eBusiness Weekly
We do not know. But one result is evident: a marked further deterioration in relations between the two superpowers. This is sure to have longer-term consequences.
Today’s world has powerful echoes of the early 20th century, when rivalries between established and rising powers led to war. That in turn led to the collapse of an era of globalisation — “the first globalisation”. Today, our “second globalisation” is under threat. Yet that is only a part of what is at stake as the superpowers embrace an intense rivalry.
Consider recent events. Donald Trump blames China’s “Wuhan virus” for the devastating impact of Covid-19 on his country, in order to divert attention from his own failures. Xi Jinping’s autocratic China imposes draconian security legislation on Hong Kong, in violation of treaty obligations. Not least, the US administration has released a new Strategic Approach to the People’s Republic of China, guided by what it calls “principled realism”. This stresses the threat posed by China to US national security and economic interests.
The early 20th century was also an era of globalisation and unbridled great-power rivalry, as the relative economic might of the UK fell and that of Germany, Russia and the US rose. While the rise of the US was the most significant, proximity made competition between Germany, which was determined to enjoy its place in the sun, and the UK, which saw Germany as a mortal threat to its independence, decisive.
A fascinating paper by Markus Brunnermeier and Harold James of Princeton University and Rush Doshi of Brookings argues that “the rivalry between China and the US in the twenty-first century holds an uncanny resemblance to the one between Germany and Great Britain in the nineteenth”.
Both rivalries took place in an era of economic globalisation and rapid technological innovation. Both featured a rising autocracy with a state-protected economy challenging an established democracy with a free-market system.
Moreover, both rivalries featured “countries enmeshed in profound interdependence wielding tariff threats, standard-setting, technology theft, financial power, and infrastructure investment for advantage”.
“Latecomers”, such as Germany then or China now, simply will not accept permanent disadvantage. The same was in fact true of the US in the 19th century. Alexander Hamilton developed the infant-industry argument for protection. The UK moved to free trade, while the US stayed highly protectionist. The UK sought to protect its intellectual property, while the US tried to steal it. Rivalry of this kind is always inevitable.
The conflict that began in 1914 did not finally end until 1945, with Europe, east Asia and the global economy in ruins. It took the entry of new great powers on to the global scene, the US above all, to restore stability and global peace, however imperfectly. As Maurice Obstfeld, former chief economist of the IMF, shows in another excellent paper, it took 60 years before economic integration returned to 1913 levels relative to global output. Globalisation then went far further, prior to the global financial crisis of 2008. In the process, it also brought about a large reduction in global inequality and mass poverty.
Rising friction between China and the US, and the weakening of globalisation, have been apparent since the global financial crisis. But Covid-19 has accelerated these trends.
The pandemic is turning countries inward. The demand for self-sufficiency is rising.
This is particularly true in products relevant to health. But other supply chains are also being broken. The economic collapses, stratospheric unemployment and pandemic-constrained recoveries make some leaders, especially populists and nationalists, happy to blame foreigners.
The perception of US incompetence weakens its credibility and emboldens autocratic China. As the US withdraws from international organisations and treaties, and China pursues its own path, the fabric of co-operation tears. Even armed conflict is possible.
As Larry Summers has argued, Covid-19 looks to be a hinge moment in history. This is not so much because it is changing trends, but rather because it is accelerating them.
It is reasonable to bet that the world which emerges on the other side of the pandemic will be far less co-operative and open than the one that entered it. That is where current trends are taking us. — Financial Times.
