A distribution of power among country groups facilitates global growth far more than concentrated power in one or two hegemons
There likely is no US debt ceiling crisis in the offing. Wrangling between Democrats and Republicans over expenditure cuts and the US obligation to honor its debt service commitments is more show for the consumption of domestic political audiences trained to polarise over simple-minded notions of right and wrong than anything of substance. Yet, this shadowboxing casts a storm shadow over the world economy – such is the hegemony of the US dollar.
The US economy accounts for 25% of global output, China’s 20%. China is now a bigger creditor to developing countries than the US. For all its economic heft, China remains a minnow in global financial markets. One reason is China’s reluctance to commit the renminbi to full convertibility on the capital account. The more fundamental one is the upper hand the US had in the 1944 Bretton Woods conference that set up the post-World War 2 global financial order, in which the dollar was assigned the role of the world’s reserve currency, overriding British negotiator John Maynard Keynes’ suggestion to create a new bancor to settle the international balance of payments.
Its right to print the world’s reserve currency gives the US privileges denied to any other economy. That is only natural. But enjoying those privileges is not the only thing the US does with the dollar: it weaponizes it, to impose sanctions on countries, companies, and individuals to coerce them into compliance. The sanctions against Russia are the latest instance of such coercion.
If you went by the Western media, Ukraine is the granary of the world, and the Russian blockade of its Black Sea ports was responsible for the shortage of grain that sent food prices soaring around the world in 2022. In reality, Russia traditionally exports twice as much wheat as Ukraine does, besides fertilizers. Russia’s export of food grains is restricted because of the sanctions against Russian banks.
So, when Russia demands the removal of restrictions on its grain exports as a condition for extending the agreement, brokered by the UN and Turkey, to let Ukrainian grain leave the Black Sea, it is protesting against the weaponization of the dollar as much it is holding out a much-needed dampener on global inflation.
The US has imposed a technology denial regime on China, to curb its capability in foundational technologies such as artificial intelligence (AI) and quantum computing. The US sees China as its systemic rival in the making and is determined to prevent its rise. Clearly, in this case, the US sees power as the decisive metric, not rules of free trade, comparative advantage, and so on US geopolitical power.
But when it comes to Russia, there is a stark refusal to recognize the relevance of geopolitical power. Russia would become a much-diminished geopolitical power without its naval base at Sevastopol in Crimea. To lose Crimea to Ukraine and for Ukraine to be part of Nato is for Russia to surrender the bulk of its navy. This is at the heart of the ongoing war in Ukraine.
Before Nikita Khrushchev handed over Crimea to Ukraine in 1954, Crimea had never been part of Ukraine, and Russia’s land access to Sevastopol was through the Eastern Ukraine regions Russia has annexed now. The US and Nato can escalate the conflict by arming the Ukrainians with F16 fighter jets. But that is not going to persuade Russia to let go of its navy and its standing as a global power. The war would drag on, draining European, American, and Russian fiscal resources, killing increasing numbers of Ukrainians and Russians, crimping world growth, and inflicting much misery on the developing world.
The spike in global inflation has produced coordinated policy rate hikes by the US, Europe, and Japan, strengthening, primarily, the dollar and forcing developing countries to also raise rates to prevent further depreciation of their currencies against the dollar, and the resultant threat to growth and recovery from the pandemic – these all stem from the West’s desire to weaken Russia as a geopolitical force.
The West’s ability to hold world growth hostage to its desire for geopolitical dominance is as undesirable as continued reliance on the dollar as the world’s reserve currency. This is the area of overlap between India’s interests and China’s.
Yet, China claims tracts of Indian territory, besides territories claimed by neighbors in the South China Sea. Its debt-laden diplomacy is a malign influence on global growth. Containing China is, thus, an area of overlap between Indian and American interests.
Pursuing growth, while defending the space for making autonomous choices in relation to other nations and growth strategies, calls for India to balance its shared and divergent interests with multiple powers. This becomes easier when the power centers in the reckoning grow, making it necessary for the dominant power to find accommodation with more parties in more areas, and reducing its ability to focus its coercive forces on any single target.
A Europe that has its own strategic mind, a Japan-South Korea grouping (overriding World War 2’s residual hostilities), a viable Russia and a Saudi-Emirati core for the Arab world, and Brazil and South Africa offering leadership in their regions, besides, of course, the US and China – such a distribution of power would suit India, and the developing world in general.
The article was first published in The Economic Times as Why a better distribution of global power would suit India, and the developing world on May 24, 2023.
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