The whole world is now focused on the Russian invasion of Ukraine.  Ukraine wants to remain a free and independent country, aligned with the West.  Russia wants to keep Ukraine in its own orbit.  Who will win this strategic struggle?  My last three posts have discussed this fundamental challenge to world peace.

There is no reason to suppose that Russia is planning to stop with Ukraine.  It likely has many other targets in mind for additional conquests (see chart).

The Ukraine invasion may be just the opening round of a long struggle between the forces of democracy and its autocratic adversaries which will play out in the years ahead.  The Wall Street Journal’s Greg Ip has an excellent analysis of what is at stake:

• In an economic cold war pitting China and Russia against the U.S. and its allies, one side holds most of the advantages, and it’s not even close. China accounted for 18% of world GDP in 2020 and Russia brings their combined total to 20%.  Meanwhile, the U.S. has 24% of world GDP, and adding its allies (EU, Anglosphere, and East Asia) brings its total to 59% (see chart).

  

• Russia’s (oil and minerals) comparative advantage in geology and Chin’s in factory labor is offset by the West’s comparative advantage in knowledge. For example, 34% of China’s top artificial intelligence talent works in China while 56% works in the U.S. whose relatively relaxed and innovative research environment is more highly favored.
• Sustaining an economic edge requires continuous reinvestment. China and Russia spent $570 billion on research and development in 2019 while the U.S. and its democratic allies spent $1.5 trillion.  China and Russia have 2.5 million researchers while the U.S. and its allies have 5.2 million.

  

• China is a master of economic coercion, punishing countries such as Australia or Lithuania and international companies which cross its red lines. But lately, companies that had prioritized expansion in China are now boosting their Western presence.  For example, TSMC (Taiwan semiconductors) is now building fabrication plants in Arizona and Japan.

Conclusion.  The forces of freedom and democracy (the U.S. and its allies) are engaged in a long-term struggle with the forces of autocracy (China and Russia).  The U.S. side has many strategic strengths.  But to make sure that it prevails in the long run, it needs to focus on its overall economic advantage: “which is through free trade, open commerce, and open capital flows.”

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