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13 July 2017, Gateway House

2016, the hinge year

Three epoch-making events in 2016 are continuing to have global repercussions. They were: Brexit, China’s rubbishing of the July verdict of the Permanent Court of Arbitration after it rejected its claims on disputed islands in the South China Sea, and Trump’s election. This article, the prologue to a book-in-progress, The Hinge Year – Geopolitical Dislocations and Dispersals, outlines how these events intersect with transformed geoeconomic realities

Director, Gateway House

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2016 was a hinge year in international affairs—because of three seminal events. These were: the UK’s decision to exit the European Union (Brexit) in June. The second was China’s rubbishing the July verdict of the Permanent Court of Arbitration (PCA), which rejected the historicity of its claims on disputed islands in the South China Sea. The third, and arguably the biggest game changer of all, was the presidential election victory of Donald Trump in the U.S. in November. These three disparate black swan events, coming on top of already changed underlying economic realities, accelerated the tilt from West to East, stepping up the challenge, both economic and political, to the prevailing western-dominated post Cold War world order. The uncertainty-infected world we live in today is an outcome of these intersecting events, which are continuing to reshape it.

China’s astonishingly rapid growth—it expanded its economy 62 times between 1979 and 2016 to $10.73 trillion–has become the touchstone for economic growth patterns elsewhere. As the largest importer of commodities as also exporter of cheap consumer goods, China has become the most prominent variable in the global framework. Its rapid industrialisation was arguably a cause of the simultaneous deindustrialisation of the West, with the concomitant shrinking employment opportunities being a major factor in the election of Trump in the U.S. and the outcome of the Brexit referendum.

As the Chinese economy expanded, it created massive geoeconomic leverage by establishing complex China-centred supply chains, trade, and investment dependencies globally. In Asia this reality was expressed in the divergent responses to China’s increasingly expansionist behaviour in the South China Sea, with matters reaching a flashpoint in January 2013 when it occupied the Scarborough Shoal, which lies about 240 km from the main Philippine island of Luzon, but is over 1,770 km from the Chinese coast.

A military minnow, the Philippines took the issue to the PCA, but China refused to participate in the proceedings. The PCA gave its verdict in July 2016, ruling completely in favour of the Philippines’ claim by wholly rejecting China’s now infamous ‘nine-dash line’ which laid claim to two thirds of the area of the South China Sea.

The physical occupation of the Scarborough Shoal along with China’s muscular expansionism in the Paracel and Spratly island chains, can only be interpreted as the official abandonment of the ‘peaceful rise of China’ propaganda that previous Chinese governments had used.

This assertiveness has negative implications for the 4,057-km-long undemarcated India-China border, where too China has been expanding its claims, based on ambiguous, self-serving historical interpretations.

Although numerous countries, including the U.S., Japan, and India, criticised China and called on it to respect the PCA verdict, there was little actual pushback. President Obama had sought to counter Chinese expansionism by raising the U.S.’s presence in Asia, particularly in East Asia, through the ‘Asia Rebalance’ strategy announced in 2011, and subsequently, the Trans-Pacific Partnership (TPP), a regional trade agreement that excluded China. But the Arab uprisings, which began in Tunisia in 2011, aborted his efforts to extricate America from the Middle East.

As in decades past, the American government remained preoccupied with the immediate turmoil in the Arab world and the Russian appropriation of the Crimean peninsula in Europe–and neglected the long-term challenge from a China rapidly becoming its peer competitor.

China reacted to the U.S.’s half-hearted rebalance to Asia with its massive One Belt One Road (OBOR) initiative, projected as a $1 trillion connectivity project, extending over the landmass of Eurasia, with maritime connections to Africa through South East and South Asia. If rejecting the PCA judgment constituted an abandonment of the pretence of a ‘peaceful rise’, the OBOR Forum in April 2017 was the unabashed proclamation of global power status.

Why was the opposition to Chinese expansionism not more frontal? Although the U.S. economy achieved an average annual growth rate of around 3% until 2008, its decades-long fruitless wars in the Muslim world had left it morally and militarily exhausted—and therefore, unprepared for the financial crisis, triggered by the September 2008 collapse of investment bank, Lehman Brothers, which set in train a global banking crisis. The prolonged recession that followed called into question the efficacy of the neoliberal economic order, identified as the Washington Consensus.

It was by taking advantage of the borderless world, created by those same western neoliberal economic policies, that China became the factory of the world while the West underwent a parallel process of deindustrialisation. As multinational corporations shifted production facilities to China to avail of the cheap labour, nearly free land, power, water, and long tax holidays, they generated soaring corporate profits and high incomes for their own educated elite. The resultant shrinking employment opportunities and stagnant wages of the American working classes manifested politically as an anti-globalisation and anti-immigrant vote in the fractious election of Donald Trump in 2016.

Crises in Europe

At the same time, U.S.-allied Europe was paralysed by multiple crises, including its inability to deal simultaneously with the Euro debt crisis in the weaker economies, such as Greece, resist Russian assertiveness in the Ukraine and the influx of refugees from West Asian and North African war zones, all of which is being aggravated by the recently commenced, and expectedly fraught, negotiations to operationalise Brexit .

The totally unexpected slender majority vote for the UK’s exit from the EU flowed out of frustration at high rates of immigration from Eastern Europe, fewer jobs, and a resurfacing of that country’s island mentality. Although the Brexit boost to hyper-nationalistic sentiment in political parties across Europe has been mitigated somewhat by the election of centrists in Netherlands and France, the continent has turned more inward, pushing it further along a path of increasing irrelevance in international leadership and governance.

Compounding the loss of confidence in Europe, a militarily resurrected Russia intervened purposefully in Ukraine and annexed the Crimea in 2014 to forestall Ukraine’s absorption into the EU, and an ultimate eastward expansion of NATO. Ukraine has become another ‘frozen conflict’, highlighting the helplessness of the EU and NATO alliance system in the absence of active American leadership. Russia followed that up in 2016 with effective support to the Assad regime in Syria, enabling it to meet the challenge posed by dodgy anti-Assad groups receiving the half-hearted support of the U.S. and some Arab countries.

India’s balancing role

What role does India play in all this? India, which is adversely impacted by the U.S.-China rivalry, did not participate in the OBOR Forum in 2017 because of territorial and strategic concerns. The China-Pakistan economic and security nexus, as reflected in the China Pakistan Economic Corridor (CPEC), passes through Indian territory in J&K, presently occupied by Pakistan: Chinese armed personnel are becoming a fixed presence in that border area.

With a GDP of $2.2 trillion, growing at a rate of over 7.5%, India is among the fastest growing large economies in the world. With its large population, naval capability and strategic location linking East and West Asia, India is a key player in the Indo-Pacific region. India’s unique capacity to be a balancing power in the Indo-Pacific is the rationale for Japan, itself embroiled in a sovereignty dispute with China over the Senkaku islands in the Sea of Japan/East China Sea, developing a strategic partnership with India.

India has also strengthened strategic relations with countries like Vietnam, Singapore and Australia. The U.S.-India joint strategic vision statement, announced in 2015, affirming “the importance of safeguarding maritime security and ensuring freedom of navigation, especially in the South China Sea”,[1] was an early recognition of the imperative to add heft to the Indo-U.S. strategic partnership. But follow up, on the part of the U.S., has been desultory and the Trump administration is yet to proclaim its regional strategy.

These changed contemporary global trends have been additionally impacted by rapid technological advances. As the world lurches into the fourth industrial revolution, characterised by Artificial Intelligence, robotics and 3D printing, besides technological breakthroughs, lowering the price of renewable energy and significantly altering global supply chains and transportation mechanisms, their impact is seeping into all sectors of economies, transforming the content and availability of work.

Alongside the uncertainties created by manufacturing technologies, social media and the revived salience of religion, the world has been thrown into flux by the unpredictable global leadership of Trump’s America. That has already impaired the U.S.’s relationship with its international institutional partners, like the North Atlantic Treaty Organization (NATO) and European Union (EU), East Asian allies, like Japan and South Korea, the Association of South East Asian Nations (ASEAN), and the Gulf Cooperation Council (GCC). As a result, the member states of these organisations are cooperating warily with China while expanding their search for new security and economic partnerships.

This opening up of the global matrix is creating opportunities along with the uncertainties. The U.S. and some of its allies, like post Brexit U.K., have ceded space to others–like China globally, Germany in Europe, and perhaps Iran in the Middle East. And then there are countries, like Russia, which could expand its influence if oil prices stabilise and it does not overstretch itself in the Ukraine and Syria.

India will do best by focusing on easing domestic identity strains, raising its rate of economic growth and strengthening balancing relationships with the U.S., Japan, and other Asian middle powers to counter the malign China-Pakistan nexus in its neighbourhood.

This article is part of the prologue to a book-in-progress: The Hinge Year – Geopolitical Dislocations and Dispersals

Neelam Deo is Co-founder and Director, Gateway House: Indian Council on Global Relations, Mumbai and is a former Indian Ambassador.

This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.

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[1] Press Information Bureau, Prime Minister’s Office, Government of India, US-India Joint Strategic Vision for the Asia-Pacific and Indian Ocean Region, 25 January 2015, <>

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