Coronavirus Report: The Hill’s Steve Clemons interviews Parag Khanna

The Hill’s Steve Clemons interviews Parag Khanna, a managing partner of FutureMap.

Read excerpts from the interview below.

Clemons: What has changed globally in the era of COVID-19?

Parag Khanna: I think one of the most important fundamental systemic or structural realities that people are starting to perceive as entrenching itself in the post-COVID world really began quite a few years ago, and that is that the world is drifting into these large regional clusters; North America, Europe and Asia. Now, just look at the North American story. We know that because of the trade war, the U.S. was conducting more bilateral trade annually. The trade volume with Canada and with Mexico, each larger than U.S. trade with China. And that’s again pre-pandemic. Now we’re in a situation where, of course, we don’t know when borders are going to reopen, when international travel will be possible. We have pressures for near-shoring, protectionism, industrial policy subsidies. All of these steps that are being taken to ensure that actually, we wind up doing more internally and with our neighbors than with other parts of the world. So that regionalism that was already there is certainly going to accelerate. Definitely applies to Europe. Look what they’re doing with industrial policy as well. They’re not giving any federal support to businesses or firms that aren’t domiciled in Europe. They have declared a whole raft, hundreds of billions of dollars, now in fiscal support and now new funds, tens of billions, that will be devoted toward strengthening European strategic industries. … And then Asia is already 60 percent internal trade. Most countries in this region have China as their largest trading partner. You have, actually the only region of the world where you generally have trade liberalization going on is here because there’s so many complementaries across the economy. So again, number one big picture. Whether you’re talking about pre-COVID, during COVID, in the next five to 10 years is going to be this almost Orwellian system of three regional clusters that act increasingly independently of each other because the more decoupling you have, whether it’s strategic in terms of alliances such as the U.S. and European Union drifting and not getting along as much which is, of course, a 20 year process or, of course, the decoupling across the Pacific. … No matter what happens in our election this November, we’re going to be in that multiregional, multipolar world 10 years from now, 15 years from now.

Clemons: What do you think about can be done in the near term on supply chain dependence on China?

Khanna: So to want to diminish that single point of failure or excessive dependency to having too many eggs in the China basket in critical industries, components and pharmaceuticals, medical equipment being an obvious area now, is not to say that one wants to retrench all supply chains back home. Principally, what’s happening is that countries are shifting them to Vietnam or the Philippines or Thailand, Indonesia and other countries in the region that are not China, particularly if they are countries that have obviously more liberal political economies, more better protection of intellectual property, and obviously countries that are part of the trans Pacific partnership trade agreement, even though the U.S. is not. And so because Mexico is, Canada is, and so forth. So I’m not saying that all supply chains are going to shrink back into that regional nexus because since you asked what do executives say? Well, let me, you know, make sure that it’s clear that everyone understands that the first thing that American executives say is that “I really wish we have joined the Belt and Road Initiative,” because they want to be global companies. American companies are large, many of them are global companies. They enjoy massive revenues from Asia, and they realize that you have to make where you sell. And so whether it is tractors, whether it’s semiconductors and whether it’s because of China’s regulations that force you to make onshore like Apple iPhones or whether it’s because you just want to be close to your customers and be right there in the market, you do have to make things in Asia to sell them in Asia. And if you’re not selling them in Asia, then your stock market valuation is obviously, you know, 25 percent or 50 percent higher than it should be. So American companies want to remain global, but they just don’t want to be vulnerable to supply chain cutoffs if there’s a pandemic that emerges from Wuhan and your car parts come from there or obviously the political risk involved in having too many eggs in the China basket. So I endorse the constant shifting of supply chains as needed to maintain their efficiency, redundancy, resilience and so forth. And so the dilemma that American executives face is no different from the dilemma that every other CEO faces.

Clemons: How would you grade America’s global leadership in a time of COVID-19?

Khanna: Well, it’s obviously been absent. I know. Obviously many other guests on your program have surely said that as well. But when it comes to crisis response. Of course, the U.S. has been absent. It’s not to say that China has genuinely filled the gap. You know, it’s one thing to be lighting fire to the house and then coming around with the fire hose, right? So, China has lost a tremendous amount of credibility in this situation as well. But obviously the U.S. with its own response and by being accused of confiscating medical equipment bound from other countries, pulling out of the WHO and so forth. So the U.S. hasn’t been a great leader in this regard either. But global health has never been one of these areas where multilateral coordination was strong, authoritative and the central focus of activity, right? Unlike let’s say the WTO, which is far more significant. It’s not to say that the situation can’t be corrected, but right now I think what the U.S. has lacked during COVID and seems to be lacking even as much of the world is starting to come out of COVID, is a kind of global strategy anyway. So, even if COVID had not existed as you well know, we wouldn’t really be given high marks in terms of coherent global leadership from the U.S. 

Clemons: You’ve written for The Hill about the Suez crisis, which really was the punctuation point for the rise, the impression the world had that the United States was at the helm of global affairs and the United Kingdom receded. Do you think this is that moment, or has it already happened? 

Khanna: Well, when it comes to you know, so the shoe being on the other foot, the idea that China is going to exploit this moment of weakness by the U.S., economic as well strategic to make inroads to displace the U.S., particularly in west Asia, taking it as a pivot point or domino, a place like Iran is definitely a scenario that one needs to consider. But it will play out over a longer time horizon, if it does it all. Not in the immediate sense of threatening to dump the pound, as was the case in 1956. You know, there’s been a lot of talk about what China will do with its very large currency reserves and particularly in the U.S. dollar and the consensus is that it would lose more than the U.S. would in such a situation. So the question becomes really what is, as I said before, China has lost a lot of credibility, a lot of trust, especially here in Asia. I remember back to the moments as the pandemic was really spreading when Chinese diplomats got very active on Twitter and you had politicians in Italy, South Africa, Brazil saying “we’re grateful for China providing medical assistance.” … People who are in states that are China’s neighbors and every one of them, including myself, who lives here in the region, knows where the pandemic came from. We’re not going to forget it. So the notion that somehow China would simply send around a lot of surgical masks, faulty as they wound up being many of them, and somehow use this opportunity to extend its influence globally was a farce. It’s going to take a lot of goodwill for China to build it up. Now, it seems to be wanting to pursue this Suez moment, but through obviously much more assertive and aggressive means. That’s part of what’s going on in the South China Sea, Senkaku Islands, obviously in Ladakh, in India and in other territorial situations. This also is not going to serve China well, because a lot of these countries are obviously very guarded about the amount of debt they already owed to China, the specific territorial frictions. And this, if anything, could be an opportunity for the U.S. to build a new kind of coalition. I hesitate to use the phrase leading from behind, but the kind of broader set of coalitions or mechanisms, they’re gonna help Asians and China’s neighbors and other adversaries to kind of put a stronger stake in the ground and defend their interests.

Clemons: In your book, “The Future is Asian,” how do you treat the United States? Do you treat it as an Asian nation that could have stakes in it? Or is this future going to largely occur at the side of America and despite America?

Khanna: Well, one thing that we have to appreciate is that Asia’s rise is structural, not cyclical, right? It’s something that began really with Japan after World War II, if you think about it and I know that’s a country you know very, very well, you know. You’ve gone through waves of Asian growth since the end of World War II, Japan, the tiger economies, China. Now, what I call the Fourth Wave economies of South and Southeast Asia what you see right behind me, you know, from Pakistan, through India, through Southeast Asia. So you’re talking about 5 billion people increasingly coherent, 50 percent of the global economy. Asia is not the future, it’s the present, right? So no matter what happens in U.S. policy, Asia is where the action is. It’s not something that you can turn around or reverse. And it’s not a set of countries that are waiting either for Donald Trump to have a change of heart or for Joe Biden to get elected. Steve, we’ve known each other a long time, we’ve gone through every four years, a cycle of many people on our side of the aisle, our circle of friends you know, constantly falling back on this refrain that if “X” gets elected or reelected, you know the world will be open to American leadership again. That’s really not the way geopolitical psychology works. When you’re talking about a set of countries that have in recent history experienced colonialism and the Cold War, the last thing they want is either to be stooges of the United States again or vassals of China. And so you really have to think about the future kind of geopolitical landscape as not being a repeat of either the Cold War or a Chinese kind of neo-colonialism. It’s going to be something different, and in that different, you know, Asia is going to play a very prominent role, China within Asia. But in the next phase, we will come to appreciate in the same way that we see these supply chains coming out of China into Southeast Asia, to India and elsewhere. We’re gonna appreciate that power is much more diffuse in Asia than we think it is, and that’s a very good thing. That’s an agenda we should support. That’s an agenda that everyone on Earth agrees with except China.