Economics of a cold war?

Hany Ghoraba
Tuesday 4 Aug 2020

Accusations made by the Trump administration against the Chinese government over the Covid-19 pandemic have added to the ongoing US-Chinese economic war

The Covid-19 crisis has battered the global economy like no other event since the 1929 Great Depression. However, the economic prospects for 2020 were not great even before the crisis, with many economic experts warning earlier this year that the global economy was slowing down to the point where a recession could become inevitable.

Then came the coronavirus pandemic, ripping apart the dim hope that the global economy could survive such a recession. In May, UNDESA, the UN Department of Economic and Social Affairs, estimated global economic losses as a result of the crisis to reach at least $8.8 trillion and the world economy to shrink by 3.2 per cent overall.

But these already grim estimates were made at a time when the coronavirus outbreak was still in its relative infancy and the number of infections was less than five million cases worldwide. By the beginning of August, the number of infections had surpassed 18 million cases globally, with the United States alone reporting over 4.8 million cases and 158,000 deaths to date.

Other countries such as Brazil and India have been similarly battered, with Brazil reporting 2.7 million cases to date and India reporting 1.75 million. Countries with huge numbers of infections include Russia, South Africa, Mexico and Peru. These numbers have led the UN to modify its predictions, saying that over $10 trillion has already been spent by countries worldwide to combat the effects of the pandemic.

Amidst this mayhem there is also the intensifying economic cold war between the United States and China. This is not something that can be overlooked since it involves the world’s two economic superpowers. US President Donald Trump has also blamed China for causing the global pandemic that has taken the US by storm, accusing Chinese officials of covering up the spread of the virus until it had become a pandemic.

Trump has accused the UN World Health Organisation (WHO) of being complicit in hiding the ferocious nature of the virus from the global media. The US administration then withdrew its funding from the WHO and later withdrew from the organisation altogether.

The Chinese government has responded to the US accusations by saying that they are baseless and tainted by political motivations. It has blamed Trump for provoking racism by pinning the outbreak on the Chinese state. This political and diplomatic spat has also fuelled an ongoing economic war.

Trump has extended the ban on the Chinese telecommunication giant Huawei from operating in the US until 2021, and Britain, the US’s closest ally, took much the same measure in July. The US has also sanctioned 11 Chinese companies believed to be involved in human-rights violations against Muslim Uyghurs in the Chinese region of Xinjiang

Trump has threatened to ban the popular Chinese social-media application TikTok from the US as well. As with the case with Huawei, the Trump administration has pointed to security concerns, saying that the application could be used as a tool for espionage against US citizens.

Meanwhile, China has been suffering from the repercussions of the coronavirus on its economy and the US sanctions. The Chinese authorities are battling rising protests in the autonomous region of Hong Kong, where dissidents have launched protests in response to a Chinese security law that criminalises calls for secession or subversion of Chinese rule. The law allows China to establish a security office in Hong Kong to enforce it, contradicting the autonomous nature of Hong Kong.

The US has openly supported the demands of the Hong Kong protesters against the Chinese government and has declared that Hong Kong under its new status will be treated like mainland China, stripping it of its special relationship with the US that entails lower tariffs. This relationship has been exploited by China over the years, with Hong Kong serving as an important exporter of Chinese products. Today, the US has banned the exports of sensitive technology to Hong Kong.

The bans have irked the Chinese government, and tensions between the two countries are growing. By January, the US had imposed tariffs on more than $360 billion of Chinese goods, and China had retaliated with tariffs on more than $110 billion of American products.

What is taking place between China and the US could not be worse for a global economy still suffering from the impacts of the coronavirus. The situation has affected the global economy on the widest scale. Many countries around the world have good relations with both economic superpowers, and it will be incredibly difficult for their governments to choose between them.

Singapore is an example of a country that will find it hard to take one side against the other without being economically damaged. This Asian economic success story has established itself as a commercial hub between east and west and has an international seaport and airport that are among the busiest worldwide. Singapore cannot choose between China and the US since it receives business from companies in both countries, and its services, financial, manufacturing and tourism sectors are bustling with activity thanks to investment from both countries. These will terribly suffer should the tensions between the two countries proceed at the current rate.

The situation in the 20th-century Cold War between the US and the former Soviet Union when most countries around the world had to choose between one or the other as a political, economic and military ally cannot be replicated in the 21st century since the global economic and geopolitical map is much more complex than it was in the last century.

Moreover, should the coronavirus pandemic continue at its current rate, it could wipe out half the world’s jobs in a matter of months. There have already been tens of millions of jobs lost due to downsizing and bankruptcies among companies worldwide aside from the pay cuts inflicted on those lucky enough to retain their jobs. There are also some 1.6 billion people who work in the informal economy who have few if any protections and are at risk of losing their jobs.

For the world to survive the current economic recession and the looming depression ahead, both the US and China should disengage from increasing the stakes in their economic cold war. Both countries already have hundreds of billions of dollars of investments in the other, and both are too intertwined to be separated without damage.

These investments must be the catalyst to level the ground for more open negotiations to put an end to this damaging conflict and establish a vision of how the global economy can survive its most serious crisis in centuries.


*The writer is a political analyst and author of Egypt’s Arab Spring and the Winding Road to Democracy.

*A version of this article appears in print in the 6 August, 2020 edition of Al-Ahram Weekly 

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