The Post Pandemic Economic Order - A View

 

If one thinks of the disruptions wrought by the pandemic which is still blowing across the world, the question of post pandemic recovery will raise itself in the minds of some people.

The world economic order as we know it will certainly undergo profound changes. The pandemic is still amongst us, and the disruptions are continuing. However, it has already become necessary to cast an eye on the post pandemic scenario as now, after a two years of forced hiatus, the world will be in a hurry to get back to normal.

The new normal, however, is going to be different. The US led world order will not last very long after this pandemic, at least not as the world has known it. America, since Trump has been talking about withdrawing from most multilateral treaties like Climate Change, the TPP (Trans Pacific Partnership). On the other hand China, which is now economically second to the US, has been trying to increase its outreach in world trade by starting the Belt and Road project.

The US as a world leader in trade and peace keeping, was beginning to falter. And China is very much trying to take its place.

However there is a fundamental difference between how the US was looked at and how China is perceived today. The US guaranteed that the world trade mechanisms worked smoothly. The IMF was almost wholly financed by the US. And most of the countries in the world benefitted from the free flow of goods and services.

Japan became a manufacturing hub after the end WWII because the US bankrolled its development. Europe also benefitted from American largesse provided for post-war reconstruction. Thus, world trade saw its best growth phase in the post war world. Freedom was an underlying ‘mantra’ of this smooth growth. America stood for freedom and democracy and promoted those ideas across the world, mostly through its soft power, and occasionally, hard power.

Some of its actions of interfering in some country’s internal affairs to restore democracy can be overlooked as over-enthusiasm to promote its ideas. But by and large, the world supply chains worked reliably for many decades after the end of Second World War. It was stable because it was backed up by the US dollar which became the currency for world trade.

This picture will change in the coming few years. China may not replace the US as the numero uno in world trade, also, it cannot replace the US in terms of the trust that the countries of the world have in the US led system. China’s answer to the existing system was the Belt and Road project which has benefitted no country till date, and is being increasingly viewed as a debt trap for poor countries. China’s claim over the waters of South China Sea has eroded whatever trust China enjoyed globally and especially among the countries in this region.  

The new world order which will emerge after the pandemic will still be led by the US, the current situation in Afghanistan notwithstanding, and which has led many to predict the demise of the America as a world leader.  America may have lost the political will to fight other people’s battles, but its industry is in no mood to relinquish its technological and financial leadership.

Even in Afghanistan contrary to popular perception, American industry is the real winner. The politicians and their governments made a mess of the war, but the American defense industry has profited immensely from this twenty year war. 

America has always been an isolationist country. It did not pursue any territorial ambitions like other world powers before it. America became a super power without occupying any new lands. It was a reluctant participant in both the world wars. It carried the mantle of world leadership due to its military power and economic heft.

So, it is the industry of America which will keep it going when perhaps its politicians have few cards left to play. However, new players will emerge which will keep the supply chains of the world going. At the moment China does not look like it will be one of those players. Its current behavior has not won it any trust around the world.

Countries on which the mantle will fall could be India, Vietnam Mexico, Brazil, Bangladesh, etc. More could join the club. These countries could, along with the US, jointly ensure the smooth operation of the global supply chains.

During the pandemic the world realized that it was too dependent on one country for all its needs. From hairpins to medicines. When Chinese industries closed due to the pandemic, the world suffered as supply chains were disrupted.

As a result, the manufacturers of the world have begun to disperse their supply chains across the world to avoid bottlenecks and disruptions. Many production hubs will emerge as a result. The above mentioned countries are only the starting point.

The way forward would be a multipolar world order still dominated by America. No one country will be able to dominate the supply chains as it has happened in the recent past. The world has learnt it lessons. China will not be the workshop of the world. Many countries will be linked in the new supply chains.

Products will be assembled at different places and then shipped to their final destination. Technology will become redundant at a rapid pace and hence, innovation will be the key. The countries which are able to innovate the most will be the economic powerhouses.

In the post pandemic world there will be many economic mini superpowers. They will control a substantial part of the world trade and manufacturing. But competition will be fierce. For the last three decades China had a monopoly in manufacturing. No country could compete with China for scale. That is now past. In the future there will be many players which will take China’s place. Dispersed and distributed supply chains will be the norm, and world trade will that much smoother as a result.         

Afghanistan - Shift of Focus

Permit me to start this article with the same sentence as the earlier one.

The more things change, the more they remain the same. What has unfolded in Afghanistan is mind boggling. It has stunned the entire world.

The die was already cast when Obama had declared that America will withdraw its troops from Afghanistan. The return on investment did not justify America staying invested in Afghanistan politically.

The reason the US came into Afghanistan was to look for the perpetrators of 9/11. This however morphed into a bigger mission to bring some order to Afghanistan after the Russians left. The US hoped to establish a democratically elected government in the country so that Afghanistan stopped being a breeding ground for fundamentalists.

But like all the powers before it, the US underestimated the difficulties of bringing democracy to the clan led provinces. Western democratic ideas have never taken root in Afghanistan. The clan and tribal leaders guard their fiefdoms fiercely. There was an attempt to institute the Loya Jirga, meaning the council by the clan leaders, but it broke down due to bickering by the leaders themselves. 

The geography is also difficult. There is little communication between the government in Kabul and the isolated provinces in the mountain valleys.

Pakistan has played a role in the failure of western powers to have a semblance of a rule of law in Afghanistan. One of the reasons Pakistan is so obsessed with Afghanistan is because the military perceives Afghanistan as their own strategic backyard.

Pakistani military thinks that if ever they have to withdraw against the Indian army, Afghanistan will provide them with the strategic depth. ie. Territory into which they can pull back and consolidate. Pakistani establishment, read, the military, would like Afghanistan to stay politically unstable, all the time so that they can make deals with the indivisual clans and keep the eastern part of the country accessible.

A legitimate, elected government in Afghanistan will hardly allow a foreign army to use its territory as a strategic asset.  So Pakistan played a double game. After the Russian withdrew, the American came into Afghanistan to clean up the country and to establish some sort of a political system.

Pakistan was roped in as an ally in this mission. This suited Pakistan who fleeced the Americans of millions of dollars but always supported the Taliban clandestinely. Why the Americans persisted with their mission knowing the Pakistanis were playing them is a mystery. After Osama Bin Laden was killed in Abottabad, Pakistan, it was expected, the Americans will withdraw. But, that did not happen. The Trump administration started the draw down in Afghanistan and Biden completed it, albeit a bit hastily.

The Taliban have taken over the entire country. The speed with which they captured the provinces points to some kind of a collusion between the Ashraf Ghani government and the Taliban.

This time the Taliban have toned down their rhetoric and their behaviour. Most of the democratic countries have reached a initial understanding that they will isolate Afghanistan if the Taliban do not respect human rights and if they allow the country to be used as a base to threaten other countries.

This time the political analysts have a different take on the Taliban. They think the Taliban want political recognition from the world to rule Afghanistan legitimately. How this pans out will have to be seen.

All nations around Afghanistan are worried. China wants to strike deal with the Taliban as it wants to exploit the mineral resources in Afghanistan, but is worried that Taliban might take an exception to the way they are persecuting Uyighur Muslims in Xinjiang, and start fomenting trouble in the region.

One of the fallout of the Taliban takeover of Afghanistan that has been predicted, is Pakistan will now control the Taliban to some extent. They could have some influence in the way the Taliban run the country. But this time the Taliban are careful to keep their distance from Pakistan. They do not want to be seen to be controlled in any way by Pakistan and the ISI.

 This may suggest the fabled theory of the Pakistanis regarding Afghanistan being their ‘strategic depth’ against India goes out the door. While Pakistan played a double game in helping the Americans to fight their war on terror in Afghanistan, and helping the Taliban to survive the American onslaught at the same time, they siphoned off millions of dollars from the US in the name of being a ‘Frontline State against terror’

Whatever happens in the Af-Pak region will definitely affect India, however it seems the tactical importance that Pakistan enjoyed as a ’frontline state against terror’ the last several years may be on the wane.  The Americans are out and as of now, there does not seem to be anyone willing to take their place.

The Taliban will probably be unwilling to have an exclusive relation with any country. Their grip over Afghanistan is still tenuous as the former Vice President Amrullah Saleh and Ahmed Masood have put up a resistance movement from the Panjshir province.

If the Taliban, or whatever dispensation comes to power in Afghanistan can bring some stability to the region, India can then look at other regions which have been neglected all these years. The Indo-Pacific, lately, has been getting increasing attention of the MEA, however, India needs to do more in the region to counter China.

This shift of focus will be a first for the country. Since independence India has been completely engrossed in focusing on the Pakistan China Bangladesh axis. India now has mended its fences with Bangladesh. However, Pakistan, and an increasingly aggressive China, has prevented it from looking in any other direction for its security. This can change if Afghanistan becomes politically stable. Even the US could shift its focus to the Indo-Pacific once its washes its hands off Afghanistan.

Thus, we could a see a shift of focus from the Middle East and Af-Pak regions which have been the geo-strategic chess board for global powers since the end of WWII, to the Indo-Pacific where the great game could be played all over again.