The Four-fold Impact of COVID-19 on the International System

By Chen Dongxiao

Since the novel coronavirus (COVID-19) broke out at the turn of the year, there have been over 9 million confirmed cases and more than 480,000 deaths worldwide, making it the widest spread and most destructive global pandemic after the “Spanish flu” early last century. This once-in-a-century super pandemic, which happens when the world is going through unprecedented changes, has brought about at least four “quantitative effects” on the international system. As a result, “qualitative changes” will take place at an earlier date.

First, COVID-19 undercuts the “third wave of modernization”dominated by emerging economies and developing countries, adding uncertainties to the shifting international balance of power, whereby the East has risen and the West fallen since the turn of the century.

COVID-19 has pushed the global economy to a temporary shutdown, caused drastic volatility on financial and commodity markets, and disrupted global production and supply chains. This has dampened the growth prospects of both advanced and emerging economies that are highly dependent on global industrial and supply chains. An economic recession is set to happen, and the world is at greater risk of depression. 

Three major international economic institutions have painted a bleak picture in their reports. In theWorld Economic Outlook released in April, the International Monetary Fund (IMF) predicted a 3% contraction in the global economy in 2020, far worse than the impact of the 2008-2009 international financial crisis. That said, it still forecast a 1.2% growth in China and 1.9% growth in India for the whole year. In June, the World Bank made a more grim assessment in the Global Economic Prospects report, forecasting the global economy would shrink by 5.2%, the deepest recession since the end of World War II and a crisis in which the largest number of economies would suffer falls in per capita output since 1870. Similarly, the OECD’s World Economic Outlook in June is even more pessimistic.It outlinestwo possible scenarios of the evolving pandemic, in which the global economy would decline by 6% and 7.6% respectively in 2020. To break it down, OECD economies would shrink by 7.5%-9.3% in the whole year, while the eurozone would contract by 9.5%-11.5%. It also predicted a fall of 2.6%-3.7% for China, and a 3.7%-7.3% decline for India.

From a longer perspective, both major economic institutions and renowned economists agree that the pandemic has revealed severe vulnerabilities in developing countries, including many emerging economies, which are faced with worrying prospects ahead. At the end of March, the United Nations released the report Shared Responsibility and Global Solidarity, in which ithighlighted the multiple unprecedented economic and social impacts of COVID-19 on the developing world, particularly the Least Developed Countries (LDCs), Landlocked Developing Countries (LLDCs) and Small Island Developing States (SIDS).According to the Global Economic Prospectspublished by the World Bank in June, sub-Saharan African economies would shrink by an unprecedented 2.8% this year, leading to international capital outflows and widening wealth gaps.South Asia’s consumption and services are hampered by epidemic control measures, and the uncertaintieshave held back international investment. As a result, the South Asianregion will experience a negative growth of 2.7% in 2020.Economic activity in the Middle East and North Africa is expected to contract by 4.2% due to the epidemic, weak international energy demand, and huge fluctuations in international crude oil prices.Economy of Central Asia will experience a negative growth of 1.7%. The virus will also take a heavy toll on the Caribbean, plunging it into a negative growth of 7.2%in 2020. Optimistic estimates put East Asia’s growth at around 0.5%, but a negative growth of over 2.2% is still possible, if debt conditions worsen and uncertainties in international trade and supply chains further grow.

It should be noted that except for China where important progress has been made in containing the virus and the economy is reopening at a faster pace, other emerging economies, such as India, Brazil, Russia and South Africa, are still grappling with the dual challenges of raging COVID-19 and a severe economic recession. The situation leaves no room for optimism. 

On the surface, developing countries, including the LDCs and many emerging economies, are experiencing declines no more serious than their developed counterparts. However, as they are confronted with multiple challenges, such as COVID-19, volatile external markets, rapidly shrinking demand, and global supply chain adjustment, their inherent problems have become more severe, for example, weakened public health emergency response systems, unbalanced industrial structures, and inadequate capacity to adapt to market shocks. All these will further aggravate their existing debt conditions, regional development disparity, and income imbalances. Compared with developed economies, these internal strains are magnified by the epidemic, adding to their social and political turmoil. Therefore, protecting the economy, maintaining stability, and sustaining the government is the top priority of many developing countries.

In this context, the international community must unite as one to tame the virus as soon as possible and arrest the downturn of the world economy; and developing countries and regions must pursue reforms, adopt a new approach to development, upgrade their industries, and make their economies more resilient. Otherwise, the modernization process (also known as the world’s third wave of modernization) that has accelerated in the developing world since the 1990s may stall for a long time to come. At the same time, changes will take place in the shifting international balance of power, whereby the East has been rising and the West falling since the turn of the century. The rise of the East and fall of the West was originally limited to the political domain. Traditionally, the East included non-Western countries and regions. After the epidemic, however, the East is more of a geographical concept and refers to East Asia. On the whole, East Asia, including China, Japan and the Republic of Korea, has performed better in fighting the epidemic and reopening their economies. It may be the first region that emerges as a whole from the epidemic in a better position to recover and grow. So in a geographical sense, the East will rise and the West will fall. 

Second, the COVID-19 pandemic has further strained China-US relations. A largely balanced and stable China-US relationship which has been based on coordination, cooperation and competition will no longer exist, thus increasing global strategic instability.

As the Trump administration adopts a whole-of-government and all-round approach to contain China, the two countries are at greater risk of sliding from strategic competition to strategic confrontation, and the world may be divided along ideological lines. 

On May 20th, 2020, the White House issued the United States Strategic Approach to the People’s Republic of China (hereinafter referred to as the Approach) once again explicitly repudiates the policy of engaging China, which has been consistently pursued by the US administrations since the 1990s. It reveals the resentment and fear toward the Communist Party and China, and openly advocates comprehensive containment of China.

The Approach promotes the so-called “three core elements” of the Trump administration’s new strategy towards China in the past three years. First, the “whole-of-government” approach. Guided by the Approach, the White House will “centralize” its China policy to fully mobilize administrative resources to achieve three core objectives vis à vis China, namely, to preserve US values and institutions, technology and innovation advantages, and global dominance. Second, zero-sum game. The US is no longer seeking the goal of “win-win, co-governance” with China, but is pursuing a “tit-for-tat” policy based on “America first” and “relative benefits”. Third, principled realism. The Trump administration adopts a realist policy towards China based on strength and competition and oriented to results. It also sets forth the principle of dealing with China, i.e. upholding sovereignty, freedom, openness, rule of law, fairness and reciprocity, and not compromising on issues vital for US interests.

The Approach re-affirms the shift of America’s China policy from “changing China” to “protecting the US”. First, it is no longer under the illusion that China’s domestic governance model will be shaped as the US wants it, and seeks to eliminate the  “grey safe zones”, where both sides can seek compromise or strategic ambiguity. Second, it puts “America first” and focuses on protecting US interests from the “damage” caused by China. Third, it is willing to pay some price to achieve America’s goals, openly put pressure on China, intensify frictions with China, and increase public pressure on the Chinese government.

The Approach puts more emphasis on ideological competition and confrontation with China than the 2017 National Security Strategy. It attacks China’s political system, ethnic and religious policies, so-called “export of governance model” and foreign economic policies, highlights the conflicting values between China and the US, gives prominence to differences in values and systems, and throws into sharp relief deep-seated, structural issues between the two countries. It is nothing but an attempt to lay a theoretical basis for the US strategy to contain China.

The Approach shows that the Trump administration’s competitive strategy towards China, which was initially pushed by the Republicans, is now pursued by both Democrats and Republicans in the Congress. The tone of strategic competition in the Approach is a bipartisan consensus. And responding to China’s challenge is central to US foreign policy. After the epidemic, the two parties will once again demonstrate unity and cooperation on this issue. Even if the Democratic Party assumes power in the future, its China strategy will largely continue on such a tone of competition.

As the Trump administration regards China as a main strategic competitor and accelerates the so-called “competitive strategy”, the American government will continue to ideologically stigmatize China, forcefully interfere in China’s internal affairs concerning Taiwan, Hong Kong, Xinjiang and Tibet, and pursue “decoupling” to contain China in science and technology and key industries.What is particularly noteworthy is that the Trump administrationis stepping up efforts to create a “united front against China” in the regional security field. Multilaterally, the US goes all out to prevent China from expanding its influence by building and strengthening political security alliances, such as the quadrilateral mechanism among the US, Japan, Australia and India, and the G7+4. It presses ahead with trade and technology arrangements excluding China, such as the “poison pill clause” against China in the US-Canada-Mexico trade agreement, the global standards made with the EU and Japan on state-owned enterprises, industrial subsidies and mandatory technology transfer, and multilateral mechanisms including D10 that impose technology and investment restrictions on China. The US has worked to bring big countries suchas Russia, India and Brazil to its side. In particular, it has sought to improve relations with Russia to drive a wedge in China-Russia strategic coordination, weaken BRICS and the Shanghai Cooperation Organization, and establish an ideological alliance against China. A case in point is the “Inter-Parliamentary Alliance on China” announced on June 5th by hawkish US and Western lawmakers, who have hyped up “China threat” and worked to reinforce the embrace of Western civilization and Western liberal democracy.

In short, COVID-19 has dealt heavy blows to the Chinese and American economies, causing difficulties in implementing the Phase OneTrade Deal. For re-election purposes, the Trump administration blames China for its own failures to contain the epidemic. This only amplifies the inherent differences and disputes between the two countries. In the era of shifting international dynamics and flourishing social media, any issue in China-US relations will be rapidly blown out of proportions, for instance confrontation between governments, hostility among the people, conflicting interests and views, as well as mutual traumatization at social and psychological levels in the two countries. The nosedive in bilateral relations has gone far beyond expectation. If the two sides cannot manage their differences as quickly as possible, risks will run high that the confrontation may escalate and spiral out of control due to miscalculation, which will increase the intensity and frequency of global strategic instability.

Third, the pandemic highlights the lack of leadership in multilateral cooperation, which is at risk of “fragmentation” and “ideologicalization”.

At present, the global governance process is being transformed and reshaped. The global governance system is under the pressure of being divided and weakened.First, the strategic competition among big countries has intensified, the strategic environment for global governance is deteriorating, and the threat of global strategic instability is rising. The shifting international balance of power has increased the strategic anxiety on the part of the US and the wider West.The US, once a leader in global governance, has now taken “great power competition” as the starting point of its national strategy, substantially upgraded its strategic containment of China, continued to increase its strategic squeeze on Russia and other countries, and intended to promote “ideological realignment” of relations among major countries.Major European countries and the EU have also pursued “power politics” and sought “strategic autonomy”, further escalating the differences between the US and Europe. Big powers have been divided and re-grouped on global issues, causing a reduction in the willingness and level of cooperation in the global governance system.

Second, at a time when right-wing populism runs rampant and digital economy booms, the open world system in which global governance operates is facing a fragmentation crisis.On the one hand, economic globalization has aggravated the inherent problems in the political and economic systems in the US and the wider Western world, intensified socio-economic division and political polarization, and provided strong domestic support for right-wing populists to incite anti-globalization sentiments of protectionism and neo-isolationism.On the other hand, mankind is on the threshold of digital economy. The international patterns of production, innovation and competition are being transformed at an accelerated pace. The cross-border data management in the global digital economy is Balkanized. As science and technology are deeply connected with national security concerns, “technological nationalism” is on the rise, the international network of cooperation on science, technology and industry is at greater risk of breaking up, and the open world economic system is facing a fragmentation crisis.

Third, the ineffective multilateral governance system and capacity has exacerbated the “trust deficit” of the international community in the global governance mechanism.Although the global governance system continues to develop and, in particular, the international economic governance mechanism is being transformed at a faster pace, the existing global governance system is still unable to adapt to the new developments and challenges brought by political multi-polarization, economic globalization, IT application, cultural diversity, and new scientific and technological revolution.More importantly, the international community still needs to develop a set of global governance concepts that conform to the trend of the times, embody the spirit of fairness, justice, and based on consultation, joint contribution and shared benefits. Only in this way can the reform and development of the global governance mechanism be guided by the right philosophy.Therefore, on issues such as sustainable development and non-traditional security, the lack of leadershipand the intense ideological struggles in multilateral cooperation and global governance have become a normal, at least in the short and medium term.

Despite the challenges, the trend of global governance is unstoppable.On the one hand, global governance conforms to the global trend of connectivity, which won’t be reversed bythe waves of anti-globalization.On the other hand, the “anthropocene” in which we live is making the earth’s ecological environment and political, economic and security systems more fragile. Only by strengthening international cooperation and making global governance more effective can the development of human society be sustained.

First, multi-polarization and diverse participants are injecting new impetus into global governance.At present, the international architecture and order are evolving towards a “post-western center”. Major emerging countries and developing countries are strengthening their ability to reform and improve the existing governance mechanism and create new ones. They are a new force in the global governance system.Local, business and social players continue to play unique roles in the global governance network, and even play key roles on issues such as climate change and sustainable development. In addition, international and regional organizations and transnational non-governmental organizations continue to play indispensable roles in providing professional guidance and facilitating international coordination on global governance.

Second, diversified governance approaches are providing new ideas and experiences for global governance.For example, on international development cooperation, international institutions such as the World Bank and the Asian Infrastructure Investment Bank are signing up to the idea of adapting to local conditions. They are seeking to align development policies, norms and standards with local needs, and moving away from the “one-size-fits-all” approach.  They advocate that development policies and standards should be compatible with local conditions. What has happened shows that keeping to the realities in relevant countries and regions will make global governance more effective.

Thirdly, challenges and crises are forcing the reform of the existing global governance mechanism.On the one hand, there have emerged ecological and environmental crises such as climate change and global warming, crises in global trade systems such as WTO dysfunction and failure, international public health risks caused by large-scale outbreaks of infectious diseases, as well as challenges related to strategic stability in cyberspace, open cooperation on digital economy, and sustainable development.On the other hand, the international community is increasingly aware of risks. More governments and the private sector are united against climate change; the consensus and momentum on WTO reform isbuilding up; countries are pursuing in-depth communication on the rules of digital economy; and the new round of scientific and technological revolution will also provide new ways to deal with global challenges. Undoubtedly,the multilateralism-based global governance will show greater vitality after a period of adaptation and consolidation.

Fourth, the pandemic has intensified the fragility and instability in the ecosystem of human society, accelerating the return to the era of “effective government”.

We live in the era of “anthropocene”. Geophysical systems such as ecological environment are highly integrated with economic and social systems, forming a highly connected but increasingly fragile social ecology.The impact of the pandemic is manifested in three aspects: First, the global ecological and environmental protection may backslide after the epidemic.Economies, which are either “cash-strapped” or under pressure to “protect the economy”, may relax restrictions on investment in highly-polluting and high-emission businesses,thus undermining the emission reduction and low carbon efforts of the international community in the past decades, making the ecological system of human society more vulnerable.

Second, the security risks of the digital economy will increase significantly after the epidemic.We are on the threshold of digital economy, which has been accelerated by the epidemic. The epidemic has made people moredependent on digital technology.“Touchless economy” and “working from home”, as evidenced by the application of big data to epidemic control, tele-medicine, online education, and livestream advertising, have become the new normal. However, risks and challenges such as cyber attacks, data fraud, personal privacy, digital divide, and fragmentation of cross-border data management have also risen exponentially, highlighting security risks in the era of digital economy.

Third, some countries and regions, including developedand developing countries, have to tackle weaknesses and growing risks of disorder in social governance. At some epicenters of the pandemic, there have been disproportionately more deaths among vulnerable groups such as ethnic minorities and the poor. This shows that development in these societies is not inclusive and balanced. The epidemic has exposed and magnified the deficiencies in the governance systems of these countries and regions.Some scholars argue that social solidarity, effective government, and leadership are the three essential ingredients for an effective response to the crisis and rapid resumption of social and economic activities.After the outbreak of the epidemic, there have been growing calls worldwide for improving government effectiveness and redressing failures in market and social governance. For countries, their top priority in capacity building will be building effective governments.

In short, the COVID-19 pandemic wakes us to the fact that we are living in a “high-risk, turbulent, and more fragile” complex system of social ecology. The pandemic has magnified and intensified the inherent problems in the international system, accelerated the changes that are already underway, and increased the risk of quantitative changes evolving into to qualitative ones. Only by more accurately identifying the pathways and mechanisms through which systemic risks occur and spread can we be fully prepared and turn crises into opportunities.

Chen Dongxiao is President of Shanghai Institutes of International Studies