Post-Covid, US And China May Both Lose Traction As Germany Rises: Expert Prediction 

It is sheer coincidence that just when External Affairs Minister S Jaishankar was talking of the need for India to shed excess caution in foreign and trade policy, Ruchir Sharma, global investment strategist, wrote in The Times of India that the winners in the post-Covid-19 world may not be either the US or China, but quietly competent Germany.

Jaishankar made two important points in a discussion with businessman Sunil Kant Munjal and strategic affairs analyst C Raja Mohan broadcast by CNBC TV-18 recently. On trade, he was clear that India has not achieved much from free trade agreements (FTAs). “The fact is that they (FTAs) have not served the economy well in terms of building our capacities. I think there are ways of engaging the world which do not necessarily have to be FTA-centric.”

On broader geopolitical and global issues, Jaishankar said India had left non-alignment behind as it was the relic of a different era. Without shedding its streak of independence in foreign policy, India now needs to start taking risks and engage with other players with greater confidence and a smarter articulation of our interests.

“If we are to grow by leveraging the international situation, then you have to exploit the opportunities out there… Either you are in the game or you are not in the game... I would say that the era of great caution and…greater dependence on multilateralism, that era is to a certain extent behind us.”

While relationships with the US and China or Russia will always be important, Jaishankar would do well to look at Germany as the rising superpower to cultivate. According to Ruchir Sharma, Germany is emerging stronger after the Covid-19 pandemic as it has not only dealt with the health crisis proactively, but also handled the economic fallout very well.

Writes Sharma: “Because Germany went into the pandemic with a government (budgetary) surplus, it could support families and businesses through the lockdown with aid amounting to 55 percent of GDP - one of the most generous rescue packages in the world. It was also able and willing, for the first time, to provide emergency stimulus funds to European neighbours who had long complained that German stinginess hurt the entire continent. That move was shrewd as well as generous: Those countries are now better able to afford German exports than they would have been.”

Quite clearly, Germany will be the engine of Europe’s growth after the Covid-19 pandemic is behind us. It may even play a larger global role as the profiles of the US, China and Japan shrink. Germany has the right fiscal stability, high state capacity, and growing technological prowess that may ultimately rival the power of the US or China.

For India, which has always struggled with a small and medium sector that is either very inefficient or very vulnerable, Germany’s Mittelstand – the largely family-owned and competitive middle sector that provides most of the jobs and growth impetus – may be something to learn from.

India’s key partners for future engagement are clearly the US, Germany, Japan, UK, France and Russia among the big powers, the last two more for defence and nuclear engagement. The remaining four are relevant both for economic and defence engagement.

One, a diminishing US role. The global power reset that began under President Barack Obama (after George W Bush’s hugely expensive war on terror and the 2008 financial crisis) has been accelerated by Donald Trump’s semi-isolationist policies. This trend will continue even after Trump leaves the scene, possibly from January next, as America has lost its appetite for playing globocop. The US’s key role will be economic, especially in technology, where it leads the world, and in defence supplies to the democratic world.

Two, France and Russia will remain important defence relationships for India – and also sources of diplomatic heft in the UN and global playing field where Indian heft is far below that of China.

Three, China is a frenemy, and its power trip is likely to plateau as the world seeks to reduce strategic dependence on its factories and builds the resolve to counter-balance its military might in Asia.

China has badly overplayed its hand by threatening almost all its neighbours, something it will have to walk away from. The main job the world has now is to enable this rollback of Chinese belligerence without loss of face for the Chinese Communist Party.

The party’s longevity, however, cannot be presumed. At some point in the decade ahead, the party’s power will have to shrink or collapse under the weight of its own contradictions. China currently runs an authoritarian surveillance regime in the context of free trade and free flows of information through the Internet.

The two – control and free flows of information – cannot coexist indefinitely. One can only hope that the future collapse of the Communist Party will happen without major disruption as happened in the case of the Soviet Union.

Four, India needs to cultivate special ties with Germany, the most successful economy in the world right now, and with acknowledged strengths in manufacturing. France and the UK are the other major powers to engage with on a bilateral basis for nuclear and economic partnerships. With Japan, India already has deep ties, but Japan’s economic strength has peaked. Germany’s hasn’t.

In Jaishankar, Narendra Modi has made an inspired choice. If he, and Commerce Minister Piyush Goyal, can partner to create a solid trade and geopolitical partnership-based approach to engage the key strategic allies outlined above and contain the threat from China, India will make it to the big stage before the decade is out.

The next two midi superpowers are Germany, and hopefully India, No 4 and No 5 in terms of gross domestic product (GDP) right now.