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.