In this week’s edition of Geopolitics & the Day After, we cover a variety of topics shaping the progress, or lack thereof, of global economic growth, including the green energy transition, healthcare, Generative AI, and the state of China’s economy. First, we round out our review of the IMF’s report on Geoeconomic Fragmentation and the Future of Multilateralism. Second, we analyze the critical role lithium may play in the green energy transition and in shaping geopolitical conflict. Third, we review the primary challenges plaguing China’s economy and a possible way forward. Fourth, we learn about new issues in healthcare that have surprisingly cropped up following the pandemic. Finally, we take a look at the hot competition surrounding Generative AI technologies.

Geoeconomic Fragmentation and the Future of Multilateralism:

Part III: The International Monetary System

International Monetary Fund

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As relayed in Geopolitics and the Day After over the past two weeks, the future of globalization is in jeopardy. Another critical component of the world economy that globalization has engendered and deglobalization has endangered is a stable international monetary system (IMS). This system encompasses the rules, conventions, mechanisms, and institutions that ease international trade and cross-border investment. This financial integration that has resulted from globalization has led to leaps in standards of living across the developing world. This can be attributed to greater international risk-sharing access to a broad range of external finance. By limiting risk sharing, deglobalization threatens to stall growth in low-income countries. As the global monetary system reorganizes into regional blocs, financial regulation and oversight may become more fragmented, creating more barriers to international trade. 

To recap the IMF’s report, the risk of economic fragmentation is rising and geopolitical tensions threaten to reverse global integration. While the globalization of recent decades has not created a perfect system, the IMF urges that it is important to recognize the benefits of globalization – and the costs of deglobalization particularly for the developing world – to subsequently adapt the rules-based multilateral system to the new realities of trade in a multi-polar world that is riddled with geopolitical power struggles.

Lithium’s Critical Role in the Energy Transition

The Energy Transition Confronts Reality

Daniel Yergin, Project Syndicate

Lithium, lightest metal on earth, carries heavy geopolitical weight

Marina Yue Zhang, The Interpreter

The transition to green energy is fueled by policy rather than economic advantage. In the past, energy transitions (such as using oil over coal) occurred as technologies made new energy sources cheaper and more efficient, and the new energy didn’t wholly replace the old one. This poses a problem for countries wishing to combat climate change, as today’s world economy depends on hydrocarbons for over 80% of its energy needs. In the transition to green energy, there will be an incredible increase in demand for the minerals needed to electrify the world, such as lithium, a critical component in batteries for electric vehicles and to store wind and solar energy. 80% of known lithium deposits exist in South America and Australia, but China is the world’s largest importer, refiner, and consumer of lithium. As increasing great power competition has turned energy security into a top priority, there are policymakers concerned with containing China’s lithium dominance. However, there should be an effort to search for alternative methods for acquiring these components. Deepening international cooperation with China in the green energy business offers a means to bring China into the family of nations in a productive manner. Lithium should not be thought of as a crucial resource in a geopolitical struggle, but as a commodity to fight the global battle against climate change, which endangers us all. 

China’s Way Forward

China’s Generation of Demise

Richard Vague, Democracy

China’s Pro-Growth Happy Talk

Minxin Pei, Project Syndicate

Domestic reforms and efforts to enhance cooperation on an international level will be required to patch the deep problems in China’s economy. One of the major issues standing in the way of China’s economic growth is its shrinking population. Last year, China’s total population fell by 850,000, its first decline in 60 years. This is just the beginning of China’s population woes, as the trend is irreversible and will likely accelerate given the country’s age demographics. Exacerbating growth concerns is the demise of China’s real estate sector which was the primary driver of its historical 7% growth rate. With an estimated 100 million empty homes across the country, it can no longer depend on the real estate sector to spur economic growth. Finally, the decoupling of its economy with the US is impeding China’s growth. China used to be the ideal destination for manufacturing outsourced from the US and other industrial countries, but this is no longer the case as its geopolitical tensions with the West have mounted. As it enters an era of slower growth, China will have to seek alternative methods to deal with its economic challenges.

A robust economic recovery for China would require the country’s leaders to find ways to improve relations with the West and launch a credible political, legal, and economic reform program in the wake of the government’s exit from its Covid-zero policy. While certain measures undertaken by the government will support Chinese growth, such as easing borrowing restrictions on “high-quality” property developers and short-term stimulus via monetary and fiscal policy expansion, these measures will be insufficient without conducting reforms that would position China more favorably both domestically and internationally. For instance, China ought to recommit to Deng Xiaoping’s political reforms of meritocracy, mandatory retirement, and term limits, while likewise increasing judicial independence so as to support foreign investment in the country. Additionally, China ought to privatize inefficient state-owned enterprises and create a more business-friendly environment overall, including measures aimed at stimulating small business growth, which was critical to China pre-pandemic and was significantly impacted to the downside as a result of the pandemic and Covid-zero policies. These reforms would produce results for China domestically while also assuaging concerns within the EU and US, which have grown increasingly suspicious and hostile to China in recent years. Bad relations, in the Chinese context, could be very bad for business.

Why health-care services are in chaos everywhere

The Economist

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The Economist dug into healthcare data across an array of wealthy countries and discovered that healthcare outcomes have worsened since the pandemic. Hospitals from Britain to Italy, from Australia to America, and so on, are seeing a variety of inefficiencies come to light that were not present up to or during the Covid-19 pandemic, including longer wait times for ambulance services or for transference to the emergency room. Excess deaths are increasing as a result of these issues and others. Interestingly, the GDP percentage for healthcare has increased from 9% before the pandemic to around 10% on average today. As a result, it can be surmised that rich countries’ healthcare systems are doing less with more and the culprit may be an explosion of demand. Coming out of lockdown, people seem to require more help than ever before as they went two years without exposure to typical pathogens, weakening their immune system, and delayed seeking treatment for other issues due to the impact that Covid-19 had on the hospital system and administration. For instance, in Italy, cancer fell by 40% and not likely because Covid made cancer less prevalent. Many patients are likely sicker coming into the hospital as a result, leading to more resource-intensive care and broadly worsening outcomes from the healthcare systems throughout OECD countries.

Big Tech was moving cautiously on AI. Then came ChatGPT.

Nitasha Tiku, Gerrit De Vynck, & Will Oremus, The Washington Post

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The advent of OpenAI’s ChatGPT chatbot and its subsequent popularity has alarmed executives within Google and Meta as the two companies seek to catch up in the chatbot space. While Google in particular has been a pioneer in the technology, called “Generative AI,” for a decade, both companies have been cautious in releasing their products so as to avoid reputational harm, a risk inherent in software that generates conversation organically and which could lead to bad publicity or even potential liability. In fact, many AI engineers have left Google to pursue start-up companies that allow them to operate more freely within the AI space. As such, internal memos have circulated urging leadership to expedite the approval process within both Google and Meta so as to release Generative AI software and claim market dominance before upstarts like OpenAI take the space for themselves. While some AI ethicists have expressed concern that expediting the release of these products without sufficient trust and safety verification could lead to risks to the public, others have argued that releasing the tools to the public, while mitigating certain predictable risks, is the only way to assess real-world harm of the technology. Ultimately, concerns surrounding ethics and reputational risk may become sidelined in the pursuit of market dominance within the AI space.