2022:
A geopolitical reckoning
SHIVSHANKAR MENON
2022 was a year of dramatic events and
geopolitical shifts accelerated by the world’s decision to move on from the
pandemic. For us in India it opened up new opportunities and challenges,
particularly due to the changes in Asia. The paradox is that while geopolitical
risk is rising in a world adrift between orders, so are the options for India.
The only option that is not available is business as usual in a changing
environment.
In terms of the international system as a
whole, we are between orders, having transitioned from a bipolar Cold War world
to a post-Cold War unipolar order dominated by the sole superpower, the USA, to
today’s world adrift between orders. Economically, this is a multipolar world
with three economic superpowers: the United States of America, China, and the
European Union.
Militarily it is still unipolar. It is only
the USA that can project power across the world where she wants and when she
wants. China may have more warships than the USA, but American warships have
twice as much tonnage. China is still a regional power in military terms, which
is no comfort to those of us who are in what she thinks is her region. And
politically, the world seems completely confused. There is thus a disconnect between economic multipolarity
and the concentration of military power, a disconnect that in past history was
settled by conflict and war. The world is in an anomalous position after
globalization.
Some governments and scholars like to say
that this is a multipolar world, for it flatters their ego to think they are
one of the present or future poles. But in reality, as the war in Ukraine
shows, countries other than the USA do not determine political and military
outcomes outside their regions. They may count globally in economic terms but
otherwise remain regional powers. While the ability to determine outcomes is
limited to a few, in a globalized world the impact is widespread and affects
all.
Today
geopolitical risk is elevated because globalization and technology have made
the world a single battlespace. That world is
characterized by great power rivalry, where, unlike earlier decades after the
Cold War, politics is now in command of economics. In England, markets
overthrew a government in October, but that was the exception proving the rule
that politics is now in command. In China, Xi Jinping’s
carefully choreographed 20th Party Congress led to Chinese stocks losing
trillions of dollars in value globally in one day, on 24 October 2022. There
the government overthrew the markets. US restrictions on chip and semiconductor
trade and transfers to China are politically driven too. Politics is in command
where it matters. This heightens geopolitical risk for the entire international
system. It also creates new crises which are can be opportunities for India.
Take the war in Ukraine as an example. If
Russia had invaded Ukraine during the Cold War or earlier, it would have been a
local political issue, a fight among Europeans about the
European order. But in a globalized world it has significant second
order political and economic effects on the rest of the world – a global energy
crisis, a further spike in food prices, inflation, and so on. Russia’s invasion
has enhanced western unity as demonstrated in the sanctions. Those same
sanctions are tipping the West into a recession.
Western sanctions on Russia show that
politics, not economics, is in command, and that the
West is willing to pay an economic price for the political goal of isolating
and degrading Russia. The global South pays a major price without having had a
say in the sanctions. As for Europe itself, the prognosis must be a Europe
preoccupied with its own order for some time to come. Whoever wins this war, or
if neither side does, Europe will be unstable, with a powerful revisionist
loser unsettling it for years to come, limiting the EU’s role outside NATO’s
remit.
But the war in Ukraine has more long-term
consequences: accelerating Russia’s long secular decline as a power, and
strengthening the Russia-China alliance, both of which will affect the course
of events in continental Eurasia. There are, however, limits to the
effectiveness of this alliance of animus against the West, as China’s
scrupulous observance of western sanctions on Russia shows. This is an alliance
in which neither can do much for the other’s primary concerns: Taiwan, Asian
predominance, reducing its dependence on the US for China; the Ukraine and
European order for Russia, and their internal stress for both. Besides this,
Russia’s failure to achieve significant gains and also the performance of
Russia’s conscript army, are bad news for China, as is Russia’s weakening. For
India, Russia’s ability to deliver secure military platforms to India has taken
a hit, especially in sectors that require chips and electronics which Russia
will now have to source from China. We need to make contingency plans
accordingly.
The
international order is fraying in critical respects. Russia’s war in Ukraine
has highlighted the fraying of the international non-proliferation regime.
There is now a real risk of structural financial de-globalization. We may also
be witnessing the end of multilateralism as we knew it post-WWII. Organizations
composed of member states like the United Nations, the World Health
Organization, among others, work when the member states want them to work.
Great power rivalry means they cannot agree to make them work, as we witnessed
in the abject international response to Covid 19.
But what really matters for us in India is
Asia, closer to home. What will determine the course of events here depends, to
a great extent, on what happens between the USA and China, on China’s own
trajectory, and on the reordering of Asia that is underway both economically
and politically.
Today,
China is more dependent on the USA than the USA is on China in important and
strategically significant areas. China is tied in to the US dollar system (and
has yet to succeed in moving away from US Treasuries to hold her reserves
though she has been trying to since 2008). China also seeks to reduce her
technological dependence on the USA and the West. Neither can be solved in a
matter of days or months or even in a decade. Hence the
difference in tone and actions that both sides are taking, with the initiative
resting with the USA. The recent 20th Party Congress confirms that the
party-state in China has concluded without doubt that the US is determined to
prevent China from achieving her ‘rejuvenation.’ China will do all it can to
change this situation, thereby promising continued, but managed, tension and
strategic rivalry in the China-USA relationship.
Recently there has been much talk of war or
conflict between the USA and China, with Taiwan being suggested as the
proximate cause. No one can be certain of the outcome of a military move on
Taiwan, hence the uneasy peace at present. China used the Pelosi visit in
August 2022 to display her military capacity to blockade Taiwan, when
unopposed. I saw no urgency in Xi’s statements on Taiwan at the 20th Party Congress.
It is in the interest of militaries and some politicians on both sides to
create a sense of crisis to strengthen demand for their leadership, to rally
the troops and friends, and to divert attention from pressing, maybe insoluble,
internal issues. If at all there are attempts to change the status quo around
Taiwan, scenarios short of a full invasion or war such as a boycott or
blockade, pressure on offshore islands, or economic sanctions against the
Taiwanese in China, seem more likely.
Logically, direct conflict seems not to
serve the interest of either side. However, states and leaders are not the pure
rational actors beloved of economists and IR theorists. If they were, we should
be able to predict their future actions. While nothing can be ruled out, I
believe the probability of direct conflict between the great powers is not that
high. This belief does not preclude mistakes, proxy wars, great power
involvement in civil and other conflicts, and increasing friction in the
international system.
China’s
own internal trajectory seems to be at an inflection point. Prediction is made
more difficult by her history of great successes and failures, ranging from the
Great Leap Forward to the one-child policy, to ‘zero covid’,
to ‘wolf warrior diplomacy’ and foreign policy assertiveness since 2008, to
some of her commitments under the Belt and Road Initiative. As a result of
forty years of reform and an open door policy, China finds herself
powerful but dependent on the world for the first time in her history. She
appears to be entering an adjustment period after her growth spurt. Other east Asian miracle economies – Japan, Korea, Taiwan – also
went through a period of economic adjustment after approximately thirty years
of very rapid growth. In each case the adjustment was more difficult than
expected.
In all the other miracle economies the
economic adjustment provoked a reworking of the social and political contract.
It brought democracy to Taiwan and Korea, which seems unlikely in China. But we
see before our eyes a reworking of China’s political and social order under Xi Jinping, of building a hard security state as one means to
keep the Chinese Communist Party (CCP) in power and avoid the fate of the
Communist Party of the Soviet Union (CPSU). China stopped publishing data on
‘mass incidents’ (protests involving more than 100 people) when they crossed
200,000 a year in 2013. China today spends more on internal security than on
the military and national defence and has built an unprecedented surveillance
state, further tightened during the pandemic, to give early warning and
increase social control. Her surveillance technologies and data integration
tools have also been exported to at least 80 countries as of 2019.
The 20th
Party Congress in October reinforced the securitization of policy across the
board. The combination of pushback by the USA and other powers to China’s rise,
and the internal course that China is following, suggests the prospect of a
powerful but frustrated China – hard, brittle and touchy. Longer term drivers
of policy like her demography, an economy reverting to mean, and internal
stresses, reinforce this conclusion. We are also likely to see Chinese foreign
policy driven increasingly by domestic compulsions. It is hard to explain ‘wolf
warrior diplomacy’ in any other way.
In 2022, there was also an increased risk
of structural financial deglobalization. The
expropriation of Russian reserves along with Russia unable to use Swift to
clear payments internationally, surging inflation and debt and currency
depreciation in developing countries and their debt crisis, and a real prospect
of recession in the West, resulted in stressed economies everywhere. It would
be natural for countries to seek to build alternate payment systems now that they
have witnessed the use of the dollar being restricted for political reasons.
We could also see more barriers to
cross-border capital flows. But there is no alternative in sight to the dollar
as a store of value in the foreseeable future. In Asia, the Regional
Comprehensive Economic Partnership (RCEP), the Belt and Road Initiative (BRI),
and institutions like the Asian Infrastructure and Investment Bank (AIIB), are
creating a new economic order, largely centred on China. The alternatives –
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),
and Indo-Pacific Economic Forum (IPEF) – are weak and incoherent. Most of the
world today seeks alternatives and choices rather than being forced to choose
one pole or another, economically or politically, or to be boxed into
fragmented local orders.
For
India-China relations, which have steadily
deteriorated since 2008, the prospect ahead is not reassuring. The border is,
and will likely remain live, since China now frames it as a sovereignty issue
that is non-negotiable, only manageable, but neither country has engaged
politically to do so since the sanguinary clashes in 2020. Modi
and Xi, who met eighteen times between 2014 and 2019, have not met or spoken
since the border clashes in mid-2020, except to shake hands on the sidelines at
Bali G-20 in November. Both countries are building strength and infrastructure
on the border to create a new military equilibrium, and this promises an
expensive escalatory spiral.
But at the same time India and China are
structurally linked economically. India-China trade set records in 2021,
reaching $125.6 billion, and is likely do so again in 2022. China is India’s
biggest source of imports and third largest export market. Today China is
increasingly active in the subcontinent and this is a source of friction since
it often affects India’s security. Even if India and China were to come to an
understanding, which appears unlikely, the present situation would require a
clear understanding among all those involved of the red lines that affect
India’s core interests. India-China relations, our greatest strategic challenge
today, are at an impasse with little sign of a lessening of risk or of an
improvement in the predictability of the relationship in 2023.
Fespite this listing of heightened risks, the present situation does offer
opportunities for a country like India. The geopolitical churn and Sino-USA
contention itself creates balancing opportunities, as the Cold War did for
non-alignment, or the Ukraine war did with Russian oil for India. There is a
broad geopolitical opportunity for India. An immediate beneficiary of worsening
India-China tension has been India’s relationship with the USA. India and
America today do many of the things that allies do in defence, security and
intelligence, all without a formal alliance commitment to each other’s defence.
For India, the US is not just a balancer to China, though that adds weight to
the growing congruence of views and approaches to politics and security in maritime
Asia reflected in the Quad. For India the USA is an essential partner in the
transformation of India and
if we want to deal successfully with a world in transition.
Does that mean that we should be allies?
Not in the sense of defending each other – we must be able to look after
ourselves 75 years after independence. Besides, as a global power, the
interests of the USA are not identical with those of India. Where they are
similar, as in the maritime Indo-Pacific, and by and large, relating to China,
we work very closely together. The China-USA rivalry has changed the nature of
American interest in India. It has also enhanced the balancing potential for
others now that this is the main contradiction in today’s geopolitics. The USA
is a key element of the balance everywhere. No other power is.
The
other opportunity that the present situation throws open for India is within
the subcontinent. Economically, if we were to use the crisis to do what we find
difficult in normal times like enhancing regional connectivity and cooperation,
we would have found opportunity in crisis. Connectivity is key: rail, road, power, digital and other forms. Payment systems could be
aligned. Energy, particularly green energy, offers another area with potential.
We have the successful example of what we have done with Bangladesh in the last
fifteen years. In today’s situation, when politics is in command of economics,
we in South Asian need to work together not just on our economic links but also
to protect ourselves from transnational and other security threats, thereby
creating a stable island of growth and develop-ment
in the subcontinent.
For instance, if we wish to secure the seas
around us which are essential to our livelihoods, trade, and exports, we should
be stepping up what India and Sri Lanka started in 2011 – working with partners
in the Indian Ocean Region (IOR) to improve maritime domain awareness, safety,
response
to humanitarian disasters, and ensuring the security of our sea lanes. The same
is true of other aspects of human security such as food and energy, all of
which will not resolve if Asian politics is polarized. Tense India-China
relations have led to increased Indian attention to smaller neighbours. This is
where one can expect much greater initiative from India.
At the
same time, India will have to adjust to new economic realities. We need an
external economic policy to cope with the reorganization of the Asian and world
economy. For India to walk away from the Regional Comprehensive Economic
Partnership (RCEP), in the economically most dynamic region in the world, and
stay away from the trade leg of the Indo-Pacific Economic Forum (IPEF), makes
little strategic sense.
A new economic order is forming around us
with the globalized economy breaking up into subregional
trading blocs like the North American Free Trade Agreement (NAFTA),
Trans-Pacific Partnership (TPP) and RCEP, and with new standards being imposed
by the USA and others. The USA had devised and managed a global free trade and
open investment system of which India and China were the greatest beneficiaries
in the two decades before the 2008 global economic and financial crisis. Today,
however, the liberal economic and free trade consensus is broken in the USA and
the West. The Brexit vote, the US withdrawal from the
Trans-Pacific Policy (TPP), and Trump’s positions, all reflect fear and a lack
of confidence. Our decision to stay away from RCEP suggests that we share that
fear of change and the future.
India has a chance to compete with China
economically, even as a global manufacturing centre, but that would require
integrating the Indian economy into global supply chains. If we find
protectionism and international trade too difficult to cope with, we should
look at making IPEF into an Organization for Economic Cooperation and
Development (OECD) equivalent in Asia, setting standards and creating an
enabling environment for our economic transformation. For the last five years
India has raised customs duties, raising average effective tariff rates, already
among the highest in the region, from 12 per cent to almost 18 per cent, well
above Southeast Asian and East Asian levels. This deters the investors India is
trying to attract away from China.
We are cutting ourselves off from the world
rather than integrating with it. This contradicts the stated goals of the
Production Linked Incentive Scheme (PLI) to promote exports and manufacturing
in India. It also makes it harder to integrate India into global value chains.
Over the last five years global manufacturing value chains have been shortening
as both China and the USA attempt to onshore production. Global value chains in
services, on the other hand, have been lengthening, thus opening up an
opportunity for India.
All in all, despite considerable external risk
in the international system, particularly in our relationship with China, there
is an opportunity for India in this time of change in a world adrift where
politics is in command. India’s essential choices are domestic, not foreign. If
we can deal with our domestic challenges, we can deal with the external
environment. In the present situation, the exercise of agency requires
acceptance of risk (and some inconsistency). Sometimes the biggest risk is to
try to avoid all risk.