Exhausted

How many simultaneous wars can the global economy take before it collapses in exhaustion?

For many years, US strategic thinking insisted on maintaining the capacity to wage two-and-a-half wars. That means its forces, deployed all over the world, must be ready to fight two full-fledged wars and one low-grade conflict.

We are in that situation now. Two full-fledged wars in Ukraine and Gaza have stretched US capability to perform as the world’s policeman.

While the two hot wars are going on, there is an escalation of tensions in the Western Pacific. Here there is substantial US commitment as well. North Korea can create trouble by firing more missiles at the Sea of Japan. China is expected to continue pushing its territorial claims in the South China Sea with greater aggressiveness. A Chinese invasion of Taiwan remains possible.

The war in Ukraine has been resource-intensive. It has clearly settled into a long war of attrition where neither Russia nor Ukraine is in a position for a decisive victory.

There are moments in this war when the artillery exchanges consume more shells than all the western economies could manage to manufacture. A US company manufacturing howitzer shells is running round the clock. Still the US military is said to be scraping the bottom of the barrel with regards to ammunition.

The Biden administration is set to request the US Congress for an appropriation of about $100 billion to fund military support for both Ukraine and Israel. In the face of internal wrangling among Republicans, the US House of Representatives remains without a Speaker. It cannot do business even as two major conflagrations are in progress.

The gallant defense being mounted by the Ukrainians assure us that the conflict in that part of the world will not spread to neighboring countries. It is the peril of a spreading conflict that motivates the European nations to generously donate their own armaments to Ukraine.

In the Middle East, no one is confident that fighting will not spread. A few days ago, Iranian-supported Houthi rebels in Yemen fired several cruise missiles presumed to be aimed at Israel. The missiles were intercepted and destroyed by a US warship in the Red Sea.

It appears the powerful Hezbollah group based in Lebanon is being pressured by Iran to join in the fighting. Regular exchanges of artillery fire has been going on across the Israel-Lebanon border. The Israel Defense Forces have bombed airports in Lebanon and Syria to preempt the delivery of arms coming from Iran.

It is possible that Tehran can choose to play a more direct role by firing missiles at Israel. The Iranians are probably calculating the consequences of direct involvement. Israel, supported by two US carrier-led task forces, could deliver a powerful reaction by bombing Iran’s military installations.

Remember that the mullah-led regime in Iran is under pressure from its own people. The brutality of the Islamist regime in Tehran has been bravely protested by ordinary Iranians in the streets.

The Hezbollah, even as it has thousands of missiles in its armories, may be hesitant to get involved in a major way. The presence of two US carrier-led assault groups nearby has had its deterrent effect. Still, the Hezbollah militants should be itching to join in the fighting against Israel.

While the wars are in progress, disruptions in the global economy continue to take their toll.

Ukraine has been unable to export its grain. Economic sanctions imposed against Russia leaves a large part of the global economy unstable. Wheat, oil and fertilizers are in short supply because of the conflict in that part of the world.

In turn, Israel’s economy is basically shut down as the war with Hamas rages. Israel has mobilized about 350,000 reserves to support its standing army. That is 350,000 taken out of the workforce.

Add to the raging costs of the two wars the indirect effect of conflict on global trade and investments. Investors are holding back until the sense of uncertainty is lifted. The possibility of increasing hostility between the US and China is forcing many companies to recalculate their threat scenarios.

“De-risking” has become a codeword for shutting down plants in China and relocating production elsewhere. Most notably, Apple has built new factories in India to take the load off their factories in China.

The wars likewise forced a shift in production from peacetime goods to military material. The tensions have pushed up oil prices that, in turn, punish import-dependent economies such as those in East Asia.

Wars, especially if they turn out to be prolonged, reshape the supply and value chains – very often not in the direction of raising productivity. The costs from the two hot wars now in progress will continue to be incurred many years ahead.

Diplomatic pressure, especially from Washington, is believed to have been the cause for delaying Israel’s full-scale invasion of Gaza. But that invasion, perhaps in less spectacular fashion, will likely still happen. Israel will not rest until Hamas is completely destroyed and the threat of cross-border raids such as those that happened Oct. 7 completely neutralized.

Israel’s intensive bombardment of Gaza has laid the territory to waste. Long after the last Hamas militant is killed, the rest of the world will have to assume the burden of rebuilding Gaza and sheltering its people.

War is never kind. The past few days saw the horrors inflicted on both sides by war. At some point we should begin calculating the costs to the global economy.