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During the Second World War, the US played a very pivotal role in its victory by financing the war efforts of many European countries, including the UK. As such, the US dollar became not only stronger against the other currencies of the time but also the British pound, the undisputed global currency of that era.

After the war, to help rebuild the devastated European economies of seventeen (17) nations, on April 3, 1948, the US President Harry Truman initiated the “Marshall Plan” that was originally called the “European Recovery Program”. It was named after the Secretary of State, George C. Marshall who had originally proposed it in 1947.

Since the UK was also devastated by the war and had borrowed money from the US, the pound sterling lost its dominance, and the US dollar became the preferred currency for the international transactions and soon after positioned itself as the dominant global currency replacing the British Pound. With the time, the US dollar became more resilient and powerful against every currency of the world.

This monopoly created a lot of wealth (gold and silver) and further strengthened its value, resulting into stronger purchasing power against the other currencies. The financing of the war and post-war reconstruction of the devastated Europe continued to increase its treasure trove further.

With its enormous wealth surplus, the US started reaching out to other nations in Europe, Asia, Africa, the Middle East, South America to assist them by offering financial assistance to modernize their agriculture practices, help building basic industries, and infrastructure. This was the beginning of the soft-diplomacy.

Later, the US also started offering military assistance to its friendly nations. Combinations of the two approaches created the US bloc of nations that was originally conceived to counter against the USSR and its bloc of fifteen (15) satellite nations. As such, there were two (2) recognized superpowers, the US, and the USSR. After the fall of the USSR in December 1991, the US became the undisputed superpower and has maintained this title to-date.

Although the US was well recognized as the undisputed superpower by the world, it desperately wanted to assert its position on the global stage. This desire led the US to getting involved in the regional and the Middle East conflicts, first as a peace broker between the warring factions and later directly in the battles side by side with its allies and partners on the front lines of the wars.

While the US was busy with the conflicts, China was aggressively pursuing Foreign Direct Investment (FDI) to becoming the lowest cost producer of the consumer items and transformed itself into the most desirable destination for the investments by the multinationals, entrepreneurs, and industrialists.

With this backdrop, Chinese economy took off and later in 2001 its inclusion in the global village through the World Trade Organisation (WTO) platform, it accelerated its economy at an unprecedented rate in the history of nations. As a result, China became the “world factory” of the global consumers. Products made in China were found all the corners of the world — from advanced economies, developing nations to very low-income and sub-Sahara countries.

This landscape created huge trade imbalances all across the economies. While the US and its allies (western countries) were busy in the Middle East conflicts, China was shifting its strategy from the low-cost manufacturing to higher value-added products.

Heavy emphasis was placed on the cutting-edge technologies, like the digitization, Ai, ML, robotics, telecommunication, connectivity, satellite imagery, space exploration, aeronautics, mobility, high speed rail, consumer electronics, household appliances, semiconductors, and upgrading of its defense capabilities.

The focus in these areas further accelerated as Donald Trump came to the White House and started talking about decoupling of the two highly intertwined economies by creating trade barriers, imposing tariffs, and sanctions on Chinese goods.

Trump administration’s continued aggressive rhetoric and flamboyant remarks about China’s trade practices were also picked up by the right-wing EU governments, their politicians and they also started raising trade barriers against Chinese imports.

However, as the trade war was in its full swing, the US and the other nations realized that even after imposing tariffs and hefty duties on China-made products, their trade deficits continue to increase instead of shrinking.

By deep diving into the matter, it was discovered that the US and the EU economies were so much dependent on Chinese raw materials and unfinished goods that it was impossible to stop or reduce their imports.

At the end, all the unprecedented duties and tariffs were passed on to consumers, and the deficits continued to widen than ever before. As a result, China continued to benefit from the higher prices of its goods and services and continued to accumulate foreign currencies, particularly the US dollars, at a much higher pace than before.

As part of its long-term industrial policy, China started using its accumulated wealth reserves to heavily subsidise the identified-strategic core technologies and commerce sectors to leapfrogging in the race against the US and its EU allies.

As a result, in a very short period, China surpassed its competition in the cutting-edge technologies, like Ai, ML, 5G, robotics, e-commerce, digital currency, digital payment system, high speed rail, networking, connectivity, consumer electronics, consumer appliances, upgrading of its defense capabilities, space exploration, just to name the major ones.

With the rollout of the Belt & Road Initiative (BRI), in 2013 under the vision of China’s current leader, Xi Jinping, and later with the devising of its own financial system, China is working towards creating a new bloc of nations to establish itself as an emerging superpower, parallel to the US, the existing superpower. According to some estimates, as of March 2022, more than 145 nations have joined BRI and presumably, they all belong to the emerging superpower’s bloc.

The bloc does not exclusively represent Asian nations, but it also includes European, African, South American, and covers more than 65% of the world population! With the Covid-19 pandemic and the so-called vaccine diplomacy, China has further strengthened its relations with the BRI member nations in spite of the “debt-trap” rhetoric by the US and its allies.

It seems that the Russian-Ukrainian war is setting the stage for splitting the world permanently into two blocs, each one dominated by a single superpower. This became very obvious during the recent US sponsored UN war condemnation resolution who supported it and who abstained.

The rise of China as an emerging superpower to share the world stage with the current superpower (US) is in the phase of intense rehearsals. Once rehearsals are perfected, the new superpower will be accepted on the world stage and when it happens, it will define the new world order and a set of new standards, in many cases, they will be quite different than the current ones.

China’s leapfrog in the technology sector is subjugated by the digital infrastructure and its core processing architect (semiconductor) for digitization, Ai, ML, robots, communication, connectivity (5G), IoTs, power grids, space exploration, satellite technology, high-speed rail, mobility standards (EVs, self-driven autos), nuclear technology, cyber security, banking, payment system, to name a few major ones. The two systems will be operating independently from each other and will not be easily adaptable by either bloc members.

For a layperson understanding, the two superpowers will be using systems that will fundamentally be quite different like the macOS for the Apple computers and the windowsOS for the PCs (non- Apple). Or 110 volts power in the US and 220 volts in most of the world! Once this happens, we all will be living in entirely two different worlds, the Eastern bloc dominated by China as its superpower and the Western bloc dominated by its superpower, the US.

Since the blocs will be based entirely on two different standards, the current ‘Cold War’ will intensify further between the two superpowers, and it will be more noticeable in the everyday-life of the citizens compared to the Soviet era.

The most dominant battle ground will be the cyberspace and the applications that are migrating to the cloud computing will be the most vulnerable. The attacks on each other’s infrastructures could be more lethal, destructive, devastating, and paralytic in nature.

In other words, the superpower that will have the most advanced encrypted digital technology, firewalls, and guardrails for the Ai & ML, will have the upper hand on the global stage and will dictate the new world order and a contender for establishing itself as the irrefutable superpower in the foreseeable future!

Copyright Business Recorder, 2022

Dr Jamil Khan

The writer is Executive Director, Polykemya International


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