Countries around the world are slowly starting to lift Covid19 restrictions. Italy, Spain, Germany, and other EU states have opened shops and cafes and beleaguered citizens are cautiously resuming some sort of life after weeks spent indoors. China is largely back to normal although only in some areas as reports of fresh outbreaks have resulted in over 100 million people being forced back into lockdown. Different countries are moving at different rates but there is a clear signal globally that even though risks still exist there is a need to restart economies and show a path forward from the debilitating lockdowns which governments have imposed.
This isn’t a return to normal, it is a new world into which we all will enter. Everything looks the same yet everything is now viewed through the lens of Covid19. Maybe the most worrying development in this new restricted global economy is the rupture in US China relations. Some call it a new Cold War, the Chinese media is forever calling on countries to stop a Cold War mentality when those same countries justly criticize China as it bullies or threatens it neighbours and trading partners. But the Cold War, as the ideological struggle between the US led Free World and the USSR and it partners is a poor model or comparison to the world of today. Be in no doubt about the designs of the PRC. They very clearly see themselves in a war of ideologies and see the freedoms and universal rights of the US, EU, Japan, and others as a threat, but that old post WW2 template doesn’t reflect today’s world.
The past few days has seen the World Health Assembly held virtually and in Geneva. Opening addresses by the leaders of Switzerland, China, France, Germany, South Korea, Barbados and South Africa, but no USA. The biggest contributor to the WHO, the key founder of the post-WW2 order and global governance institutions yet they are missing. President Trump instead has frozen the WHO funding pending review and then during the Assembly ramped up the rhetoric threatening to leave the WHO entirely at a time of the world’s worst public health crisis in a century. The US is missing in action, the rest of world, certainly what was once called the Free World, looks to the US to provide leadership, as it did as recently as 2016 with the Ebola outbreak, yet there is no leadership. President Trump may think his direct talk and tweets are leadership but they are not. Many traditional allies, in both government and populace look on in disbelief at the lack of leadership from the US. They see a country unable to control the pandemic within its borders and unwilling to help and lead those outside.
These columns over the past few months have made it clear the negative impact of Covid19 and the government lock downs. China, although having come through this first wave is far from recovered. It is having to deal with a huge spike in unemployed workers especially migrant workers who can’t or won’t return to their previous employment. Official statistics fail to show the impact of these unemployed workers because the unemployment rate specifically excludes such workers! Yet they remain a headache for the local and central government. The employment problem is compounded by the very real move out of China by businesses and a general diversification of supply chains from China. China is simply not seen as a reliable trader partner. Countries around the world have learnt the hard way of reliance on China when it came to PPE for health workers. Diversification away from China is coming.
The past few weeks have seen a relentless series of measures from the US aimed at China. Huawei, the first focus of attack is back in play. New rules around chip design and manufacture effectively look to cripple Huawei as it will limit their ability to access computer chips designed or made on US produced software or hardware.
As the world tries to climb out of the virus induced depression the trade war between the countries is starting up again. Just last week President Trump suggested that the US could “cut off the whole relationship” and America would save 500 bn USD. Whatever he means by this isn’t clear and perhaps this is the famous “Art of the Deal” updated for bilateral trade but this doesn’t instill confidence in America; allies look on in bemusement. The Phase One deal already looked unlikely given the pressure the Chinese economy is under, but does anyone hold out any hope for Phase Two or beyond?
As has also been discussed in this column, the President moved to restrict Federal retirement funds from being invested in China listed companies. His intervention stopped the Thrift Board’s planned investment tracking a MSCI global index which had a portion invested in Chinese State companies. Having taken the first concrete step in the Capital War the NASDAQ then announced new listing rules which will have a particular effect on Chinese listings, making it harder for smaller Chinese companies to list there. It would be hard not to think the political pressure from Senator Rubio and the White House haven’t played a part in this move.
Underlying all these economic tensions and moves is of course the President’s ongoing blaming of China for the virus outbreak and the need for a full investigation of what happened in Wuhan and in their Institute of Virology. He is of course right in calling for an investigation into the outbreak but the Chinese coverup and their early failings can’t negate his downplaying of the risks or misinformation in the following weeks and months. He casts a conflicted figure as he rages against China yet praises and acclaims its leader Xi Jinping. The actions of today’s China are being driven by one man, Xi Jinping, you cannot rage against the PRC yet hail its leader as a great man and friend.
Not that China has sat idly by as this storm has raged. As the virus spread across Europe China engaged in bouts of ill throughout and bullying propaganda to inflate it role in helping Europeans nations. It has spread nonsensical theories about the virus being brought to China by the US military and has consistently refused to shed light on its early actions in December and January as the virus started to emerge. Openness and transparency are alien to the CCP and their refusal to provide information only leads to ever wilder speculation of what is being covered up.
Nor has China shied away from bullying those who disagree. Australia, which has had initial success in limiting the virus spread in the country has called for an independent investigation into the outbreak of the virus. This has been a red rag to the China bull and the country responded by imposing restrictions on Australian beef and barley imports and is looking to expand those onto wine and diary products as well. This is yet another blow to an already hurting economy.
This is the post-lockdown world into which countries are emerging. Not one of cooperation but of real division and distrust. This is not the Cold War of the previous generations. This is something different again. The linkages between the USSR and Soviet bloc were minimal in the daily lives of most people in the free world. That simply cannot be said of China, which is generally the number 1 or 2 top trading partner with almost all major economies.
Trump rightly was the first US President to call out China for its trade abuses and a China which was not becoming a responsible global player. As many countries especially in Asia saw a rising China and bullying China the willingness to respond to a China threat was welcomed as it chimed with their own concerns but the US is failing to bring countries together to and lead. Instead it rails against China, and storms off the field. Its threat to leave the WHO may be bluster but what is needed is US engagement in these organizations. The US case that the WHO is under too much Chinese influence is likely correct because China has made it a focus to target and largely undermine global bodies for its own political advantages. The clearest example of this is the exclusion of Taiwan from the body even though Taiwan is a standout success story at preventing an outbreak within its borders. The US is the largest financial contributor to the WHO. Why does it not take greater charge and responsibility? The need for global co-ordination on healthcare has never been as important as now yet even if the US were to form a new body then to properly function China must be a member because as history has shown China has been a source of zoonotic transfer of diseases for centuries.
The China policy engagement of Presidents GW Bush and Obama cannot be returned to. Engagement and trade with China with the hope that everything will work out and China will become a responsible stakeholder failed to materialize. Critical voices were ignored and criticism of China was muted or conducted behind closed doors so as not to upset China. Those days offer no solution or guidance to the way forward.
But what Trump offers now is far from clear. The UK is in some ways a test case for the new global reality. After Boris Johnson’s election win in December he planned to push forward with Brexit and trumpeted Global Britain sailing on a sea of free trade, but that world is no more. His desire to reduce engagement with the EU rested on the WTO, FTAs with the US and with China, yet the WTO is imploding with its head having just resigned one year early. Any US FTA will have specific clauses limiting deals with China. Johnson finds himself in the highly unenviable position of choosing the US or China, with little room for maneuver. His government has already, despite vocal protests from some leading members of his own party, agreed that Huawei can have a role in non-core 5G build out in the UK. That will no doubt come under scrutiny in any US proposed deal.
Countries though do not want to have such a stark choice between China and the US. China is in no position to assume global leadership nor attract global admiration. Even after four decades of economic growth China has failed to make any true friends in the world. And its current treatment of Australia is a classic example of how, even with years of mutually beneficial engagement, it will turn on a country if it dislikes what Australians say. No one welcomes living in a Chinese empire or being the vassal state. Yet America, and American leadership has gone missing when it is needed most. Some may revel in the verbal and economic attacks directed towards China, but it is highly unclear what the US actually wants at the end of this. A more open, transparent, and fairer China might be the aim but that isn’t coming under General Secretary Xi and the CCP. Xi is under tremendous pressure internally, not only because he has led the country into a dreadful confrontation with the US but domestically the economic stresses have never been so great. Previously China could grow its way out of economic problems as it engaged with the world but that cannot happen now.
Perhaps the Chinese leadership are hoping that the US election in November will see Trump replaced and a fresh approach but don’t be too sure. Firstly, November is a long way off. A week is a long time in politics but especially so in the time of the virus. As societies re-open the risk of further outbreaks is real and with that will come further economic impacts and emergency measures. But the mood in America has also changed. Being tough on China is part and parcel of the political landscape now. The stark choices currently presented by Trump may be tempered but there is no business as usual.
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