The US elected a new President. Fifteen ASEAN countries signed a trade deal, the RCEP, creating the largest trade bloc in the world. The China – US tussle intensified on many fronts. Multilateralism took a few steps back. And, of course, Covid-19 happened. Where will we go from here?
As the curtains go down on 2020—an unprecedented year by all accounts—this Founding Fuel Masterclass helps us make sense of what we've been through and what's to follow.
The masterclass was held on November 24 and was anchored by Indrajit Gupta, co-founder, Founding Fuel. Our stellar panel included
- Frank-Jurgen Richter, founder and chairman, Horasis: The Global Visions Community and the former Asia director of the World Economic Forum
- Sundeep Waslekar, president of international think tank Strategic Foresight Group
- Niranjan Rajadhyaksha, research director of IDFC Institute
- G Venkat Raman, associate professor at the Indian Institute of Management, Indore
Here’s a synopsis of the masterclass
What 2020 revealed
1. World leaders are ill-prepared to respond to crisis, even with early warning
Sundeep: WHO announced a global health emergency on January 30. You would expect that the world leaders would appoint special envoys to see how to coordinate a response. None of that happened. From 14th to 16th February, the foreign ministers and defence ministers of all major countries met in Munich for three days… this was two weeks after a global health emergency was announced, and two weeks before the word went into lockdown. And they didn't discuss Covid as global crisis.
2. 2020 accentuated the divide between the haves and have nots, but there’s hope
Frank: It's a digital divide, a social divide, a financial divide, and a humanitarian divide. Covid is making it worse. There’s a lot of unrest in many parts of the world—Thailand, Chile—and all these small revolutions are being interconnected. But there's also hope. Multilateralism might be back. Companies are focusing on sustainability. Maybe this crisis is an opportunity to reflect and reengineer all the systems we are living in.
Venkat: The epidemic will make things worse. More and more automation is required, and this will lead to more people being pulled out of employment. In India, for example, if you have good digital infrastructure, virtual online learning is a boon—the best teaching practices can reach every nook and corner of the country. Unfortunately, whatever little bit of education that was happening in the rural parts, suddenly now kids are deprived of that.
3. There were three crises this year, and Covid was the smallest of them
Sundeep: The second crisis, which was bigger than Covid, was that 2020 was the hottest year in recorded history. And it has been the hottest period for the last four years. Global warming is going up; there were many forest fires. And this is simply not noticed.…
But the really big development, which threatens the survival of humankind maybe a million times more than Covid, is that 2020 was when the nuclear arms race went to a much higher strategic level. This was the year when the arms race for hypersonic missiles started. In January 2020, Russia deployed Avangard; in March, the Americans tested their hypersonic missile on Hawaii islands; then India joined the arms race. And the Chinese were already there with their DF-17.
4. Science and technology is resilient even in a crisis
Sundeep: A small country like Guatemala developed its own satellite; UAE sent a Mars mission; Elon Musk is sending 15,000 satellites. There were a number of developments in biotechnology, in genetic engineering… in archaeology, the oldest and the largest monument in Mayan civilization was discovered this year.
Frank: Years of crisis have always been years of scientific discovery. The Chinese discovered gunpowder at a time when the Chinese Empire fell into three smaller empires and they were all fighting each other. Even during the Renaissance, with all the scientific discovery in Europe, there were many wars going on.
What does the US Presidential Election signal?
1. US – China relations: The rhetoric may change, but not the policies
Frank: There's hope that Biden is getting back into the multilateral realm. He announced that on his first day in office, he will rejoin the Paris Climate Agreement, WHO and others. But, in principle he will keep many of the lines President Trump created, especially vis-a-vis China. Maybe the whole rhetoric is changing, but in principle, he will follow the same policies, even in Europe….
The most important alliance partnership difference in the world to watch really is the US - China relationship. Are we moving from a kind of cold war environment into a hot war? So far, the cold war is mostly linked to the trade imbalances between both countries. Now, there's also the fight for technical supremacy, it's like a tech war. There might be even a hot war.
2. US - Russia relationship and multilateralism
Sundeep: I agree fully that the US - China relationship is going to be the major fault line, not only in 2021, but probably in the next decade.
But let us not forget the US – Russia fault line… When we talk about multilateralism, it's not a vague concept, there are concrete institutional steps that Biden will have to take or reject. Around February 1 or 2, he will have to take a decision on a very concrete, multilateral issue. And that is the New START treaty [the Strategic Arms Reduction Treaty]. This treaty is going to be influenced by the US’s relationship with Russia a lot more than its relationship with China because China doesn't have any deployed warheads, at least as of now. It's going to be a critical test of Biden's commitment to multilateralism.
What to expect in 2021
1. A massive shift by the three big economic powers to an ecologically sensitive New Economy
Sundeep: The Biden team has announced they will create a Green New Deal. Biden has committed $2 trillion of US public money, plus he will mobilize $3 trillion of US private money. That’s $5 trillion—or 25% of US GDP being mobilized for a shift to a new economy of renewable energy, and a mechanism that will respond to the climate crisis.
President Xi Jinping, in his address to the UN General Assembly in September, announced that China will become carbon neutral by 2060. Biden has announced that America will become carbon neutral by 2050. The EU has announced that Europe will become carbon neutral by 2050.
So, one of the biggest things that will happen in 2021, is the move by the three big economic powers—the US, China, and EU—towards shifting the economic gears to the new economy, with trillions of dollars of investment.
This is going to be very important for US – China relations, because this shift to a large extent depends on China—it is the biggest supplier of rare earth metals [it accounts for 97% of the exports] required for solar panels and wind turbines.
2. The rise of China (It cannot be isolated)
Venkat: They have dug their heels too deep into global supply chains. Americans cannot say that I am not going to give chips to China, but I'm fine with exporting my luxury goods to China. Similarly, India cannot say that I will ban 58 apps because of whatever security concerns I have, but I'm okay with getting API's from China for my pharmaceutical companies…. American companies and Japanese companies are going to resist and wrestle with their respective governments—"we are business organizations, this is where we are thriving in this very difficult time, you cannot expect us to make our business less competitive just for your political and strategic goals”.
Sundeep: One evidence is from Hong Kong. After the Chinese government introduced this new security law, most Western companies based in Hong Kong just fell in line…. officially, their policy is to have their access to the mainland market open….
3. Clashes between emerging powers and established powers: China vs US & India vs China
Sundeep: China is a rising economic, political and technological power. And the US is still a well-established economic, political and technological power. Historically, there is always a conflict between emerging power and established power. It’s called the Thucydides Trap. Those tensions will be there between the US and China and by the same logic, in the Asian theatre, there will be conflicts between China and India.
4. Intense tech race between China and US
Sundeep: China's technological capacity has increased substantially…. The China – US tech race is for high technology, not digital technology…. petaflop computers, space science… China landed a probe on the other side of the Moon. It is now preparing for a probe to collect samples from the Moon. It has already developed an ASAT [anti-satellite] weapon.
If Elon Musk is putting out 15,000 satellites in outer space, and introducing a new internet, the Chinese with their space power, can demolish that in the case of a war in a fraction of a minute….
There will be tussle. It's only a question of how the two sides managed that tussle.
Frank: China is no longer a me-too economy, just copying things. It is really at the forefront of development.
Elon Musk started with Tesla and all the hype, but the real winners in electric cars will be the Chinese.
America wants to decouple China, isolate China. And you've seen Trump's rhetoric saying that Chinese tech companies can't use American-made chips anymore… putting companies like Huawei in a very difficult situation. But maybe it's a bit like a Sputnik moment for China because Huawei and other tech companies have to develop their own technology. And Huawei is doing exactly this, developing its own standards.
5. RCEP: New economic power, minus America
Frank: Everybody is saying, US is trying to isolate China. I would say the opposite—China is isolating America. Think about the new trade deal between ASEAN nations [the Regional Comprehensive Economic Partnership, or RCEP], with China as the epicentre. It’s basically ASEAN countries plus China, plus Korea, Japan, Australia, and New Zealand—all Western countries, and nobody is asking for America.
Besides RCEP, there is of course the One Belt, One Road link from China, to Central Asia, to Europe. Many European countries actually very much rely on Chinese investments….
Yes, China is a state-driven economy, but what's really counting in China now [is that] the dream of most young Chinese is to be entrepreneurs. It’s a notion called xiahai in Mandarin—jumping into the sea—just go for it, and create your own company. It’s almost like a new land of opportunity, or a startup nation.
Also, in Africa, it’s the Chinese private sector that just goes there and discovers opportunities.
6. RCEP and India: If India is not going to be in the largest trade bloc, then where is it going to be?
Niranjan: There’s growing concern about China in Indian policy circles. There is also growing protectionist sentiment in the Indian political system [not just in the ruling dispensation]
We can take the wrong lessons from all this and say that India can be unilaterally isolationist in this complex world.
If you want supply chains to move to India, you have to also be open to imports, because supply chains are based on the trade to intermediate goods.
If India is going to stay out of RCEP because of the fear of China, then there has to be alternative FTAs signed. India then needs a Plan B—if you’re not going to be in the largest trade bloc in world, then where are you going to be?
Venkat: India seems to be signalling that we are going to look towards the US and Europe...
[Given that RCEP is a shallow integration, and the member states have a colonial hangover and don’t want to give complete control to market mechanisms] It suits India more at a certain psychological level to be a part of RCEP rather than be a part of TPP [Trans-Pacific Partnership], where it might find it very difficult to resist arm twisting as and when it takes place down the line.
7. Biden and India-US relationship
Sundeep: We know Biden has been talking in favour of multilateralism, but what is going to be his overall worldview? How is he going to look at the power structure of the world? And within that, how is he going to look at big players like China? Or Russia?
When Biden spells out his world view, only then we will see where India fits into it.
First, he is going to decide what is in America's interest.
Donald Trump essentially looked at a word as a place at risk. Therefore, he wanted to stop immigrants, he wanted to sell arms, he wanted to walk away from various United Nations forums. Because he thought America's interests were at risk.
Now, is Biden going to look at the world as a place of opportunities?
8. Look beyond the noisy news about growth rates in 2021
Niranjan: For the next two years, we need to shift our gaze from economic growth rates. So much output has been lost this year, that the next year will look fantastic… I would look at the GDP of various countries and the world itself.
The second big question: is this recovery going to be led by profits? Or by wages? Take the Indian example. If you've seen the results for the second quarter of this year, companies have done well. But they've done well largely because they have slashed labour costs—large layoffs, wage cuts, etc…. the consumption recovery at some point will falter.
The third worry is, the debt to GDP ratios have increased because of all the fiscal stimulus from governments in a weak economy. How do you exit the large public debt burden? [Through substantial rise in tax rates? Monetary expansion to let inflation eat into the real value of the debt? Or through financial repression when interest rates are kept below inflation, the largest debtor will be the beneficiary?]
Frank: We are facing a lost decade, or even two lost decades… a lost generation of youngsters who can't find jobs—the so called Corona generation.
India, I’m sorry to say, is underperforming, especially when it comes to the protectionist sentiment…. It's dangerous. If you want to compete with China, you have to basically work with them, compete with them neck and neck, you shouldn't isolate yourself.
It's a strategic mistake to not be part of the RCEP club. All the supply chains will be rearranged in Asia. Take the Japanese carmaker—he will manufacture parts in China, Thailand, Indonesia, still in Japan, and India is just a market to export… it's not part of the global supply chain.
9. Geopolitics and the Middle East, and the implications for India
Sundeep: The Middle East realigned in the last couple of years. Traditionally, it was Israel versus the Palestinians. Now you have two groups. On the one side, you have Israel plus the Arabs (Saudi Arabia, UAE, Bahrain). And on the other side, you have Turkey and Iran.
India is close to the Israel plus Arab axis.
The question is, whether the new US administration will pamper this axis? They will always have good relationship with Israel, but will they pamper Saudi Arabia? I'm not sure.
So, there may be some changes in the relationship between the US and Saudi Arabia, which could have an impact on this whole alignment. And there will be implications for India.