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Wednesday, May 27, 2020

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The ensuing pandemic of COVID-19 has hit the globalization in two ways – firstly, shrinking the importance of globalization as an economic force by curtailing mobility through worldwide lockdowns, and secondly, rejuvenating the idea of indigenization as an alternative to the globalization. However, after the initial hiccups, the globalization is also restoring its energy to fight back. These two major forces are competing in the global geopolitical landscape to define the new world order in the post-pandemic world.
As the period of lockdown is increasing, several economies throughout the world that were partially or wholly dependent on foreign producers in the pre-pandemic period are facing the shortage of essential supplies. This has forced them to look for self-reliance, i.e. local or regional options which are manifesting in the form of inward-looking policies or indigenization in various countries. Meanwhile, the USA and China, that were leading the forces of globalization during the pre-pandemic period but from opposite poles are also doing their best to re-groom it from their perspectives for the post-lockdown period.

COE-EDP has been tracking this trajectory since the initial days of the COVID-19 when it was considered only a health crisis by many. We analyzed and predicted the widespread impacts of the pandemic on geopolitics, international transport (Aviation and Maritime Transport), supply chain, self-sufficiency, policies in the energy sector, urban planning, data science, and business technology which are the major forces in deciding the new world order.

The situations are fast changing as nation-states are opening their markets in a phased manner and preparing to make their economies functional and combat the COVID 19 outbreak, simultaneously. Wuhan, the place of origin of COVID 19 was opened on April 8. Subsequently, Italy, the first European country that was worst hit by novel coronavirus outbreak, revoked lockdown on May 4 but with strict implementation of social distancing norms. Several other economies such as France, the United Kingdom, India, and Japan have also announced to provide relaxations in the lockdown in the coming days. From the prism of our previous researches, we are presenting this analysis for our audience to visualize the trajectory of the new world order in the post-pandemic world.

Advantage China
As explained in our previous article – Geopolitics in the time of Pandemic – China is still in an advantageous position.

In his desperation to get rid of his flagship trade deal with China, the US President (POTUS) Donald Trump went onto the extent of threatening his Chinese counterpart. In a statement on May 15, Trump said that he did not want to speak to Xi Jinping as the 'trade deal doesn't feel the same'. This trade deal was earlier projected by Trump and his administration as a major achievement of his tenure which he had also highlighted in the ensuing presidential election. However, China has been reiterating to fulfill its commitments in the first phase of trade deal time and again despite the unfavorable conditions. But, it should not be construed that China is silently bearing the US to continue the trade deal due to any compulsion. The recent actions by Jinping administration are enough to indicate that the Dragon is closely watching the Eagle and serving befitting replies on each and every move of the later. And, this is beyond allegations and counter-allegations on COVID 19 outbreak.

In response to Trump administration's endeavors to target Chinese companies, China decided to put Apple, Cisco Systems Inc., Qualcomm Inc., and other US companies under unreliable lists thereby putting restrictions on them to do business in China or investigate them. Earlier, Donald Trump himself announced to withdraw from 'billions of dollars' pension fund from China, making it mandatory for Chinese companies to follow the US accounting rules for listings in the US stock exchanges, and imposing heavy taxes on companies making their products outside the USA. Trump administration also announced to block chips of Chinese company Huawei in the US market. Furthermore, legislation was introduced in the US Congress on May 19 to bring the US companies back from China.

This increasing tension between the US and China is coming heavily on stock markets and weakening the confidence of global investors.

While China is on the path of recovery from the pandemic as well as its economy but the US is still in the middle of the COVID 19 outbreak despite registering the maximum deaths and cases in the world. According to the WHO situation dashboard on May 25 about 94, 011 people had died of COVID 19 in the US which is about 21 times 4,645 casualties in China. The number of confirmed COVID 19 cases in the US was about 17 times more than in China. Allegations were also made by the US against China for using the pandemic as warfare to fulfill its aspirations of being the global economic superpower but China hit back and asked to show the 'enormous evidence' the former was claiming.

Challenges before the USA
After graduation to the level of Mao Zedong in 2018, Xi Jinping has become a permanent President of China while the US is passing through the election year due to which Trump administration is facing several constitutional, political, and moral challenges.

As the elections are due in the US on November 3 to elect new president, house of representatives, and about one third senate members, Trump administration doesn't have time for experimentation and risks. This is because his handling of the issue will impact the result of the upcoming election which will further decide the direction of the trade war and the US's position in the geopolitics of the post-pandemic world. These democratic challenges were explained by the COE-EDP in an analysis titled Governance Post-COVID-19 published at Devdiscourse.

Besides, China controls supplies of the US in multiple sectors. Independent estimates suggest that China controls about 90 percent of pharma supplies in the US and dominates in the global export. The dominance of China in space science, artificial intelligence, information technology, renewable energy, unicorns, high growth rate, tourism, and other sectors is still a major challenge for the US. Trump's initiatives on nationalism in the economy seems a desperate attempt to counter China's dominance in his domestic market and gradually move on to compete with China in the overseas market. The US Secretary of State Mike Pompeo's suggestion of TSMC's $ 12 billion investment to increase the US's independence from China is part of that strategy. However, the million-dollar question is – Will China give the US enough time?

COVID 19 has presented an urgency for reforms in all the sectors from production to supply chain and transportation. Here too China seems leading for starting early. Besides the Chinese media, the independent reports from the New York Times and Bloomberg of the US are suggesting improvements in the Chinese economy.

Wrangling Continues on Humanitarian Issues
As indicated in our previous analysis, the US is trying to hit hard at the weakest nerve of China – human rights issues – to probably ignite internal turmoil. Most recently, on May 15, the US Senate approved a bill to pressurize China over Uighur Rights. This is the second issue, which China considers its entirely internal problem but the US had taken up after Hong Kong democratic protests.

Besides, the US is turning all the stones to hold China responsible for COVID 19 pandemic. Hong Kong's democratic protests have again started in the post-lockdown period but China crushed it with force. Furthermore, China imposed a highly stringent National Security Law on Hong Kong which the critics say will crush the movement forever. The last British Governor of Hong Kong Chris Patten has demanded the United Kingdom to ensure the new law features in the agenda of the G 7 meeting scheduled to be held in June 2020.

To date, the US has not been able to achieve any of its objectives by intervening in the Hong Kong crisis but its intention to intervene in Uighur's issue will only increase tension between both the superpowers.

However, the wrangling between the two superpowers is not limited only to the bilateral issues but spread across geopolitics. China on May 15, rejected the US' plan to move the UN on Iran sanctions. The dragon also defended its company building a dam in POK. India is opposed to China's activities in the POK while the US has been suspicious about China's all the projects in entire Pakistan particularly the China-Pakistan Economic Corridor. The tension is also spreading in India-Pakistan, India-China, India-Nepal, Taiwan-China, China-Australia relations. Taiwan president Tsi Ing-Wen has rejected Chinese rule and demanded membership in the UN while the US is supplying US$ 180 million torpedoes to Taiwan.

The wrangling between the rivals also continues on the role of the World Health Organization (WHO) with the US demanding impartial probe in COVID 19 handling to the withdrawal of funding.

Indigenization: Inward Looking Policies of Nations

The challenges of the pandemic particularly those related to supply chain, aviation, and maritime transport have forced the nations to explore indigenization which is being manifested in the form of self-reliance. However, the focus on indigenization is not only limited to developing countries but most of the developed economies are also following this path.

The Senate of the US has recently sanctioned $ 484 billion in funding for small businesses and hospitals. Similarly, India, Japan, South Africa, and other countries are also adopting inward-looking policies. More and more countries are expected to follow the path of inward-looking policies in all the possible sectors. This trend will play a crucial role in determining the trajectory of the new world order.

The New World Order: How will it look like?

Today, we see two strong but contradictory forces – globalization and indigenization – working together throughout the world. The strength of China lies in its strong industries and high industrial growth. In fact, the entire effort of the US and other claimants of the globalization pie such as Japan, South Korea, Germany, England, France, and India, etc. is focussed towards the same growth trajectory – occupying the largest possible share in their domestic market and competing in the global market for the maximum.

COVID 19 has increased tendencies of the countries to fulfill the needs of their domestic markets through inward-looking policies and compete with others in the global market which is nothing but the sum of unserved areas or opportunities in the domestic markets of various economies. The strengths of the competing economies such as size, AI (Artificial Intelligence) based technological innovations, labor market, soft-skill, productivity, credibility, mutual trust, affordability, and geopolitics will play a significant role in deciding their share in the global market.

Prima-facie the notion of indigenization appears to smash globalization but a microscopic investigation reveals it has another dimension that is complementary to international trade. This could be explained with an example. For instance, a developing country wants to set up solar panels for self-reliance in the energy sector. It has two options – procure the solar panels from a foreign company through global competitive bidding (the present form of international trade – globalization) or set up a factory for producing solar power panels. If it goes for the second option, it will again have two options – wait till the time indigenous scientists and engineers are able to develop financially viable technology and set up a factory or procure heavy engineering and expertise from the global market to set up a factory/ factories. The first option will take years making it dependent on traditional energy sources of domestic or foreign origin for the duration which may take years while the second option will culminate into a new form of international trade. This does not mean that indigenization has no scope but simply indicates towards survivability of globalization in a changed form which is said to possess multiple tentacles like an octopus. Indian economist Prof. G.K. Arora has also supported this argument in his article by arguing that the complete decimation of globalization is not possible. Furthermore, urban planning will change to give space for local producers and suppliers to fulfill the needs of inhabitants in the sustainable cities of the post-pandemic world.

In the present scenario of high technological innovations and changing consumer patterns, complete self-sufficiency seems next to impossible for any country in the world. The inward-looking policies may decrease the dependency of economies on import but every economy has an inherent tendency to export. This will compel them for new kinds of deals for international trade. Here lies the scope for international trade and the global economy. However, the indigenization may provide self-reliance to economies wherein they will be able to make a sustainable balance between import and export.

We estimate the features of both – indigenization and globalization, in the New World Order but with different settings with new geopolitical equations.

Centre of Excellence on Emerging Development Perspectives (COE-EDP) is an initiative of VisionRI and aims to keep track of the transition trajectory of global development and works towards conceptualization, development, and mainstreaming of innovative developmental approaches, frameworks, and practices.