#8 InTech Series: The World, Post-Corona |Part 1
The spread of COVID-19 across the world has arguably been called a Black Swan event that has disrupted the economic, social, political and technological normal. What could emerge from this crisis will be a very different world from the one we inhabited previously. This series aims to capture the nature of the fundamental shifts that are occurring, project possible trajectories that could shape up, and provide strategic insights on the opportunities and challenges that could lie ahead. Read Part II here.
1. The Great Fracture Just Went Global: 5 Cracks in the International Order
WHO and the Japanese move: Two symbolic events
Last Friday, President Donald Trump in a press conference hinted that the U.S. will take action against the WHO, the UN’s premier body for global health responses. This week, Trump declared, “WHO failed in this basic duty and must be held accountable,” as he placed a hold on funding for 60 to 90 days. The United States was WHO’s top donor, giving more than $400 million in 2019.
At the same time, “the Quad” a group of four countries- Australia, Japan, India, and the United States resumed dialogue after years of inactivity. This time they were joined by three new partners- South Korea, Vietnam, and New Zealand, making it the “Quad Plus” to discuss how to contain China and cooperate on tackling the pandemic in their region. Japan went on to allocate $2.2 billion to pay high value-added product manufacturing companies to shift production out of China and diversify supply chains to Japan and ASEAN countries. The Quad Plus is making moves to shift their supply chains out of China and build resilience at home. Many states are likely to follow.
Both these events strongly signal a shift in the international order as well as economic relations of states vis-a-vis- China in the wake of COVID-19 that has caused an unprecedented downturn, worse than the Great Depression of the 1930s. With the U.S. de-funding the WHO, which Trump believes is too “China-centric”, the liberal institutionalism that gave the U.S. its hegemonic power in a hyper-globalised world is showing strains. Finally, current global crisis poses a fundamental challenge to the globalisation- lead order in which interdependence exacerbates risk.
The 5 Cracks that could Deepen the Fracture
In other words, The Great Fracture between China and the US that we warned about this January, just went global. Till now, the Great Fracture was primarily about the US and China locked in a tussle for technological superiority, with Trump wanting to retain American dominance in the “industries of the future”- AI, Quantum, 5G, and Advanced Manufacturing. This was threatening to split the world into two technological zones led by the US and China. Today, this split could extend far beyond a trade and tech war. It will determine the shape of the new global order as many states demand strict action against China’s perceived irresponsibility and lack of quick response to the corona threat.
These are the five cracks causing this fracture:
0. The Nation-State Strikes Back
1.“Reshoring” Manufacturing & Essential Supply Chains
2. MNC’s may favour Resilience over Redundancy
3. China Attempts to go Shopping while the World Burns
4. The Covid Crisis has exacerbated Technopolitical Fissures between China and the Western World
In this part, we will dive into the first two issues.
Crack 0: The Nation-State Strikes Back
There are clear signs of multilateral institutional order heading for collapse as Trump halts funding to the WHO, and seeks to create strategically beneficial, alternative institutions which will benefit the US. China, for years, has been building parallel institutional architectures as well as strength in existing institutions. In the wake of the weakening of the Western powers, China will attempt, with partial success, to fill the vacuum left by the US retreat. While many believe we are in for a G-2 world, it is far less likely to be the case as both the US and China to a greater extent will face serious issues of legitimacy at the global level. Moreover, middle-income countries like India, Japan, Germany, and Quad Plus may seek an expanded role to fill the leadership vacuum.
Irrespective of the outcome, the internal order will be far more conservative than what we have seen post the fall of the Berlin Wall.
The EU, the sole supra-national state has been called “ depressingly slow, hesitant, stingy and unsupportive” in its response to the pandemic. Political Scientist Ivan Krastev claims that “ the coronavirus crisis will strengthen nationalism in Europe. It doesn’t seem such a reckless theory: the big crises of the last two centuries have certainly had that effect. The reason for this phenomenon is obvious: a catastrophe generates fear, and nationalism presents itself as the ideal antidote, inasmuch as it forms, in the face of uncertainty, the refuge of a community bound by ties of blood.” It is safe to assume that the EU, which was created to keep nationalism in check, can become a failure, exposed by the crisis at hand.
The world, post-corona will see a strong turning point as globalisation, institutional structures, and legitimacy of the US as a global leader fall under doubt.
Crack 1: Nation-State Imperatives: Bringing Home Essential Supply Chains
Within the US, many members of Congress have rhetorically raised the issue of holding China accountable. More than five Senators in the US have written to the President demanding strict action against China, and building capacity in biomedicine, pharmaceutical development, and medical innovation at home.
While some like Henry Kissinger argue that hard times need a greater emphasis on protecting the global liberal order, such globalist stances may not wet against the harsher social, political and economic realities that states face today.
Japan isn’t the only country thinking of policy measures to move manufacturing and essential supply chains out of China. Trump’s rhetoric of Make America Great Again, which prominently features the promise of “re-shoring” manufacturing , will grow louder. With the upcoming election and Trump’s rust belt vote base, the US will probably push for stronger measures to push re-shoring. While this may not be fully feasible given the US high costs of manufacturing, there is no doubt that some part of essential commodities manufacturing will ship back to the United States.
The US was caught in a moment of vulnerability. It will push hard to not look weak again. What it cannot manufacture by itself it will create incentives (or threaten) to move to friendly countries, a list which could potentially include India, Korea and ASEAN countries among others. To a more limited extent other countries will follow suit as well.
The nation-state will begin placing legal hurdles to globalised supply chains. Both law and investments will shift because risks are higher than ever before, in times of economic contraction.
The new world will be far poorer economically and will turn inward to tackle the shock of the crisis. The world we are entering will be more contracted, more nationalist, and economically protectionist as supply chains move back home and resilience is sought over expansion.
In Part-2 of this series, we explore how fundamental shifts in global supply chains, how China is going shopping while the world burns and why the widening technopolitical fissures are making the Chinese state-led model seem increasingly more attractive to liberal democracies. Stay tuned.
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