.
When the invasion began, there were widespread calls for an embargo on Russian oil and gas exports. In reality, however, Russia had little trouble maintaining its oil exports; is selling oil at a discount, but high global prices mean a lot of money keeps pouring in. And while there has been a sharp drop in Russian gas exports to Europe, it reflects the Putin regime’s efforts to put pressure on the West, rather than the other way around.
What the sanctions did instead was undermine Russia’s ability to import, especially its ability to buy crucial industrial inputs. An example of the problem: Russian airlines are reported to be grounding some of their planes to cannibalize them for replacement 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 money to buy goods it needs to sustain its war effort.
China’s problem is different: its trade surplus is the result of old domestic problems that may finally be reaching a tipping point.
Outside observers have long noted that very little of China’s national income reaches the public, so consumer spending remains weak despite rapid economic growth. Instead, the country has more or less maintained full employment by funneling cheap credit into increasingly less productive investments, primarily a bloated housing market supported by mounting private debt.
China has managed to keep this game unsustainable for a remarkably long time. At this point, however, the Chinese housing market appears to be collapsing and consumer demand appears to plummet. This is reducing the country’s imports — which increases its trade surplus. 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 review a failed Covid strategy, which relies 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 for the rest of the world.
Twelve years ago, the world economy suffered from inadequate demand, and China’s trade surpluses compounded the problem, sucking purchasing power from the rest of the world. Today, however, the world economy suffers from inadequate supply, which has caused high inflation in many countries. In this context, Chinese weakness is actually good for the rest of the world: the drop in Chinese demand is putting a cap 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’re getting a demonstration that exporting more than importing doesn’t mean you’re winning: in different ways, Russia’s and China’s trade surpluses represent failure rather than success.
And on a broader level, we are looking at the problem of dictatorships, where no one can tell the leader when he is wrong. Putin appears to have invaded Ukraine in part because everyone was too afraid to warn him about the limits of Russian military might. China’s response to Covid has gone from a model to a cautionary tale, probably because no one dares to tell Xi Jinping that his policies are not working.
So autocracy may be advancing, but not because it works better than democracy. Does not work.
Translated by Luiz Roberto M. Gonçalves
