Post-Covid Geopolitics and Power Plays

By Anil Madan

Which one factor do you think has been the single most important development or influence in the world over the past twenty years? This is a question that a friend asked me a few weeks ago when we met for dinner. He then asked me to list the five most significant developments or influences over the past twenty years. This was followed by two more questions:

    1. What do you think will be the single most important factor over the next twenty years? and
    2. What will be the five most significant factors over the next twenty years? 

I answered the first question quite readily. The Internet, of course. He agreed. But then he said: “Before you answer my question about the future which we will get to after you’ve listed the other four most significant factors in the past twenty years, think about whether you would have predicted those things twenty years ago.

We had a most interesting discussion which left me with the lingering distress at how easy it is to fumble prognostications. So, it is with some humility that I try to imagine how a post-Covid world will look in terms of geopolitics and power plays.

Whether the US can survive the deep divisions it sees domestically and the pressures from illegal immigration, is not known. If it loses control in that respect, it also risks losing control on the world stage. Pic – i.insider.com

Picking up on my friend’s approach, if we think of the five most significant factors in geopolitics over the past twenty years, we would probably agree on these:

1. the World Trade Centre attack of 2001 and the follow-on focus on terrorism, and the involvement of the US in the Iraq and Afghan wars;
2. China’s unquestionably established itself as a major economic and geopolitical force;
3. the world’s response to Climate Change;
4. cyberattacks and cybersecurity; and
5. globalization and e-commerce.

We might include the erosion of democracy, the rise of autocracy, the swelling numbers of refugees worldwide and, of course, the Covid-19 pandemic.

But what of the next twenty years?

The most compelling change we are about to see is the ascendancy of China as a dominant force and the decline of the U.S. in that role. There is nothing surprising about that prediction as it is more or less a continuation of a change that is already underway.

China’s quest for world domination runs into another contender, India. On the surface, Chinese domination here seems a given, but this rivalry remains to be played out. Certainly, China seems in an ascendant position when it comes to taking control of Bhutan and perhaps Nepal, but China faces a delicate choice in how aggressive it can be, so as not to leave India feeling its very existence threatened and no choice but a nuclear option.

India has a chance to become the manufactory of the world. The urgency to replace China in that role will be pressing, and India will find support in America, Europe, Australia, Britain and Canada.

We will likely see the influence of Russia and Europe as a whole significantly diminished. Other than Germany as an exporter of automobiles, much of Europe will be reduced to the role of exporters of agricultural products. Machinery and equipment will probably be produced more cheaplyand efficiently in Asia.

Russia will remain a proud reaper of income from energy sales to Europe, mostly to Germany for the next two decades or more but probably facing severe pricing pressure as renewable energy takes a bigger share of the market. Europe’s future is more as a repository of refugees from Africa and the Middle East than as an economic power.

In the Middle East, it is touch and go to see if Iran will dominate or whether a rapprochement among Israel, Egypt and Saudi Arabia will produce a counterweight to Iran’s ambitions. In terms of power plays, there is an ongoing danger that Iran’s Ayatollahs will attempt strikes against Israel or Saudi Arabia. There is a serious danger of nuclear proliferation in the region with disastrous consequences.

Japan and Korea have much work to do. Both will remain major contributors in terms of worldwide automobile manufacturing which will trend to electric vehicles and autonomous offerings. Both seem unlikely to displace China as low cost manufacturers of lower margin electronic and machined goods.

The big wild card is whether the US will be able to repatriate manufacturing capacity whether by 3D printing or other more sophisticated automated processes. If not, China’s influence will only increase.

China will likely emerge as the dominant naval power at least in the Pacific Ocean. It is on the way possibly to becoming the dominant power in the space race as well, but the US has yet to be heard from in that respect.

No African country seems to be in a position to change the dynamics of the geopolitical arena and the same may be said of South America.

The wild cards we cannot address are the ongoing pandemic and climate change. The Covid-19 pandemic will be over at some point. We will achieve herd immunity, but at what cost? The problem is that there is no way to predict how much more damage the world will have to endure and no way to predict what new pandemics lie ahead. What does seem clear is that the world remains woefully unprepared to deal with such grand-scale disasters even as we have the technology to develop vaccines rapidly. 

In terms of climate change, it is not clear that merely reducing carbon consumption or carbon emissions will be sufficient to reverse the effects of climate change. In short, can we reduce carbon consumption and emissions sufficiently to make a difference? Can we reduce reliance on fossil fuels without causing a worldwide depression?

The battle here is one of technological development of solutions for efficient deployment of alternative energy. One has to think that the U.S. has the advantage here and if America can harness the solutions needed for the world, it stands a chance of regaining its preeminent position in technology.

As of now, the world’s financial system depends on the stability and acceptability of the US Dollar as the world’s reserve currency. Given the massive runup in US debt and the printing of money at will, the US Dollar is in a precarious position. Nevertheless, the Chinese Yuan is not in a position to displace the US Dollar unless China can build a much greater degree of trust than it now enjoys in financial markets. Sadly, the US has been working hard to squander its built-in advantage here. My sense is that the US will retain a slight advantage and that remains its greatest hope of keeping China in check.

The Asian nations face immense pressure from China. Their only hope seems to lie in becoming viable alternatives to China as manufacturers of consumer goods, electronics and machinery. Success in these areas will require large investments. US private equity ventures can play a big role here.

The Internet and e-commerce also remain up for grabs. While it is true that China and India have almost 3 billion of the world’s 7.7 billion potential consumers, unless there is a sea change in currency values or disposable income, the US will remain the dominant force in world trade.

In summary, we can expect a far more aggressive China on the world stage. Whether Iran will also be more aggressive remains to be seen. The US has far less ability to be militarily aggressive than in the past. But the US has the ability to exert meaningful influence due to technological superiority and a better ability to deploy technology than any other nation. However, this advantage is rapidly dissipating.

There is a significant unknown in the mix here. Whether China’s authoritarian regime can maintain control of its population over the next two decades remains to be seen. Whether the US can survive the deep divisions it sees domestically and the pressures from illegal immigration, is also not known. If either nation loses control in that respect, it also risks losing control on the world stage.

Cheerz…
Bwana


* Published in print edition on 27 April 2021

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