The situation in Afghanistan should serve to put the world on notice. This is the future that everyone is looking at. It will have severe economic ramifications for most countries around the world.
So what is happening? The United States is taking its ball and going home.
This is not something that started with the present Administration. In fact, troop deployments were fallings for the last few Presidents. The United States is stepping back from policing the entire planet.
How We Got Here
Since the end of World War 2, the United States was the world leader in monitoring what was taking place across the world. One of the biggest benefits it provided was free and clear commerce. The United States, with the most powerful Navy, has sailed the global waterways.
Essentially, the world knew to leave commercial shipping alone or deal with the U.S. Navy. This cut down on pirate attacks while also enabling ships to sail without escort. It put everyone on the same side.
Many disliked the "imperialism" that the United States brought to the table yet there were some benefits. Economies were allowed to prosper without interference from other countries, at least on the high seas.
One of the biggest beneficiary was China. It is ironic that they are snapping at the hand that feeds them.
Nevertheless, the United States is tired of this role. This really accelerated over the last decade due to shale oil. Here we saw the U.S. care a lot less about the international energy scene. In other words, America could take care of its own needs along with allies such as Japan, thus the Middle East became a lot less vital.
An example of this is the recent pirating of a ship by Iran. This was obviously done to get the attention of the United States; it barely flinched. The reality is that the US has a lot less interest in that region as compared to 20 or 30 years ago.
De-Globalization
The last 50 years saw a massive run up in globalization. Under the protect of the US Navy, goods were shipped all over the world without interference. A country like China could thrive as a low cost producer. Since it did not have to worry about the security of what left its port, the economy prospered as the world was flooded with cheap goods.
This is likely coming to an end. The United States is very happy with its North American union. Mexico is now its largest trading partner and it has the demographics to mess with the US. That county has a relatively younger population meaning it will expand over the next 30 years or so. This is not the case for many other countries around the world.
Technology is also helping in this endeavor. Low cost labor is being replaced by automation. Hence, the need to manufacture things across the world is diminishing. Couple this with the obvious issue in supply chain concentration that was exposed due to the COVID situation and we see how companies are going to look to alter this scenario.
We could also see the U.S. enhance its local manufacturing capabilities with the advent of 3-D printing. This should help to dramatically bring down production costs as well as manufacturing closer to the end user.
Regionalization
This is a touch concept for most to envision since it has not happened in our lifetimes but the next couple decades will see economic activity based upon regionalization. It will also shift the balance of power.
We need to keep in mind the open seas. Who is going to keep things under control with the Americans starting to pull back? Those countries that have access to energy and can produce what they need are going to do fine. Those, however, that are major exporters as well as importing their basic needs are going to struggle.
The country that epitomizes this is China. They get all their oil out of the Gulf region while also sending products around the world.
Of course, this brings up the challenge that their Navy is a joke. It cannot even penetrate the surrounding islands let alone go deep into the oceans. In that region, Japan is far more advanced.
The other problem for China is they have no allies. They do not play well with anyone. Their agreements tend to be extremely one-sided: you carry the cost while they steal the technology.
A situation to watch is the China-India situation. Guess which country oil destined for China goes by? This potentially puts the Indians in a very powerful position. They could literally shut off the flow of oil to China. They might be racing to produce EVs but the country is still heavily dependent upon oil. It also relies on countries such as Australia for many of their raw materials.
Economic Implications
Those countries that are based upon consumption along with the ability to produce, are going to do well. Those, however, that depend upon large scale exportation will find the next decade or so very difficult.
The fragmenting of the global economy into something more regional will mean that those who are dependent upon the cover the US has provided will be confronted with a brand new situation. It will present problems their leaders are ill-equipped to deal with.
Here is where we see opportunities. Ironic, countries that were left out of the global expansion could find themselves benefitting under the new scenario. A country such as Turkey could really start to excel in its region along with the aforementioned India. We also could see some countries in Africa as well as South America start to step forward.
COVID-19 accelerated everything. The United States was packing things up for more than a decade. This situation only accelerated it some. It is not surprising the events in Afghanistan are taking place. They were a long time in making.
In terms of leadership, the United States will keep chasing its tail for the next decade or so. This, too, is also not something new. The political situation in the country is divided, haphazard, and really makes little sense. Yet this Round Robin will keep going with the leadership trying to out buffoon each other.
The entire macro situation is changing. We are watching this unfold at the same time that digitization is advancing. The technological process is what enhances the regionalization. It is far easier to ship a digital file to a 3-D printer, as an example, compared to manufacturing the product and shipping it thousands of miles.
Those countries with a portion of their workforce that is highly trained along with a lower segment that can handle the manufacturing will also find themselves in a good position. They can leverage their technological expertise for economic gain.
The rest will have some adjustments to make.
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