China and the United States: hegemony conditioned or not by the virus

At this point, few voices argue that there will not be a before and after of the great pandemic of 2020. Suggesting now what that after will be like has more in common with saying good luck than with calculating probable scenarios. With this preliminary caution, we will try to provide some general considerations about the possible consequences that the unprecedented economic slowdown will leave in the medium term, and about how these will alter the conditions under which the long-distance race between the United States and China takes place. 

The particularity of the current economic crisis is that its cause is due to a negative supply shock, as health measures have forced the world economy to slow down, putting the brakes on business activity. This means that the old recipes, such as those applied in the Great Depression or the Great Recession, have an a priori modest effect, because, on this occasion, the fall in production and employment is not mainly due to a decrease in demand, but is a result of medical prescription, and is therefore dependent on the evolution of the pandemic, and, above all, on how resilient the health systems are. Two official macroeconomic data, known this week, give us an idea of the volume that the snowball has reached in just one quarter: on the one hand, 22 million Americans have registered as job seekers in the last 30 days, while the Chinese authorities are admitting a 7% contraction in their economy. 

As a reference, let us note that the pace and size of job loss in the US is greater than that which occurred in the Great Depression of 1929, and already exceeds the total number of jobs created after the Great Recession of 2008. As far as China is concerned, this is the first time that its economy has contracted since 1976, not only breaking an economic trend, but also calling into question the commonly accepted inevitability of the Chinese surprise to Western rule that has prevailed since the beginning of the Contemporary Age. The fragility that these figures imply denotes that, perhaps, the train of history has two meanings, after all. However much the Chinese nomenklatura may order the reopening of its industry -at any cost- it is powerless to place its production in a closed market until further notice, so it will not gain a competitive advantage by having contained the virus before the others. Because the others are your customers. Customers who have discovered in panic that they are a captive market in broad strategic sectors; a situation that the electorate in democratic countries will not tolerate after this pandemic; which will force Western politicians to reverse dependence on China, and to embrace Beijing's aspirations, forcing the party to play on a level playing field.  

China is not interested in creating an alternative world order, but in dismantling the existing one. That is why Donald Trump's decisions regarding the dismantling of the current institutions of global regulation and administration - with the WTO and the WHO as the most recent examples - are in the interest of China, which conceives of the world in terms of dragons and mice. This worldview is perfectly visible in China's geopolitical attitudes towards the nations of the Indo-Pacific, especially with regard to the compromise of the countries of the Association of Southeast Asian Nations (ASEAN) with Beijing's hostile actions throughout the South China Sea; which should make us think about the facilities that the European Union is giving to the development of the "Great Dream of China", materialized in a "new silk route", adorned with the "pearl necklace" of which a good number of European commercial ports are part, from Algeciras to Piraeus.

Even the US is not doing particularly well out of this crisis. The pandemic has thrown away the myth of the exceptional American, and put under the spotlight a giant with shoes so muddy that he can hardly walk. The recourse to epicism or the rhetoric of war employed by Donald Trump is only a voluntary distraction that cannot cover up the fact that the US's shortcomings in terms of food, health and energy security policies are the result of continuous political decisions that put price above value, a model of development oriented towards consumption, which is dependent on a system of production and distribution so complex that it is vulnerable to something as primary as a coronavirus. The White House has had no choice but to dust off Keynes' complete works, and hastily revise the Modern Monetary Theory, in order to activate measures that have, to all intents and purposes, blurred the line between the public and the private, by authorizing spending equivalent to 1/3 of the annual GDP, which will be followed by monetized investments in public works and economic stimuli, which together will border on 50% of the annual GDP, so that the United States will for some time become an economy as centrally planned as China; all this simply to avoid the socio-economic collapse of a country whose households have seen their net worth fall by 30% since 2007, and life expectancy reduced for the fourth consecutive year.  

Beijing, for its part, no longer has the economic muscle it used to pump financial air into others, as it did during the Great Recession. As we noted earlier, China's economy is too dependent on external demand from the West to be able to revive the global economy. Nor will it be able to reverse its GDP contraction until the economies of the United States and the European Union - which account for nearly 50% of China's GDP - grow again in turn. The Chinese administration will most likely be forced to postpone the lion's share of active domestic stimulus policies until the West grows, so as not to waste resources by obtaining flabby results due to low external demand, and in view of the fact that China's generally high levels of debt mean that stimulating its own economy by issuing debt as during the previous crisis would make the Chinese financial system vulnerable.  

Nevertheless, it does not seem that neither Washington nor Beijing will have in the short and medium term the energy and will to launch themselves into a final sprint for global hegemony. To use a pugilistic simile, we could well be looking at two exhausted and dazed boxers, hugging each other in the middle of the ring so as not to collapse. 

In the next few years, the United States will have to strengthen its industrial self-sufficiency to be in a position to contest the power projection of China, which has benefited from America's weak global leadership and has begun to decisively tip the balance of power towards Asia. This restoration of American influence will require reweaving the map of American alliances, reinforcing complicities and renewing solidarity with its traditional allies. Only when the United States can count on these tools will it be in a position to revitalise its diplomacy towards China, an essential condition to avoid, on the one hand, that the temporary disagreements lead to a chronic volatile confrontation and, above all, to count on the necessary strength to convince China that it cannot afford not to play by the same rules of the game as the democracies.