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Foreign Policy

A Different World Lies Ahead

Apr 29 , 2020
  • Zhang Yansheng

    Chief Researcher, China Center for International Economic Exchanges

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The ongoing COVID-19 pandemic is a major global public health crisis of a kind unseen in a century. It will likely affect people’s lives for a long time to come. The coronavirus knows makes no distinction between high and low social status, white or black, East or West, Chinese or American.

In the absence of access to effective vaccines and potent drugs, an effective way to deal with COVID-19 is to impose isolation and boost autoimmunity. Isolation results in the disruption or halting of economic cycles — consumption, investment, trade, logistics and business and human flows — as well as the interruption of industrial and supply chains. The global impact of COVID-19 will trigger profound changes in the international landscape, world order, global supply chains and China’s economic, trade and industrial layout. In the post-COVID-19 era, it will be a much different world, a much different supply chain and a much different China.

COVID-19 is like a powerful fuse, igniting many explosive changes in the economic, political, scientific, technological and security landscapes of the world.

During its first wave, COVID-19 hit Wuhan, Hubei province, in China the hardest. From Jan. 23, when Wuhan went to lockdown, until March 19 when COVID-19 cases in the city dropped to zero, and on to April 8, when the lockdown was lifted, China has brought the epidemic under control at the cost of 6.8 percent in GDP in the first quarter of this year. This year is the final year of the country’s plan for achieving a moderately prosperous society in all respects and the start of an effort to build China into a great modern socialist country that is prosperous, strong, democratic, culturally advanced, harmonious and beautiful by the centennial of the People’s Republic of China in 2049. To attain this goal, China will have to deal with more complex circumstances in its ongoing reform and opening-up over the next 40 years.

During its second wave, COVID-19 spread to the United States and Europe. As of April 17, there had been more than 2.2 million known cases of COVID-19 and more than 140,000 deaths recorded around the globe. Among the G7, except for Japan, confirmed cases accounted for 58 percent of the world total, and deaths were 69 percent. In the U.S., confirmed cases accounted for 31 of the world total, with deaths at 22.75 percent. In January, the International Monetary Fund projected global growth rising by 3.3 percent in 2020; in April it revised the figure down to a negative 3 percent and forecast a deep recession in the U.S. and Europe.

During its third wave, COVID-19 is likely to spread through Latin America, Africa and the South Asian subcontinent.  As of this writing, the top 10 countries for number of new cases will include Turkey, currently with 9,154 new cases (in second place); Russia, with 4,070 new cases (in fourth place); Brazil, with 2,791 new cases (in seventh place); Iran, with 1,499 new cases; and Singapore, with 1,351 new cases.

The COVID-19 pandemic has not only intensified antagonism and conflict in the original international pattern, world order and industrial layout but has also brought about political competition over anti-epidemic models. It is of particular note that while China reined in the impact of COVID-19 in the first quarter and began to fully reopen the economy and society for positive growth, the U.S. and Europe are likely to struggle with the pandemic in the second and third quarters, thus intensifying geopolitical competition between China and the U.S. This not only intensifies the push toward deglobalization but also the process of “de-Chinazation.” One obvious tendency is to amplify the epidemic in China, distort the Chinese anti-epidemic model and visualize institutional competition.

An open letter from representatives of the American elite calls for China and the United States to unite and cooperate in the fight against the epidemic on the basis of cooperation similar to the U.S.-Soviet solidarity against fascism.

The end of World War II was followed by the Cold War. If Sino-American solidarity and cooperation against the epidemic are considered expedient, it follows that after the pandemic the political and economic conflicts and divisions between these major powers will intensify rather than ease. Therefore, countries face major strategic choices as to whether to move the international pattern, world order and industrial layout toward lasting solidarity and cooperation, or whether to fall further into the trap of conflict and confrontation.

 The direct impact of COVID-19 is that the output and linkages of the world’s three major production networks, namely East Asia, Europe and North America, will suffer a sharp decline, suspend or come to a halt, with a huge and unforeseen impact on the world economy and China’s economy from both the demand and supply ends. The direct impact will last 12 months, 18 months or 36 months. It’s unknown whether the indirect impact will last even longer.

The impact of the epidemic has led to a sharp and deep recession in the global economy. This has dealt a serious blow to producer and consumer confidence, and has led to rising isolationism, unilateralism and trade protectionism. International economic and trade conflicts are likely to escalate again, thus speeding the regression and contraction of globalization and even the process of deglobalization. When the pandemic is over, countries around the world will make adjustments to their global supply chains with long-term, strategic implications.

First, when the pandemic ends, more countries will implement strategies to ensure their national security in supply chains as a major response to systemic risks, and they will bring strategic industrial supply chains back to their homeland.

Second, the trend toward deglobalizing science and technology is likely to come to the fore across the board. It will be a new trend for the world’s major powers to reorganize their national science and technology supply chain systems and strengthen their global science and technology leadership.

Third, the world’s great powers will significantly strengthen their capacity for state intervention in supply chains. For example, the Trump administration urgently activated the Defense Production Act to preserve domestic production of strategic goods, and France is planning to use interventions such as nationalization to protect large companies or important economic assets. These temporary measures are likely to be perpetuated and institutionalized. This makes it likely for 2020 to be a landmark year for an increased role of government.

Fourth, the adjustment of the international triangular division of labor will be accelerated. In the past, the U.S. and Europe provided markets and technology to the world. But the pandemic has drastically reduced the purchasing power of the U.S. and European markets, disrupted the flow of key components, vital materials and equipment and prompted the U.S. and Europe to bring supply chains back to their homeland more quickly and accelerate reindustrialization in an attempt to reshape their real economies.

In the past, East Asia provided the world with manufacturing and manpower. But the pandemic has led the region to strengthen the 10+3 mechanism, coordinate the expansion of regional demand, jointly stabilize regional supply chains, restore regional industrial chains and upgrade regional value chains. The Middle East, Asia, Africa and Latin America have provided the world with energy and resources in the past. But at the end of the pandemic, they will also accelerate the trend toward localization of supply, industrial and value chains.

Fifth, supply chains will move eastward at a faster pace. The global pandemic will first stabilize in East Asia. Next, China, Japan, South Korea and ASEAN will reopen their economies and societies — ahead of the U.S. and Europe — and the eastward shift of industrial, supply and value chains will make East Asia an important engine of global economic growth.

Sixth, the trend toward shorter supply chains will accelerate. COVID-19, deglobalization and the new sci-tech industrial revolution will interact to accelerate the trend toward shorter, more localized and more decentralized global supply chains. Multinational corporations will further shrink the global layout of multinational operations to avoid the risk of chain disruption, supply disruption and disconnection brought about by overly long supply chains, over-globalization of value chains and over-concentration of industrial chains.

Seventh, the trend toward the regionalization of supply chains will become more pronounced. The signing of large regional trade agreements such as the RCEP, excluding India (28.9 percent of the global economy), CPTPP (13.1 percent), EPA (28.1 percent), and the USMCA (27.6 percent) will change the layout of global supply and industrial chains.

Eighth, medicine, health and artificial intelligence will become the scientific anti-epidemic supply chain networks with the best prospects for growth. The networks will pay more attention to the enhancement of human autoimmunity, the application of big data, artificial intelligence, the internet logistics network, and all-around international cooperation.

Ninth, supply-chain decentralization will become a mainstream trend. The COVID-19 pandemic will change the nature of interpersonal communication and the frequency of mass gatherings, including the spatial density of services; it will promote the development of new industries such as online meetings, online commodity fairs and online shopping; it will integrate traditional manufacturing and digital technology, productive services and urban clusters and form a new supply chain network that is more decentralized, fragmented and personalized.

Tenth, the Belt and Road Initiative supply chain will become a new growth point.

It can be foreseen that after the end of the pandemic, the international landscape, the world order and the industrial layout for China’s development will face three uncertain prospects for change.

First, there is uncertainty as to whether there will be greater linking or delinking in science and technology between China and the world. The initiative to avoid delinking supposed to promote more open international cooperation in science and technology while ensuring security.

Second, there is uncertainty as to whether there will be greater linking or delinking in rules and standards. The approach of avoiding delinking is said to promote faster convergence with high-level international rules and standards, while staying Chinese.

Third, there is uncertainty as to whether there will be greater linking or delinking in supply and industrial chains. The initiative to avoid delinking is supposed to form closer intra-regional, intra-industrial and intra-product higher-level cooperative links based on autonomous and controllable division of labor.

The impact of the pandemic on China is far-reaching. In the course of the protracted fight against COVID-19, China, as a responsible and influential global power, should make its due contribution to ensuring peaceful cooperation and sustainable development in the international landscape, the world order and the industrial layout in the post-pandemic era.

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