Commentary on Political Economy

Saturday, 28 March 2020


“We have seen the G-20 meeting overnight but this situation is very different to the GFC. Trump is not functioning as a global leader, the US-China relationship is fractured and there are major divisions between the US and Europe. The ingredients for effective international co-operation are in short supply. While this is unlikely to spiral into military conflict the crisis is going to degrade US-China relations even further.”
The crisis is a huge boost to Trump’s trade adviser, Peter Navarro, in his protectionist campaign to bring home the supply chain, re-localise US manufacturing capacity, reduce dependency on China and fight intellectual-property theft. The crucial question is how far this goes. The upshot will be a deepening of Trump’s trade and technology war with China. Some changes are easy to identity and justified — China’s share of the US antibiotics market is 95 per cent and that won’t long survive. The legacy from the virus will see vital health products being produced in America as a national security imperative.
The magnitude of the degeneration in US-China ties under Trump and Xi is reflected in the analysis from Ryan Hass, a former foreign service officer now at Brookings: “Under normal circumstances a crisis of such scale would thrust the US into an international leadership role for mobilising resources and rallying countries in a common direction. Such was the case after the devastating Southeast Asian tsunami, during the global financial crisis, amid the outbreak of Ebola in East Africa and on many other occasions in between. It had also become increasingly common for Washington and Beijing to co-ordinate their respective responses to global crises.”
This reminds us that we live in an impoverished global polity. But McGregor sounds a timely warning: “Chinese success is far from guaranteed. They have immense problems, and unlike Western countries, they have little experience of living through a recession.”
Writing a fortnight ago, US entrepreneur, former media executive and China watcher Bill Bishop, now resident in America, said: 
“As things get worse here, and no doubt in other countries as well, I am very afraid that the anger towards China and people of Chinese descent will only increase and possibly explode. Sudden economic downturns, mass illness and death, nationalistic citizenry and political leaders under tremendous pressure who find political benefit in deflecting blame on to an external enemy have led to many disasters throughout history.
“I cannot think of a more dangerous time in the US-China relationship in the last 40 years and the carnage from the coronavirus has barely begun in the US.”
Meanwhile, the US congress has authorised the $US2.2 trillion ($3.67 trillion) package, equivalent to 10 per cent of GDP, the largest in history, with funds going to laid-off workers, small business, big corporates, middle class and low-income Americans. It cannot halt an American recession. The package is more survival than stimulus. James Bullard, head of the Federal Reserve Bank of St Louis, predicted unemployment would reach 46 million or 30 per cent of the workforce.
Perhaps the ultimate irony is that the virus will facilitate the world that Trump wanted and the agenda on which he was elected — it will fuel nationalism, weaken support for free trade, foment protectionism at home, prove the fragility of international institutions, encourage stronger border controls (what about a health declaration along with your passport?) and further strain the ties between the US and its European allies. Who says he cannot be re-elected?
But the ultimate play is China. Every sign is that Trump, from the start, sought an economic confrontation with Beijing but wanted to avoid any military confrontation. Now he has got more than he bargained for — not the military showdown — but a comprehensive contest of political systems. By our standards, America should win. America needs to win. But is Trump the man for the job?

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