covid impact on world trade: View: Nations may opt to trade with economies where political trust exists, thereby fragmenting supply chains

By Jayant Sinha & Samir Saran

For decades, the West, led by US strategic thinking, bet that full-on engagement with Beijing would alter the opaque nature of Chinese politics, making it more liberal and open. The onset of the Covid-19 pandemic should ensure a quick burial to this belief. The free and open liberal world order has run into the great political wall of China with deleterious consequences. Not only did the intense engagement with China fail to alter its politics, but many liberal democracies have also adopted Chinese-style industrial planning policies. The irony of today’s geopolitical moment is that Western taxpayers underwrote China’s bid for global influence. Successive US administrations, egged on by Big Business and Big Finance, played a crucial role in bringing China into the global community, culminating in Bill Clinton’s decision to welcome China into the WorldTrade Organisation (WTO) system.

Building Its Appetite

The subsequent outsourcing of manufacturing and industrial capabilities from the West to China allowed Beijing to ‘bide its time’ as it strategically built its influence through control over global supply chains. Because of the enormous financial returns accruing from labour arbitrage, governments turned a blind eye, as China used this economic dependence to flex its political muscle, first in Asia and now, through the Belt and Road Initiative (BRI), into the very heart of the European Union (EU).

The hyper-globalisation processes that were steadily building up China’s industrial might were simultaneously causing enormous social and political churn among the Western working and middle classes. Shorn of the decent wages afforded by manufacturing jobs — and increasingly alienated from the financial and technology elite — those left behind turned against globalisation.

The current global pause induced by Covid-19 offers us a moment to reflect on what was, and to examine the contours of, what may well be Pax Sinica. Two large projects define China’s recent emergence. The first, reminiscent of Pax Britannia and Pax Americana, is the much-discussed BRI. China’s outward expansion through the construction of new supply chains and trade routes has been designed to serve its economic interests by capturing the flow of raw materials from Asia and Africa and, thereafter, supplying finished products to the world. And just as the British packaged their imperial design as a show of benevolence — think of the argument that the railways in India were built to benefit Indians — so, too, is China selling its political proposition as a new pathway for global growth, solidarity and development.

The second aspect of its expansion relates to technology, and its concerted effort to control and leverage the global data economy for itself. By globalising its technological prowess — from building next-generation communications infrastructure and digital platforms to offering surveillance tools to authoritarian governments — Beijing is well-positioned to script future administrations and regimes around development, finance, and even war and conflict. And it does this even as it isolates its own people from external flows of information and technology. Some argue that Pax Americana was no different. Like Beijing, the US leveraged its pole position in the global economy, its military and industrial strengths, and its technological supremacy to build a world order that responded to its interests. There is, however, no equivalence between the two. US society was largely open —individuals, communities and nations from around the world could engage, convince or petition its institutions; write in its media; and, often, participate in its politics. Its hegemony was constrained by a democratic society and conditioned by its electoral cycles.

Recipe’s Old, Mistrust’s New

It was these characteristics that encouraged nations to place some degree of faith in multilateral institutions, which were largely underwritten by the US. It also encouraged countries to participate in the free flow of goods, finance and labour; to move towards open borders, markets and societies; and, indeed, to embrace USled globalisation at the turn of the last century.

Few will be able to navigate the dark labyrinth of Chinese politics, much less claim to influence its communist party. It is worth recalling that at the peak of its might, the US withdrew from Vietnam because intense media scrutiny dramatically undermined public support for the war at home. Will images of damage to the livelihood and ecology along the Mekong convince the Communist Party of China (CPC) to abandon its damming projects upstream? Will the thousands of deaths caused by Covid-19 within China make it more transparent?

Therefore, the next globalisation era, increasingly underwritten by Beijing, may well be less free and less open than before. To balance China’s global ambitions, nations may opt to trade with geographies and nations where political trust exists, thereby fragmenting supply chains. Governments will ‘gate-keep’ flows of goods, services, finance and labour when national strategic interests are at stake. Indeed, we should be ready for a new phase of ‘gated globalisation’. Even as the recovery and progress of the post-Covid-19 world will be worse for it.

Jayant Sinha is chairman, Standing Committee on Finance in Parliament, and BJP MP from Hazaribagh, and Saran is president, Observer Research Foundation (ORF).

Source Article