The return of proxy wars

The world is in the grip of a proxy war of economics. It has started off as a second cold war in the guise of economic domination. This time, the war is primarily between the US and China, although Russia is also one of its major players.

Who will win this war depends on multiple factors. One thing is confirmed that the rise and fall of great empires is inevitable. The modern history of economics and its downturns started with the end of the Second World War, when the Bretton Woods System was put in place to adopt unified rules and policies providing a framework agreement to create fixed international currency exchange rates.

The Second World War provided an exceptional opportunity to the US to dominate over international financial institutions, although the former Soviet Union (USSR) was equally important to compete with the international market. It was the start of the first-ever cold war as the ideals of two superpowers were in stark contrast. The US was a proponent of a capitalist system, while the USSR was leading the socialist bloc. The two were competing with each other through proxies; one was leading the capitalist bloc of mainly western European countries and the other was running the socialist bloc of eastern European countries. The war ended with the disintegration of the USSR in 1990, and the US emerged as the sole superpower which dominated the world.

It is quite interesting to note that the cold war was a proxy war fought by the two superpowers through their sphere of influence. The countries that did not want to be proxies forged an alliance called the ‘Non-Aligned Movement’ (NAM) in 1961, but they ultimately became proxies, working for one superpower or another at some point. They changed their alliances as well – the changing circumstances in India led to a shift in the alliance, and, later some Latin American countries became proxies too. Pakistan was not an exception, owing to multiple factors including, but not limited to, its internal political and economic compulsions.

Time and tide wait for none. The same is happening right now at the international level as a new economic war has started between the US and China. But how come Russia, being a powerful economic power with a lot of international weight and stature remain isolated for so long, especially after the defeat by the US in the past.

Russia is now stuck in a crisis exacerbated by the US through another proxy called Ukraine. The US-led Nato wants to fight this war through its newly created proxy to entangle Russia. It is interesting to see the Russians build a new strong alliance with China that is probably leading the new cold war recently started by former US president Donald Trump. Although China is trying to avert this war, Americans are pushing ahead with their plans to create another cold war-style alliance to defeat China’s economic influence, which is now threatening US dominance.

The universal rule of interdependence is common in international politics including the economic system and has given rise to proxy wars. There is a no doubt America’s economic dominance has so many countries held capitve – especially developing and least developed countries – which are now assuming the role of proxies in their struggle against hunger and poverty. China is advancing with a big leap forward, especially its wonderful economic prosperity has made it the world’s second largest economy. This development is irritating the US for the obvious reason of losing its sphere of influence.

Under the Trump administration, the US had imposed sanctions over Chinese companies to hurt their businesses, stopping them from dominating the international corporate world. The US shouldn’t have done this as businesses are run on the basis of a company’s merit. But the thirst for power and dominance never gives way to merit and competence. This step has also sown the seeds of a second cold war, which is in its formative phase giving birth to a new set of proxies for economic dominance.

The new proxy war of economics and economic domination has started to create ripples and a new international order is rising. This time, it is tilted towards Asia. New proxies will play a crucial role in this war. The superpowers have come up with a whole new set of rules to influence their proxies. There is a clear line of demarcation in Asia, Africa, Europe and the rest of the world participating in this new war. There are some fault lines in between, although the proxies have started choosing sides according to their own needs and economic compulsions. Pakistan is again at the crossroads to decide about its future role in the new cold war. It is, however, believed that China will remain its favourite in all circumstances.

The new cold war will definitely create a balance, as the world order was out of balance after the end of the first cold war. But the future of international financial institutions, which are under the influence of the US and the West, remains uncertain. What about the US dollar that not only has dominated other currencies but is also being used as reserves by the IMF and World Bank? Will the world be free of the dollar domination? This is the reason why we see new proxies like AUKUS and the Quad quite active to contain China on the pattern of the ‘iron curtain’ of the past.

Countries are closely watching new developments at the international level. Proxy-led economic wars will continue unabated with a potential rise and an inevitable fall of the great empires. We saw in the recent past how a unipolar world played havoc with humanity in Afghanistan, Iraq, Libya, Syria and so many other countries. Economies are destroyed, societies are mutated and stability is shattered in the name of civilisation and democratisation. The proxies have also suffered a lot in the process. It is hoped that this time the bipolar or multi-polar world will bring stability and prosperity for all.

The writer is an economist.