They demand public thanks for mask shipments and circulate outlandish theories of US military conspiracies to plant the virus in Wuhan. In the words of Zhao Tong of the Carnegie-Tsinghua Center for Global Policy in Beijing, "the mindset now is more to coerce counterparts to respect China’s interests, as co-operative security is seen as less and less effective."
As China finds itself surrounded by competitors and rivals, the temptation has been to turn to its infrastructural reach to pull more dependent trade partners into a Sino-centric bloc.
Emerging Market Threats
Finally, one cannot understand globalization’s crossroads without taking account of the hobbled partners. Trade contraction will be especially hard on emerging markets, many of whom were reeling in debt already. They face a double whammy of slumping exports while creditors squeeze them for repayments. When this happened in 1929, it led to a wave of defaults, defections from the gold standard, and the formation of currency blocs.
Among what are known as "frontier markets" – countries wedged between the poorest and the solidly "emerging" markets – debt has tripled as a share of GDP since 2005. It now exceeds 115% of GDP in these countries. Among the most vulnerable is Argentina. Locked in an inflation spiral and a standoff with creditors, it is poised for its ninth sovereign default since 1816. Right behind are Zambia, Ecuador, Rwanda and struggling Lebanon, Iran and Venezuela. The weakest links will expose others, like South Africa and Brazil. Brazil is a mess. Its politics is gridlocked. And since 2008, its foreign debt has more than doubled. Emerging markets as a whole have racked up over $71 trillion in debt. In recent months, there has been a stampede of capital, far worse than the capital flight of 2008. The IMF’s managing director, Kristalina Georgieva, has noted that over $100 billion has left emerging markets in recent weeks alone – and the Fund has fielded dozens of pleas for emergency help.
A wave of defaults were looming even without Covid-19. Now, it’s almost inevitable. Faced with the threat, the G20 leaders called upon creditors to put a "standstill" on forced payments. But no one expects the announcement to make much difference without the force of the US Treasury. The weak will have to find relief from whichever creditor-consumer is willing to strike a deal – even at predatory costs.
Reinvent or Else
The country most responsible for distributing power and defending guardrails at the end of World War II has turned its back: the United States. Since he took office in January, 2017, President Donald Trump was clear that he wanted to replace old multilateral treaties with new agreements with worried partners. Many took this as anti-globalism. That is wrong. He is committed to tribal interdependence, a model in which the strong subdue the weak to create blocs that hold rivals at bay. He and his economic advisers dislike multilateralism because it constrains the powerful and distributes power. The White House does not even mind if China creates its own pecking order, as long as it does not threaten America’s. Even if President Trump were to lose the elections in November, these past four years have permanently scarred American leadership.
There was once an effort to reboot and restore multilateralism. The strategy of the Obama administration was to corral eleven Pacific traders into the Trans-Pacific Partnership, including Canada, Japan, and Singapore, to create a vast free trade area that would compel China to play by new rules or be locked out. But during the election campaign of 2016, not a single leading candidate stood up to defend even the idea of TPP. No sooner did Trump come to power than he gleefully tore up the TPP and lashed out at friend and foe alike.
As a result, super powers are even less restrained from striking deals, even between themselves, at the expense of others. After the White House slapped tariffs on Chinese exports and President Xi Jinping retaliated, the two belligerents agreed to patch things up – temporarily – in a "Phase One" agreement that committed China to buying $77 billion worth of American goods. Much of it was farm produce to assuage the White House’s rural electorate. But the reaction in South America was panic: Chinese orders for soya and grains from Brazil and Argentina were canceled. For Argentina, it was crippling just as the country was entering delicate negotiations with the hedge fund titan, Fidelity Investments of Boston.
Interdependence is here to stay. The issue is: what kind of interdependence do we want and need? Panic about backsliding into self-sufficiency is exaggerated. The looming threat is a more rivalrous and unstable successor to the world built in the decades after the Great Depression. Covid-19 presents the world with an opportunity – and necessity – to reinvent a globalization that is neither nostalgic or tribal.
Copyright: STR / AFP