A meeting of the US Experts Group at VIF comprising Director, VIF, Dr Arvind Gupta, Ambassador Arun K Singh, former Ambassador of India to the United States Former Foreign Secretary, Ambassador Kanwal Sibal, Defence experts Lt Gen Ravi Sawhney, Lt Gen Anil Ahuja, Vice Admiral Satish Soni, former ambassador to China Ambassador Ashok Kantha, Prof. KP Vijayalakshmi (JNU), Mr. Pranav Kumar, Head of the International Trade Division at the CII, Dr. Rudra Chaudhuri, Director of Carnegie India and Dr. Harinder Sekhon, Consultant at VIF, was held to deliberate upon the current global situation in times of COVID-19 pandemic. The meeting focused on the evolving challenges to the US led global order, nature of US-China rivalry, its potential implications for the global economy, and the policy options that lie ahead for India. As the COVID-19 pandemic drags on, the group deliberated upon the effects of the pandemic on the world order that have started to take shape. Will the spread of the pandemic deal a deathblow to the liberal world order by undermining support for globalization? Is the virus affecting states’ sources of material power and how? Will this challenge be temporary and would the liberal world order emerge stronger? These were some of the questions that the experts deliberated upon in a well structured dialogue.

Challenge to the US led Global Order

The COVID-19 pandemic has undoubtedly emerged as a serious threat to the US led international order with the potential to challenge its global hegemony that it established at the end of World War II. The US, which emerged as the undisputed leader at the end of the Cold War in the 1990s, is today locked in a long-term strategic competition with China for dominance of the international order that the US established, and in turn helped China to integrate into. American global leadership came with added responsibilities and high economic cost due to involvement in international crises. This has caused unease among about 30 to 40% of the American population who began to question the rationale behind American involvement in futile overseas wars with no resultant benefits. It’s easy to understand why Americans question involvement in wars that have dragged on virtually since 9/11, with no end in sight and this has been more visible since the global financial crisis of 2008. These Americans also question the forces of globalization that were unleashed by the USA and have benefited many countries who today challenge it.

Donald Trump capitalized on this American sentiment and won the 2016 election on his main campaign rhetoric of “Making America Great Again” by expecting friends and allies like NATO, Japan and South Korea to spend more for their security needs rather than look to the US to bail them out against Russia and China respectively. Ironically, given all its desire to cut back from international engagements and become more domestically focused, the US being hit the hardest by COVID-19 needs its friends and allies to overcome the challenge of the pandemic. While the US will bounce back from the present challenge, it will be a long and arduous path to recovery.

The pandemic has highlighted Trump’s inability to work with others and within the US too there is little coordination between the States and the Federal Government to evolve an effective road map to tackle the pandemic or chart out a plan of action for economic activity to resume. The adverse impact on the US economy could have an impact on the outcome of the election.

“America First” will once again become an important phrase in the 2020 US election. The challenge for both Trump and the presumptive Democratic nominee, Joe Biden would be to shore the manufacturing back to America to rebuild the economy and create jobs. Biden too is not likely to play a very active international role if elected. But he would be less abrasive than Trump and will take steps to rebuild alliances especially with Europe so that both the US and Europe benefit economically. The Asia-Pacific focus too will remain as both Russia and China are a challenge in the region. If Joe Biden wins, then the US priorities would be to build bridges with Europe and continue with the focus on the Indo-Pacific.

American policy towards Europe will become crucial if China is to be contained. The US dispensation has been strained. There are challenges within Europe as well. When Italy was first hit, not all European nations came to its aid and Germany in fact banned supply of critical supplies. Another example is that of Serbia, a candidate country for EU, which noted that it was let down by EU and had to turn towards China for aid. The essence of EU is free movement of trade and people which is under duress due to the spread of the virus. While Western European countries are cautious about China, Central and Eastern European ones seem comfortable working with China due to the economic factor. On the other hand, Western European nations are keen on engaging Russia relative to Central and Eastern European countries.

US-China Relations: Future Trajectory

On ‘US-China Rivalry and the world after Covid19’ some points raisedby Dr. Da Wei (Professor at the University of International Relations, Beijing) at an online event hosted by the Institute of Chinese Studies, New Delhi are relevant to note. Dr. Wei argued that China-US relations are caught in a vicious cycle. While there was a brief moment of hope in January when the two nations signed the first phase of a trade deal, the optimism linked to that deal was misplaced as the two nations have been caught up in politics over the virus. Dr. Wei noted that this state of relations will continue till the election period in the United States (November 2020) and that there are two possibilities that will emerge in the aftermath of the U.S. elections (i) a group of China hawks (irrespective of a Trump or Biden presidency) could be in-charge of the China policy and in this case bilateral relations will reach a tipping point and there will be further deterioration in 2021 or (ii) a rational foreign policy team will be in place and if this is the case there could be space for benign competition between United States and China.

There is however a strong view that benign competition won’t be possible because there is bipartisan consensus in the United States that China is a challenge. In the run up to the elections China will be a focus for both Trump and Biden. Even if Biden is elected, the United States will continue with a hard line towards China.

While China may have an advantage as of today, Chinese position will be challenged because there will be a backlash against China. As foreign businesses move away from China, it will mean a decline in the Chinese economy and its ability to pursue Belt and Road (BRI) projects will be difficult.

Indications are that China may face economic issues in the coming months as it may find itself in a reverse ‘debt-trap’ situation where borrowers won’t be able to return money. If this is the case, China will be under considerable pressure as there was a decision in G20 to put a moratorium on bilateral government loan repayment as part of an “action plan” to tackle the coronavirus. Since China is part of the G20 they will have to follow the rules.

In the wake of Covid-19, we will see a much more assertive China. For China, this is a moment where it can assert itself as it is the first major economy to open up, even in a limited manner, following the pandemic. By hosting the CPC meeting on 22 May 2020 with close to 5,000 delegates, China wants to showcase that it is capable of handling the crisis. China acted in a similarly assertive manner following the 2008 financial crisis. Another example of its assertive behavior is aggressive behavior in the South China Sea.

In the coming months, we are likely to see a battle between two narratives about Covid-19. One narrative is about China’s misinformation as the virus first spread in Wuhan. U.S. President Trump has directly attacked China stating that China could have contained the virus and slowed its spread had it been transparent. Trump is stating that China failed to contain the virus and should be held accountable. Similarly, Australia has officially requested for an inquiry into how China handled the virus and EU countries might take a similar step.

A counter-narrative is the China led one: China has positioned itself as a global saviour. Senior officials in the Chinese government have directly criticized Trump (this, so called, ‘wolf warrior’ diplomacy has sanction from President Xi).

In a world after Covid-19, we will see the acceleration of certain trends – intensification of the Sino-US rivalry, shift away from hyper-globalization, move towards protectionism, inability of international multilateral groups to function properly due to tensions between the United States and China (we have already witnessed how the WHO has been found to be lacking and has been hampered by US-China tensions) and countries making a shift away from China supply-chain. The world post Covid-19 will be a less collaborative, meaner world where greater strategic rivalry between the United States and China ensues.

Geopolitical tensions are likely to continue. While G7 countries were initially wary of pointing fingers at China, French President Macron recently said that China wasn’t transparent and Chinese assertion that it handled the crisis better than democracies is naïve. UK, similarly, noted that post the crisis it won’t be business as usual with China. The European coverage of China has been negative in the past few months.

China’s image has been badly tainted and there is recognition that over dependence on China is a weakness. The Belt and Road Initiative will be affected and certain African nations, Kenya for instance, are already reconsidering BRI projects. China’s assertive actions in South China Sea are, in part, aimed at Indonesia and this is of concern to India as India is looking to build stronger ties with Indonesia. The fate of RCEP is currently undecided given Japanese and Australian attitudes.

Options for India:

COVID-19 has been a challenge for India’s economic growth and we must prepare for a long recovery period. Nothing can be predicted as to how long it would be. Forexample Airbus Industries and its long-standing businesses have been dramatically affected due to the pandemic. Global trade will fall and there will be a sharp rise in US-China tensions. Countries will also begin the process of decoupling away from China, but it won’t happen overnight and will require time and investment.

But China can’t be ignored, irrespective of what one’s sentiments are, due to the massive financial resources they have. The issue at hand is of steady decoupling away from China. China won’t be able to arrest this process, in part due to the way China’s political system is structured – heavily centralised around the CCP and Xi.

India faces a tougher challenge compared to the United States, Europe and Japan because it shares a border, and has territorial disputes, with China. India is relatively more vulnerable to Chinese pressure and thus has to deal with China in a pragmatic manner. In the recent past, China has engaged with India in an assertive manner and has been insensitive towards some of India’s core issues.

Any weakening and limiting of China’s influence is in India’s vital interest. How can India achieve this? Between outright confrontation and timidity, there is a lot of space for India to act. But the time has come for India to shed its diffidence and act with confidence. In the past too there were opportunities where India could engage China in a forthright manner, but India chose not to. India’s discourse on the Indo-Pacific should be made clearer. While initially India was trying to accommodate Chinese concerns about the Indo-Pacific, hence forth India should delink its Indo-Pacific policy from its relations with China (just as China does with Pakistan in its relations with India). India should work towards strengthening the Quad and in a toned-down manner (unlike Australia and the United States), India should support calls for transparency into how China handled the crisis.

In the aftermath of the crisis, American, European and Japanese capital will look to invest in other nations and India should work towards attracting this capital. This will require serious policy changes on India’s part.

While the United States is a difficult nation to partner with, for India under current circumstances, it is the best partner to guarantee India’s long-term interests. While India has provided China with several opportunities to mend bilateral ties, China has chosen to disregard these. In the coming months, India will have to tread on a path full of challenges which also opens up some new avenues.

Economic Impact:

There has been an immense negative impact of the pandemic, both in terms of lives lost, as well as the economic disruption as millions across the world continue to remain under mobility restrictions. The United States is emerging as the hardest hit with more than sixty thousand deaths and a million infected cases (out of 3 million globally) already. The American economy is projected to contract sharply and see a negative growth rate of 5.9% (IMF) in 2020. A record number of Americans have filed unemployment claims. In the runup to Presidential elections, the worsening of economic conditions due to the virus outbreak is among the most significant challenges that POTUS Trump faces, and experts believe this would result in him focusing his remaining campaign to ride on the anti-China sentiment in the country.

Similarly, other major economies in G20 such as France, Germany, UK, Italy, Japan, South Korea are also likely to take a massive hit. Large multinational companies have already started witnessing trouble, especially those operating in the worst-hit sectors of aviation, tourism, and hospitality amidst global travel restrictions. Aerospace manufacturer Airbus, for, instance has lost more than a third of its business, while British Airways is set to lay off more than twelve thousand employees to cut costs and deal with the business loss due to the COVID-19 pandemic. As countries across the world look towards mitigating the vast uncertainty and unpredictability of the challenge, their focus would remain on first controlling the spread of the virus, and then towards restarting and reviving their economies.

In such a scenario, the multilateral trading system that was already experiencing rising protectionism even before the pandemic outbreak, is expected to reduce by 13%-32% in the next few months. This coupled with the failure of multilateral institutions in charting an effective coordinated response to the crisis, along with increased anxiety towards China’s centrality in global supply chains, raises serious doubts over the future of globalization. While the consequences of the outbreak remain uncertain, experts anticipate greater localization and a shortening of global supply chains. The US-China decoupling is also set to be accelerated in the long run along with a tense geo-political environment in the Indo-Pacific.

India’s has to navigate through this complex global scenario with multiple policy approaches. Almost half of India’s $2.7 trillion economy is rooted in external sources, with US being its largest export market. In the short run, India’s growth is set to be seriously impacted by the pandemic outbreak with its GDP projections falling to 1.9% in FY20. This would translate to significant losses in livelihood, income and revenue, significantly reducing the governments’ fiscal space to revive the economy.

India then, needs to leverage this opportunity to position itself as an attractive alternative destination for foreign capital. Competing with other emerging markets like Vietnam requires India to move beyond mere projection of its large domestic market and undertake substantial domestic policy reforms. While India’s ease of doing business ranking has jumped higher in the past few years, significant concerns still remain with regards to regulatory hurdles and infrastructure provisions. Experts also recommend reworking the incentive structure to attract FDI along with bringing in extensive trade policy support to provide guarantees to investors and facilitate a cluster based ecosystem for integrating into global value chains. Additionally, experts suggest rethinking and expediting long-pending trade negotiations with the European Union and ASEAN countries.

Additionally, on the defence manufacturing front, India needs to provide specific industry incentives to encourage participation of domestic producers in critical defence based global value chains.

In the long run, however, India needs to use the disruption caused by the Pandemic as an opportunity to bring about a paradigm shift in its economic thinking. Domestic reform should be oriented towards self-reliance and build a sustainable growth model. In the post-COVID world, the focus of India’s external engagement also needs to be on harnessing its strengths and charting out an effective solution to emerging non-traditional security (NTS) threats.

Critical sectors such as healthcare infrastructure and bio-pharma industry should form the priority areas for action. The Pandemic has brought to surface the vulnerabilities of our domestic healthcare sector. There is an urgent need for medical and para-medical staff to cater to the vast population. Manufacturing of essential medical devices and equipment needs to be boosted to meet the huge domestic demand. India boasts of a competitive pharmaceuticals manufacturing industry. The industry needs to be incentivized for further research and development activities.

The pandemic also presents an opportunity to build a resilient economy with strong defence and social sector capabilities. Commercializing indigenous technologies to build large-scale manufacturing capabilities in the areas of aero &defence technology should form an essential policy objective for the government. Self-reliance would not only help in safeguarding India’s strategic interests and reducing dependence on China, but also present an opportunity for India to leverage its enormous population and bring millions of informal labour force into the mainstream to be a part of the Indian growth story. It would of course be imperative for the Government and Industry to collaborate on up-skilling the Indian workforce to this end.

Rethinking India’s global engagement would entail reviving global south-south cooperation over NTS threats like pandemics, climate change and disaster relief. India has already been leading on several such multilateral initiatives like the International Solar Alliance, and would further build upon its existing strengths. India needs strengthen its economic and trade linkages in the neighbourhood, both to soften the negative impact of the pandemic on global trade, as well as to counter Chinese influence in the region.

The following broad themes need to be factored in while crafting any policy:

• Changing global landscape: There will be a further deterioration in U.S.-China relations and India must find the space between the United States and China in real terms.
• India’s economic hurdles: Some Indian analysts are painting a very rosy picture of what the Indian economy will look in the aftermath of the pandemic. India needs to rethink its current position and plan better for the future – one possible policy suggestion is ensuring that India’s top industrialists, accompanied by a senior cabinet minister, go to countries like Japan where there is capital and figure out ways to bring this to India. India could also take a lesson from the United States policy of sanctioning major relief packages to aid its economy. What can India learn from this? Participants noted that India needs to reform its trade policy and rethink how it conducts business.
• Skilling: India must address the matter of working towards skilling its population and how the CSR can be tied into playing a role in training the population. There is skepticism that while India is talking about becoming economically self-reliant, how this will be achieved is still uncertain. Even at the provincial level India has been unable to affect incentive structures to create conditions for self-reliance, so the question is how this will be done at the national stage. The Confederation of Indian Industry (CII) has created a rehabilitation fund, reaching out to private groups as well, to help fund MSMEs. But such efforts must be coordinated at the district level and then expanded following a bottoms-up approach. India needs to focus on better skilling its labour – for instance, during the US-China trade war, companies moved out of China but most went to Vietnam because the latter has better skilled labour.
• India’s Defence and Security Policy: India’s security and defence policy options must be reviewed and India’s approach to its defence industry in the time of crisis needs attention. Comparing Indian policy against American policy, the United States deemed the defence industry as critical infrastructure (placing more orders with investment, in various sectors, led by the Pentagon) whereas India is cutting the defence budget. While one acknowledges India’s limited fiscal capacity, India should work towards suppling money to certain sectors within the defence industry where India has a role to play in global supply chains.

  India’s approach towards its defence industries merits discussion within the Ministry of Defence. Given India’s attention towards digitalization, how is India thinking about cyber security? This could be honed into India’s defence strategy.

• India’s South Asia Policy: India must pay attention to re shaping its neighbourhood policy and India must assess as to how it can engage better, and more, with its immediate neighborhood. While China has significant resources, and is investing in India’s neighbourhood, India should work around this. Countries in India’s neighbourhood – South Asia minus Pakistan and ASEAN nations – enjoy access to Indian markets and India has a trade surplus with most of these countries (given the small market sizes of most of the neighbours except for Bangladesh). India could explore ways to address the genuine concerns of its neighbours through greater understanding in its policy. There are three prominent Asian players acting in India’s neighbourhood – China, Japan and South Korea. India needs to embed itself in the value chain. If one compares the Indian position in the value chain vis-à-vis China, India is sorely lacking in this domain.
• India in a Post Covid-19 World: Indian policymakers need to identify key challenges and address them. India has a good record in addressing non-traditional security issues and the COVID-19 too is a non-traditional challenge India could take the lead in helping shape a global response as it has proven its mettle in supplying generic drugs like Hydroxychloroquine in the current pandemic. As India’s defence budget will decrease, it will need to work with other countries to resolve non-traditional challenges – human trafficking for instance – and India should take the lead to ensure that extra regional powers are kept at bay.

Concluding Points:

There is no denying that the virus has caused enormous damage, economically and in terms of human lives lost. The world hasn’t been able to absorb the costs imposed upon it by the virus and looking ahead, time will be divided into a pre-coronavirus and post-coronavirus phase.

China cannot be seen as a benign actor. It is currently demonstrating an arrogant attitude – for example in the past month China has been bullying Taiwan, undertaking military actions in the South China Sea, encouraging Pakistan to take positions that are antagonistic to Indian interests and the stance taken by Chinese diplomats (such as the Chinese ambassador in Australia). The key question is how will China be perceived post the pandemic?

On a global scale, countries will have to rethink how global trade is structured. For India, there are two key considerations. How does India think about non-traditional security challenges, including biological challenges such as the present one? Secondly, when India talks about rebuilding its infrastructure, mere focus on roads and airports isn’t enough and India should look at its health infrastructure as well and build supply chain infrastructure that would help labour and prevent large-scale migration of labour in search of jobs.

These are still early days to think about a post-Covid19 world and thinking is currently evolving. While scholars are talking about globalization coming back in its full form, dealing with global supply chains and the utility of multilateral international groups (SCO, UNSC, the Quad etc), will be questioned. It would be a mistake on India’s part if it believes that it will be business as usual.

The current crisis has exposed the bankruptcy of international organizations. While international cooperation is required, India needs to rethink the utility of such groupings and ask what purpose such groups serve for its interests. What does India want from global engagement? India shouldn’t contend with just FDI inflows and India’s inability to handle the issue of migrant laborers has demonstrated its own limitations.

Self-reliance is key for India and it should work towards this. While India has previously spoken about self-reliance but not done much, the present pandemic is an opportunity for India to put this idea in motion. This must not mean self-reliance in a Gandhian economic sense, but rather one where every Indian citizen is a stakeholder in the actions that India undertakes. India must realize the limitations of hyper globalization and international cooperation.

India will have to rebuild its foreign policy and it will need to build supply chains in its neighborhood. India will have to work towards reducing its dependence on China. India should continue to do exercises under the Quad mechanism, but we should also accept that there is limited utility and benefit in working with the Quad. India’s first priority should be its domestic policy and its foreign policy should tie into its domestic policy. While India’s inattention towards the Quad has been an issue, will India be able to strengthen the Quad on its part in light of defence budgets being decreased in the future? Apparently, the current government has watered down the idea of Quad to an extent. While India hosts a major trilateral exercise with Japan and the United States and a major bilateral exercise with Australia, why can’t these exercises be integrated. Evidently, the Quad platform should be revived to address, and tackle, the pandemic.

India has previously spoken about rebuilding its global cooperation and it should now work on South-South cooperation, engaging with African nations on health issues and economic challenges (as India has expertise and faces similar challenges). While China is looking to work with these nations, India is better placed to engage with them (especially in the health sector).

India has been neglecting its aero and defence infrastructure. While it is talking about bringing in outside technology, India should be working with what it currently has. Now, when we have LCA, India should focus on building upon that rather than bringing in F16s.

India should also pay more attention to organizations like the National Research and Development Corporation (NRDC) that has commercialized 3,000 technologies in India and most of these have gone into MSMEs. These are the examples that India ought to be building upon.

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>