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The COVID-19 pandemic of 2020 will leave an impact that permeates throughout the globe for the coming decades. An impact on both macroeconomics and international relations. According to the International Monetary Fund, the global economy will contract by 2% this year
In many ways, the pandemic crisis will mirror the 2008-2009 financial crisis and the ensuing recession. Just as the latter changed the international dynamic and the international financial system, the former will too, leave a lasting impact.
I am focusing on the impact I anticipate the COVID-19 pandemic crisis will have on south-east Asian relations—the region which, after all, is where the coronavirus originated. The Southeast Asian region was the first region to be affected by Covid-19. China, where the virus originated, and its neighboring states, began national lockdowns and quarantines early in the year, January. China orchestrated a draconian lockdown on its citizens to quickly curb the spread.
The economic effects are seen in the regions largest economy, China (world’s 2nd largest economy).
For the first time in decades, China’s economy contracted. Ending its decades-long record growth. China’s economy depends on labor and exports, so an enforced quarantine on its population affected its output capacity; hence, hindering production. This factor coupled with the decline in global demand due to individuals being in quarantine and unable to consume hurt an already inflated Chinese economy, that was on the down turn.
Moreover, China had just begun the early stages of mitigating a trade war with the United States (world’s largest economy); they signed a phase one trade deal that lifted the trading sanction the United states had enforced two years ago.
Even before the advent of COVID-19, China’s economy was beginning to decline and its meteoric growth was beginning to peter, because of trade sanction, an aging population, and growing labor wages. In addition, the nation was beginning to accumulate sovereign debt in order to maintain its growth--China was undertaking unnecessary infrastructure projects, home and abroad. So, this crisis came at an inauspicious time for the county.
Although the pandemic crisis has contributed to the existing beating on China’s economy, it has also provided China with an opportunity to continue its pursuit of global political and economic dominance, in earnest, through its ‘belt and road’ initiative. The strengthening of China’s belt and road initiative may end up being the most consequential fallout of the pandemic.
China is in the process of establishing a Chinese dominated trading route: they are putting in place the infrastructure in various states to create a “new silk road”. Currently, the Chinese are a nation of exports, they are not consumers, but if China, who already the world’s largest market, continues to expand their economic clout (via a Chinese controlled trading route), it will result in an increase in trade and the demand for the Yuan. (further reading: "Chinese Monetary Ambitions")
With a global recession sure to follow this pandemic crisis--even if it is a brief one--the nations China invested into may become insolvent and unable to repay the Chinese loans they took. They may default. Many of the states China offered investment loans to already presented a moral hazard; these states were mainly unstable, emerging, and/or developing states. Future solvency issues were always a known risk.
Therefore, this economic global recession that was induced by global pandemic will damage the states that participate in the Chinese Trade initiative. Once these states default, Chinese banks will annex the right to the infrastructure they had invested in and assume control. This includes ports, bridges, roads, rails, etc.
If these states default on their loans, which is more likely because of the impending global recession, they will have to legally concede the rights to their investment projects to Chinese Banks (the loan and investment provider.) which in essence is conceding to the Chinese Government. China will have genuine state control over various strategic locations in east Asia, central Europe, Africa, and Latina America. This perhaps may further foment tensions in the southeast Asian sea.
The Chinese government will be able to have control over regional trade and international trade. This will result in increased trading activity with China, increasing demand for Chinese goods and, as a result, the Chinese Yuan.
The most consequential impact of this pandemic crisis may be the transition from one global economic hegemony to another. From the dollar as the world’s currency and medium of exchange to the Yuan. From international trade once dominated by United States' oversight, supervision, and protection to Chinese autocratic control. This could potentially lead to conflict between the established power (U.S.) and emerging power (China).
Photos Credit:
Thumnail and first: https://www.cartoonmovement.com/cartoon_if/63565
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