Sri Lanka and the ‘battle for global hegemony’
Mr. Kusum Wijetilleke
In February, the Central Bank settled a US$ 400 million currency swap with the Reserve Bank of India under the SAARC Fx swap framework. There is no implication that this settlement and indeed any other funding facility from India are conditional or subordinate to political concerns but the dynamic cannot be ignored. Sri Lanka is likely to encounter further foreign currency constraints in 2021. India also publicly expressed its displeasure at the cancellation of the ECT agreement with the Adani Group. Prime Minister Modi has in the past spoken of the need for an Indian-controlled transshipment port off the coast of the Great Nicobar Islands, a move that is a direct threat to Sri Lanka’s own transshipment traffic.
Now, there is a further twist in the ongoing geopolitical drama surrounding Sri Lanka, India, China and the US. MP Udaya Gammanpila has stated that a deal had been reached to cancel an agreement with the Indian Oil Company to develop 99 oil tanks in Trincomalee. A press release by the Indian High Commission in Colombo sought to clarify those statements by the MP, who himself later stated those comments were misinterpreted and that India would remain part of a renegotiated deal.
The inevitable clash between geopolitical nuances, economic advancement, national security and the triangulations surrounding localized political considerations seems to be fast approaching. Sri Lanka cannot become too closely interlinked with India due to past political grievances, the national question and the dynamics surrounding the powerful Tamil Nadu Government in South India. The May 2020 skirmishes between India and China along their border in the Ladakh region, resulting in 30 deaths, further complicates Sri Lanka’s position.
The former Trump administration was already accelerating the bipolarisation of the world and the sustained protectionist trade policy may have jeopardised Sri Lanka’s exports to the US. Nations like Sri Lanka may have had to choose between doing business with China and earning much needed foreign currency from the US. Multilateral agencies such as the UNHRC were already sharpening their tools and will no doubt receive fresh impetus from the new Biden Administration which will no doubt seek to exert influence on Sino-Sri Lankan relations.
Sri Lanka has a long history of anti-Americanism, the result of a history of socialist parties and the anti-imperialist hang-over from colonialism. The discussion on global hegemonic power revolves around the idea that America is in terminal decline and will soon be superseded by China. Intellectuals and historians have discussed this decline extensively, starting in the 90s and through the 2000s, accelerating as the US faced the ‘Great Recession’ of 2008. Even candidate Donald Trump discussed the ‘decline’ of the USs during the 2016 campaign.
Decline of American power?
Gideon Rachman, Chief Foreign Affairs Commentator at the Financial Times, has written extensively regarding the seemingly endless eastward shift in the world’s centre of gravity. The reality is clear: China has been the major economic success story of the last few decades. American power peaked in the years following World War 2, when US manufacturing output quadrupled. Between 1943 and 1944, the US was manufacturing almost as many weapons and munitions as all of the allies plus the axis combined. Conversely, this period was extremely destructive for the major industrialised European nations. American consumer demand, driven by high savings as well as a concerted expansion of US military manufacturing, took US GNP from US$ 200 billion in 1940 to $ 500 billion by 1960.
Around the early 1950s, by some measures, the US had almost half of the world’s wealth. Thus a decline in US power was inevitable as other nations fully grasped the technological revolution. The pattern of global power shifts in modern history may appear to be an uncomplicated, linear journey. The British Empire lost its absolute grip on power which shifted towards Europe and then towards North America. It had seemed certain for some time that the power shift would continue towards its next destination: the Far-East.
Century of Asian growth
An event central to the beginning of the American decline was the “loss of China”, a turn of phrase that may seem confusing. Much of the Western political discourse around the ‘50s and ‘60s was concerned with the sudden and unexpected loss of China, which others may classify as the “independence of China”. The predecessors of the Chinese Communist Party (CCP): the Kuomintang, were backed by the US, thus the Chinese civil war and its aftermath left reverberations still being felt today. With a centrally planned economy and a powerful version of state capitalism, the meteoric rise of China would further exacerbate the American sense of decline.
A state derives ‘power’ or a certain level of leverage, in its international relationships and negotiations, from a mix of military and economic advancement as well as its soft power, relationships and understandings with important nations in different regions. China certainly possesses military and economic might. It is part of the global supply chain, vital industries depend heavily on the free movement of goods to and from China. The CCP does have many strong relationships in the region and beyond, through investments and interdependency.
In the US, the years following the 2008 recession and leading up to the pandemic were part of one of history’s great continuous economic expansions. In terms of leverage in international affairs, the US is virtually unmatched. The US Dollar’s status as the global reserve currency is secure, thus providing vital benefits to the US Treasury. Chinese investment has been diluting some of the USs’ soft power and some traditional American partners such as the Philippines have taken notable shifts toward the CCP. The US is no longer the sole superpower, which has led to anxiety and insecurity across the Atlantic and by extension, fresh confidence and impetus in the Far-East.
Who rules the world?
The famous political commentator, Noam Chomsky asserts on numerous occasions that talk about China becoming the world’s next hegemonic power is misleading. The US has between five and six times the GDP per Capita of China. Take National Net Wealth, the sum of a nation’s assets less liabilities: the US has almost 30 per cent of total wealth by some estimates while China has around 16 per cent. The list of top 50 companies by revenue shows that 22 of them are American multinationals, including 12 in the top 25. China has a total of 13 companies on the entire list. Six of the top 10 companies in the world based on market capitalisation are also American.
China has made tremendous strides; most of the recent decline in global poverty has been from China and its purchasing power parity (PPP) is higher than that of the US. Yet China is essentially a poor country. Take the UN Human Development index: China scores substantially below the US and even below Sri Lanka. China has significant issues related to demographics, poverty, ecological problems and a lack of agricultural development even as it leads in electrification, solar panels, artificial intelligence and data sciences. Does that afford China the kind of privileges available to the US? Though China remains the world’s assembly plant, the recent pandemic has already reshaped supply chains and Governments are taking note of their dependence on Chinese production.
Dynamism can only get China so far, much of Chinese industry is derivative. Paraphrasing from Chomsky; consider the Apple iPhone, designed in California but assembled in China by a Taiwanese company. Very little profit from an iPhone finds its way to China, some of it goes to the Taiwanese company, Foxconn. Most of it goes to Apple and from there the largest benefit is to the US and its system of oligarchies.
Can Sri Lanka sit on the fence?
As part of Phase One of the US-China trade deal, China was supposed to import goods totalling to $ 175 billion in 2020 but have only reached $ 100 billion in value. The 5G stand-off between Huawei and the US has further deepened. China has been even more aggressive in the South China Sea and hostilities with India are constantly on a knife edge. Currently, the Biden administration has signaled that it will not scrap the US-China trade deal and will align themselves with the agreements made under phase 1. The markets had expected that US policy towards China will soften with the new administration.
Sri Lanka’s alignment with China clearly incurs an opportunity cost. The recent moves by the UNHRC must be viewed through the lens of this battle for global hegemonic power. The US is still Sri Lanka’s main trading partner; exports to the US are a critical source of foreign currency. If Sri Lanka’s foreign policy machinery does not carefully thread the diplomatic needle, there may be economic consequences. Continued Sri Lankan engagement with the US as a superpower in decline and the reliance on a permanent pivot to China runs counter to geopolitical realities of the moment.
(The writer specialises in US Politics and Foreign Relations with over a decade’s experience in the local banking sector. Studied Accounting and Finance in the UK and completed a Masters in International Relations at the University of Colombo. He can be reached at kusumw@gmail.com).