How COVID-19 Will Reinforce Trends Shaping the Int'l Order

Original Wang Huiyao 中国与全球化智库

By Wang Huiyao | President of

the Center for China and Globalization(CCG)

From ISP Working Paper

I. INTRODUCTION

In just a few months, COVID-19 has turned our world upside down. The pandemic has claimed over 100,000 lives and untold economic damage. It is also affecting relations between states, in many cases, for the worse. These momentous events have led many to wonder what the pandemic means for the future of the international order. The short answer is, it is too early to tell. So much about the pandemic remains unknown, from the timeline to an effective vaccine to economic fallout and the possibility of second and third waves of contagion. With those caveats in mind, based on what we see so far, it seems likely that the pandemic will accelerate key trends shaping geopolitics and the world economy, rather than radically alter or reverse them. In particular, our post-pandemic world is likely to be even more multipolar as divergent paths of recovery reinforce long-term shifts in the global economy. Secondly, different aspects of globalization - such as economic or ecological, physical or digital – will follow different trajectories, with varied consequences for different countries and sectors. Thirdly, COVID-19 has exposed the need for stronger global governance to address the rising transnational threats we face. This working paper examines these trends and what they mean for the future of the international order, in particular, China's global role as one of three key pillars of the multilateral order along with America and the EU. Finally, it outlines ways that China and the EU can work together to build a post-pandemic world that is more inclusive, sustainable, and resilient.

II. TREND ONE: INCREASING MULTIPOLARITY

One impact of the COVID-19 pandemic will be to reinforce the trend of increasing multipolarity we have seen over the last two decades. After the end of the Cold War, the world experienced what has been described as a "unipolar moment" as the US remained as the only superpower. But the rise of emerging economies, in particular in Asia, have seen influence and the world's center of economic gravity shift from west to east. Even before the outbreak, 2020 was set to mark the point when Asian economies became larger than the rest of the world combined in purchasing power parity (PPP) terms, for the first time since the 19th century. Post-pandemic recovery trajectories will likely further accelerate this shift. There are significant differences between countries, but overall, Asian countries suffered less and are coming out of the pandemic earlier compared to Europe and America, meaning economic recovery will also be faster. Asia is becoming more integrated as it grows richer. China now trades more with ASEAN than the US. The region is also coalescing as a constructive force for global governance, becoming a locus for new multilateral initiatives. This is evident in new trade pacts like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP), as well as new institutions such as the Asian Infrastructure Investment Bank (AIIB). Supported by institutions such as these, deeper regional integration will play a role in Asia's recovery from COVID-19. China is at the heart of this story of the rise of Asia and will continue to play a growing international role in the post-pandemic world. The country has been the leading engine for global growth for many years. As yet, there is no sign this will change in the wake of COVID- 19, but the nature of China's role in the global economy will evolve along with domestic rebalancing. Over the last few decades, China's exports have been an integral driver of world trade. Looking ahead, it is Chinese consumption and imports that will play an ever-larger role. In the post-pandemic world, China, the EU, and the US will continue to stand out as the largest economies and most important players in global governance. Interactions between these three pillars of the multilateral order will be crucial in our ability to respond to shared global challenges, as discussed in the penultimate section of this article on China-EU relations.

III. TREND TWO: MULTISPEED GLOBALIZATION

It has become a common refrain to say that COVID-19 marks the end of "peak globalization." Globalization, broadly conceived of as interconnection between different countries and continents, is driven by advancements in transport and communications, and this is unlikely to stop. But recent years have seen an uptick in anti-globalization sentiment and push back against the cross-border flow of goods, capital and people, primarily in industrialized countries. COVID-19 is likely to reinforce some of these tendencies. However, rather than make sweeping generalizations about the fate of a singular process of globalization, it is perhaps more helpful to disaggregate its different components. Many will be slowed by COVID-19, but others will accelerate, resulting in "multispeed globalization." For example, in the short term, transnational flows of people and goods will suffer greatly as a result of COVID-19. But other flows such as financial and data are less directly affected. Since the outbreak began, trade has cratered as factories and borders close while demand and trade financing shrink. The World Trade Organization expects global trade to drop by between 13 percent and 32 percent in 2020. Trade in services, including tourism and study abroad, will also be seriously affected by ongoing restrictions and weak demand. In the longer-term, COVID-19 will prompt more governments and companies to reexamine global supply chains so they are less exposed to the next major shock. Even before the outbreak, populism and rising protectionism had led some to question the wisdom of open borders and long, multi-step supply chains. COVID-19, in particular through its negative impact on China-US relations, may reinforce concerns around decoupling and prompt some degree of "reshoring." But overall, this impact will likely be limited and confined to certain sectors. More manufacturers will consider diversification through "China plus one" strategies, which supplement core operations in China with another Asian country. However, these shifts were already underway due to long-term structural trends, including rising costs in China and the rise of other economies in the region. Overall, COVID-19 is unlikely to radically alter China's crucial role in global value chains. Indeed, China's earlier return to work will increase its importance in these global networks while other countries are still afflicted by the pandemic. Looking ahead, companies will be reluctant to make the major investments required to reconfigure supply chains in a period of great economic uncertainty. Besides, the underlying economic rationale for China's central role in global value chains has not changed - including its huge market and comparative advantages in costs, talent, and infrastructure. In contrast to the short-run impacts on physical flows, COVID-19 means that more of globalization will be digitally mediated. Over these past months, we have all got used to interacting via cloud platforms such as video conferencing and various digital collaboration tools. Business meetings, academic conferences, and governance have gone online. Some of these behaviors will be sticky even after the world opens up again. Cross-border ecommerce, which has grown rapidly in recent years, has become more important during the pandemic as more people go online for shopping, entertainment, and healthcare. While COVID-19 will weaken some aspects of economic globalization, the pandemic shows that "ecological globalization is only getting stronger. Ecological globalization refers to interdependence resulting from physical or biological processes, such as climate change, marine pollution, and pandemics. With climate change and environmental degradation, environmental shocks are rippling across the world with increasing frequency. The processes and risks of ecological globalization are linked in myriad ways. For example, climate change can raise the risk of pandemics by impacting natural habitats, brining different species into closer contact with humans, thereby increasing the likelihood of zoonotic transmission. Regardless of what happens to the various vectors of economic integration, the growing effects of ecological globalization mean that the fates of different countries are deeply entwined. In sum, multispeed globalization describes a world in which flows of people and goods are curtailed for a time, and where interconnections via digital networks and ecology are ever more important. This has broad implications for the international order. It will affect the global distribution of power as it impacts countries differently according to their comparative advantages and economic structure. For example, fossil fuel producers will suffer as physical globalization slows and oil prices fall; on the contrary, countries with strong tech sectors will benefit. As with many of COVID-19's impacts, this reflects long-term trends - in this case, pressure on conventional energy producers from climate change and the rise of the digital economy. Meanwhile, the growing importance of ecological globalization raises the importance of global cooperation at a time when this is hard to come by.

IV. TREND THREE: STRAINS ON GLOBAL GOVERNANCE

The pandemic has highlighted what has been increasingly apparent for many years: 20th-century global governance institutions are struggling to be as effective as they once were. Despite efforts by the World Health Organization (WHO) and G20, overall, the global coordinated response to the pandemic has been weak. International organizations have lacked the resources and authority to lead effective responses and support vulnerable countries. Various controls by states were enacted in a haphazard, unilateral way that impaired their effectiveness and added to discord. We badly need to strengthen and reform global governance so that it can deal with the effects of the pandemic and other transnational threats such as climate change. Progress on reforming multilateralism has been stalled for many years. While the pandemic has underscored the need for reform, it has also created an atmosphere in which reaching a consensus seems even more difficult. We have already seen how social and economic pressures can impact relations between states and hinder global cooperation. Politicians under fire for their pandemic response may seek to blame other countries. We have already seen how anxiety and precarity can exacerbate xenophobia, populism, and antiglobalization sentiment. It is notable that the forms of globalization reinforced by the pandemic, such as digital and ecological globalization, are also areas in which global institutions are relatively underdeveloped. For example, e-commerce accounts for a growing share of cross-border economic activity but lacks up-to-date mechanisms to facilitate cooperation and 9 regulation. There is an urgent need to strengthen international governance on climate change, which is linked to other transnational threats such as pandemics. These tensions and gaps highlight the need for stronger global cooperation and more robust multilateral institutions to address our shared challenges, but also the difficulties in forging global consensus amidst the pandemic.

V. THE WAY FORWARD: CONFLICT OR COOPERATION

The three trends outlined above – multipolarity, multispeed globalization, and yawning gaps in global governance - exert countervailing pressures on the international order. On one hand, the pandemic should be a force for cohesion. It is a deadly reminder of how the fates of all countries are deeply entwined. In a multipolar world where the greatest threats are transnational, states have a strong incentive to work together to address common challenges. One the other hand, it is clear that COVID-19 can exacerbate centrifugal forces reshaping the international order. States may withdraw into a form of "social distancing" from the international community, where instead of working together, they undermine global institutions and try to solve problems alone. World leaders face a choice between these two paths forward.As the world strives to recover from COVID-19, China will play a key role in that discussion. The country faces major challenges in the wake of the pandemic, with continuing health risks and economic slowdown at home, and negative sentiment abroad – in particular from the US. Sharp words have been exchanged amidst the tensions of the pandemic. But this does not change China's fundamental stance in the world. China has benefitted greatly from the international order and recognizes its greatest challenges are global ones that no country can solve alone. China's long-term global strategy is firmly anchored to this reality. At the recently concluded Two Sessions, leaders reaffirmed their commitment to openness and international cooperation.

VI. CHINA-EU COOPERATION FOR POST-PANDEMIC RECOVERY

In our new multipolar context, the world's three most influential global players - China, the EU, and the US -remain the best placed to galvanize cooperation to overcome COVID-19 and its economic fallout, as well as the myriad other challenges we face. The pandemic has seriously frayed tensions across the Pacific. Still, in the long-term, it is crucial that China and the US, as the world's largest economies, are able to work together. However, it seems inevitable that competition will continue to color ties between Beijing and Washington. As the third vertex of this geopolitical triangle, the EU can play a key role in balancing and mediating between the great powers. In time, the US could yet return as a bulwark of multilateralism, depending on the outcome of the upcoming presidential election. But regardless of the outcome, China and the EU should work together to revive international cooperation. Together, they have the critical mass to help overcome gridlock in global governance and reach joint solutions to our shared challenges. As China's relationship with the EU becomes deeper and more multifaceted, it is inevitable there will be aspects of competition and differences between the two sides at times. COVID- 19 has made the relationship more complex. However, in the big picture, our shared interests still more than outweigh these differences. Amidst a climate of intensifying political rhetoric, it is important for China and the EU to retain a pragmatic approach and cultivate shared interests and synergies that can help not only both sides but the whole world recover from the COVID-19 pandemic. Three crucial areas for cooperation stand out. Firstly, China and the EU should work together on public health efforts and boosting longterm global resilience to infectious disease. Both sides have strengths in science and medicine. Stronger cooperation between Chinese and European governments and institutions could help the development of vaccines and systems for infection monitoring, treatment, and control. The two sides can also work together to help vulnerable third countries overcome the pandemic and build prevention capabilities. Secondly, China and Europe should strengthen cooperation to revive multilateralism. This includes enhancing the role of the WHO to coordinate global public health measures. Another priority is re-invigorating the WTO. During the current crisis, more than 60 governments have imposed export restrictions on medical equipment and essential drugs for treating COVID-19 symptoms. Many have also placed limits on the export of food products. This kind of protectionism can exacerbate supply shortages and is a particular threat to lessdeveloped countries. In the short-term, China and the EU could work together to help retool the WTO to address this issue and smooth essential trade flows. In the longer-term, reviving the WTO is important to support free trade and global economic recovery. Finally, sustainability can be another bright spot for cooperation. At a time when the White House has turned away from green issues and the Paris Climate Change Agreement, it is all the more important that China and the EU lead in helping the world transition to a clean future. There is much to be gained from combining the EU's experience and holistic approaches to environmental protection with China's strengths as a supplier of low-carbon solutions. While COVID-19 has overshadowed the climate crisis, in the long-term, it remains one of the world's most pressing challenges. Climate change is also linked to the risk of future pandemics, given factors such as the impact of environmental change on zoonotic transmission to humans. Furthermore, large scale investment in decarbonization can aid global post-pandemic recovery.

VII. CONCLUSION

COVID-19 will have broad-reaching implications for the global economy and international order, the extent of which we are only just becoming aware. In many ways, this will reinforce existing features of our world, such as multipolarity, multispeed globalization, and the need for stronger global governance to tackle our shared challenges. The pandemic has inflamed tensions between some major powers that could hinder global cooperation. But even more so, it has shown how interdependent our global village is. Unless we want to live in hermetically-sealed isolation, no country can be safe until all countries are safe. For China and the EU, which share deep economic linkages and support for an open, multilateral order, the imperative to work together is even stronger; our roads to recovery run side by side.

From ISP Working Paper, 2020-6-9

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