Geopolitics after Covid-19: is the pandemic a turning point?

May 7, 2020 (MLN): The Economic Intelligence Unit, in its latest report titled ‘Geopolitics after Covid-19: is the pandemic a turning point?’, has discussed how the coronavirus crisis will sharpen great power rivalries and hasten the shift in the global balance of power from west to east.

‘In times of crisis, global rivalries tend to intensify rather than abate. The coronavirus crisis has led to a further deterioration in the already chronically bad relations between China and the US. As things stand, there seems little prospect that the damage can be repaired in the short term. The epidemic will exacerbate long-standing US-China frictions, undermining any stability that might have been achieved as a result of the shallow “first-phase” trade deal signed in January 2020’ the report said.

‘The negative economic fallout from the pandemic and ensuing counter-crisis measures on the mature, developed economies of Europe and the US may be long-lasting. The extraordinary fiscal and monetary measures that these countries are taking to support businesses and households will be hard to reverse. It is possible that many of these interventions will not be fully unwound, perpetuating the era of easy money and debt-dependency, resulting in years of slower growth and raising the chances of sovereign debt crises. Unless the developed nations change course and pursue a radically different economic path after the crisis, the gap between a slow-growing West and an economically dynamic East is likely to widen.

‘China, by virtue of being the first to emerge from the crisis, will be the first on the road to recovery; it will direct all its resources to kick-start the Chinese economy. It will face challenges in engineering a fast recovery amid weak global demand, and it faces serious medium-term challenges, not least its substantial debt pile. Nevertheless, once the negative short-term impact of the crisis dissipates, China and other fast-growing economies in Asia are likely to experience a faster recovery based on their underlying advantages in terms of strong investment, innovation, and productivity growth. The pandemic is therefore likely to accelerate the rebalancing of global economic power from the West to the East in the coming years.

China will emerge as a bigger global player

‘China is likely to emerge from the crisis as a bigger global player in political as well as economic terms. Beijing is trying hard to repair the reputational damage caused by its initial bungling of the coronavirus outbreak, in particular by sharing medical expertise, sending aid, and filling some medical supply shortages around the world. Inevitably it will face a political backlash, mainly from its rivals in the US and Europe, and relations with these countries will become more difficult.

‘However, this is unlikely to prevent the growth in China’s global reach after the pandemic. There will be a questioning of dependence on supply chains from China, which led to a global supply-side shock in the first quarter of 2020 when Hubei province was under lockdown. Many countries and companies are likely to review their dependence on China for vital products and to take steps to diversify their supply lines and increase national resilience. The pandemic is likely to intensify an existing impulse towards greater national self-sufficiency, but reshoring and localizing production will have economic and political limits and will also take time.

Will the US’s global leadership be diminished?

‘Over the past three years, many countries have come to view the US as a less reliable, trustworthy partner. At the same time, some have become warier of China, with the EU, for example, declaring it to be a “systemic rival” and “strategic competitor”. Faced with a less reliable US and a more assertive China, some European leaders are calling for a more ambitious common European foreign and defense policy. However, the pandemic is likely to expose the limits of such ambition.

‘Another consequence of the pandemic will be to intensify rivalries among the major power blocs and between nation-states as well. The US’s retreat from the world stage has allowed China to fill a vacuum, particularly as the epidemic has forced the US to turn inwards even more for now. It would be a mistake, however, to underestimate the power and leadership of the US, which is certainly aware of China’s intentions and is likely to fight back.

The EU will emerge weakened from the crisis

‘The failure to mobilize a pan-European response to the crisis and the tendency of member states to look after their citizens has dealt a blow to the EU: member states did not act in concert when the crisis erupted in Europe, but unilaterally, closing borders, suspending free movement and stopping transport links without co-ordination.

‘The lack of pan-European solidarity was striking, as Italy’s appeal for assistance was initially ignored by other European states, which also blocked exports of medical supplies and equipment, allowing China to step in to offer help and therefore bolster its global influence. The EU belatedly offered more assistance to struggling member states and aspirant member states in the western Balkans, but the damage had already been done and resentment is likely to linger.

Emerging powers will seek to capitalize on the crisis

‘Regional powers such as Russia, Turkey, Iran, and others have in recent years sought to capitalize on the increasing fragmentation of the global order by asserting leadership in their regional “backyards”. They have taken advantage of the reduced engagement of the US to increase their influence and meddle. For some of these states, the epidemic represents an opportunity to bolster their regional and global presence.

‘Over the longer term, the pandemic will accelerate the fragmentation and decomposition of the global world order, to the benefit of emerging powers such as China, and potentially the likes of Russia and Turkey’, the report added.

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