Remapping Global Economy

The 21st-century global economy is progressively taking on distinct features due to the substantial impact of geopolitics. Numerous factors are contributing to the world economy’s transformative nature, including the post-COVID-19 shifts in global economic order, the Russia-Ukraine war, and the US and China’s growing rivalry for global dominance. Additionally, geopolitical tensions are disrupting existing supply chains, heightening investment risks, and fostering the fragmentation of the global economy. Changes of such severity and magnitude will not leave the developing nations unaffected, rather the consequences for them are likely to get worse. Pakistan, being the sixth largest population in the world and a persistently struggling economy, will have to choose its cards wisely to sail through the game of influences in today’s time successfully.

The outbreak of COVID-19 in late 2019 has reshaped the world in numerous ways. Starting from individual behaviors to the interactions of countries at the global level and the conduct of economic activities, nothing has remained the same. Similar to the way human social conduct has changed post-pandemic, state behaviors and relations are not the same anymore either. The age of globalization has had a hit too. Today, the world is less of a global village than it used to be before Covid-19. The disruptions to international travel, supply chains, and trade have underscored vulnerabilities in the global system. Nations, compelled by the imperative of safeguarding public health and economic resilience, have shifted priorities, introducing a degree of deglobalization. This shift is marked by a reassessment of dependencies and a renewed focus on local and regional resilience to navigate the uncertainties that the pandemic has laid bare.

Apart from COVID-19 and its repercussions, if there is one country that has challenged the global positioning of the US, it is China which has become the second largest economy in the world, with a GDP amounting to USD 17.9 trillion in 2022.[1] China’s robust industrialization, high-end technological advancements, and vibrant customer market are certainly taking the country to new heights of economic growth. China’s total exports for the year 2022 were USD 3.6 trillion, making up for around 14% of the world’s total exports.[2] Such economic prowess has not only helped millions of Chinese get rid of poverty but also aided the country in investing in huge infrastructure projects cutting across most of its neighboring countries and beyond. Moreover, China’s increasingly growing military expenditure is also expanding the reach of its strategic compass. The country’s military expenditure in 2022 was USD 291.96 billion, 864.2% more than what it spent two decades ago.[3] The Belt and Road Initiative (BRI) is an example of China seeking regional and multinational connectivity by creating more dependency in its sphere.

In response, the US’s strategy towards countering China’s growing influence is multi-pronged. In the economic compass, the US is focusing on reforming global trade practices, highlighting fairness in the rules of trade, and raising issues like intellectual property theft. Based on these claims, the US is strengthening trade partnerships with allies and breaking away from the norms of globalization. Concurrently, substantial investments in emerging technologies such as artificial intelligence, semiconductors, and 5G are underway through initiatives like the CHIPS and Science Act, ensuring a competitive edge over China. Sanctions and tariffs have been implemented to counteract human rights abuses, trade violations, and technology theft.

Diplomatically, the US is also bolstering alliances with key partners globally, with initiatives like the Quadrilateral Security Dialogue (QUAD) and the Indo-Pacific Economic Framework. The promotion of democracy and human rights is another crucial diplomatic avenue, through which the US indulges to challenge China’s model of governance. Militarily, the US is enhancing its presence in the Indo-Pacific region, conducting freedom of navigation operations, and strengthening military cooperation with allies to deter China. Investments in advanced defense capabilities, including hypersonic weapons and missile defense systems, underscore a commitment to maintaining military superiority. Furthermore, the US’s efforts are underway to fortify intelligence and cybersecurity capabilities against alleged cyberattacks. Hence, the multifaceted approach shows the US’s resolve to navigate the complexities of the evolving global order and assert its influence in the wake of China’s rise.

While the US and China are engaged in a trade war that essentially started in 2018  when the Trump administration imposed tariffs on $200 billion worth of Chinese goods,[4] it is the citizens of developing countries that are being affected severely. As developing countries substantially rely on the import of food items, any incidence of war followed by increased tariffs and supply costs, make it difficult for natives to afford food. Simultaneously, the situation is also getting worse for developing economies because of the ongoing Russia-Ukraine war. Ukraine is a major exporter of wheat while Russia supplies the world a significant portion of fertilizers. The breakout of war between both countries has ended up severely disrupting exports to developing countries in addition to making commodities expensive due to sanctions imposed.

Pakistan too, among other developing countries is getting affected by the US-China global competition and the Ukraine-Russia war. Pakistan is an energy deficit country with refined petroleum and petroleum gas being its highest imported products.[5] Any increase in global oil prices, in effect, ultimately strains the country’s economic growth. Pakistan’s annual inflation rate has gone up from 5.1% in 2018 to 19.9% in 2022.[6] Not only this, the country’s upward inflationary trend keeps rising even today because of high fuel and energy prices.[7] Likewise, the trade sector has also not been spared, as disrupted trade routes have escalated transportation costs and caused delays in the movement of goods. Besides, the war’s global economic uncertainty has adversely affected investor confidence in Pakistan. The estimates show that only the war has left around half (0.4) million people unemployed, pushing another 2.25 million people to extreme poverty as measured at $1.90 a day.[8]

Having said that Pakistan’s economic woes are not only a result of international developments but the country’s internal political turmoil, lack of policy continuity, and other structural and governance problems equally contribute to the worsening situation. Corruption, bureaucracy, and regulatory hurdles further impede economic growth in Pakistan. For a country like Pakistan, it is extremely important to keep its own house in order while striking the right balance of relationships between the two camps, China and the West. To make this happen, Pakistan’s National Security Policy 2022 rightly advocates the shift from security-driven policies to geoeconomics.  Indeed, Pakistan must position itself to be a true melting pot of global economic interests without being associated with either camp for global influence.

In conclusion, the evolving landscape of the 21st century is witnessing a profound influence of geopolitics on the global economy. From the disruptive aftermath of the COVID-19 pandemic to the intensifying power dynamics between the United States and China and the ongoing Russia-Ukraine conflict, myriad factors are reshaping the world economy. Geopolitical tensions result in disrupted supply chains, increased investment risks, and a fragmented global economy. Consequently, developing countries, including Pakistan, become particularly vulnerable to the consequences. With its sizable population and continuous economic struggles, Pakistan also finds itself at a pivotal point in the global power struggle. Therefore, Pakistan must navigate its diplomatic relations judiciously, striking a balance between China and the West.