There are predictions that global trade will be reduced by a third as result of the recession caused by the effects of Covid-19. Determining the full scale and impact of major events is an obstacle.Political scientists who look to social and economic indicators face difficulties with this task. While ascertaining accurate information and data to forecast the impact of Covid-19 on trade remains a challenge, ensuing geopolitical tensions illustrate the direction that global trade may take. Currently at the backdrop of the coronavirus includes the US-China trade relations and the South China Sea dispute.
The US-China trade war could be reignited should China be unable to import more from the US.China’s export-oriented model and strong consumption of foreign goods and services began to weaken from February 2020. There is expected to be lower levels of trade given tensions at the political level. The political contours are being shaped by accusations made by Trump that China’s response to the Coronavirus was inadequate. Simultaneously, Beijing is directing blame onto the US, suggesting the coronavirus was created in American laboratories. A culmination of these factors implies that $77 billion of expected trade in goods and services between the US and China which are part of the Phase I deal is likely to be much lower.
The South China Sea dispute is one important factor complicating ties with the US and allies.The economic value of the South China Sea is a significant issue for US-China relations, but also global trade more broadly. There are $5.3trillion worth of goods that pass through the South China Sea and countries would need to cooperate with China to ensure the steady flow of worldwide trade.
The geopolitical context in which China and the US should overcome these obstacles convoluted due to the time it will take to introduce prevention. In seeking to beat the coronavirus, a race to find a vaccine is taking place and several counties, including the US and China, are involved in trialling their discoveries. Even while restrictions are beginning to loosen, social distancing measures will likely be employed until a vaccine is found. To date, government officials and experts believe that a vaccine is probably 12 to 18 months away. This is enough time for the global economy to feel even more strain particularly as global trade weakens and social distancing is prioritised.
The implications of Covid-19 reveals the low level of risk management across many trade-exposed industries. In turn, this has prompted economic sovereignty as a course of action. There are industries struggling to overcome the economic consequences of Covid-19 due to a lack of preparedness; an inability to mitigate risks and accept the task of diversification. The lack of preparedness derives from placing a strong focus on receiving income from one source – China – without implementing appropriate risk mitigation measures. There has been a stubborn insistence that China’seconomic growth rates above 6.0% over the past three decades was enough reason to think trade in goods and services would continue without any disruption.
Indeed, the story is not the same across all industries in countries that have significant trade relations with China. The mining industry in Australia received immense benefits from China-Australia trade relations and there are positive anticipations that this will continue despite the coronavirus.
Yet, other sectors such as tourism were slow in considering the need for diversification well before the coronavirus. There were some indicators revealing ambiguity about the ongoing growth of Chinese travel overseas. Like other Western countries, the number of Chinese tourists entering the US dropped by 5.7% in 2018. This comes as a consequence of the US-China trade war even while industries continued the ‘eggs in one basket’ approach. The point of the unfolding events is that industry leaders could have minimised the risks associated in trade relations with China. In essence, there were already signs that trade with China was beginning to slow down and this could have prompted risk control measures.
Similarly, given aspirations of creating a more technologically advanced state, China also aimed to reform domestic economic drivers. China has focused on investing in education because technological advances depend on an educated workforce. This means that there are a greater number of students remaining in China to complete their studies and this trend will likely continue over the next decade. Though Xi Jiping may have rallied the chant of economic globalisation at Davos, China still focused on domestic reform not just foreign trade.
The lack of preparedness has prompted sharp criticisms of trade relations with China. Some critics of China’s economic approach suggest that post-covid-19 will bring an era of economic sovereignty. Similar to the migration crisis of 2015 and the Global Financial Crisis, the Covid-19 has exacerbated anti-globalist sentiment. The cause of this anti-globalist fervour is based on anxiety arising from political integration and economic interdependence. The response to the coronavirus crisis has proven that state institutions resolve crises with many countries introducing national-wide health measures and stimulus packages.
Trump is now seizing the opportunity in mounting a campaign to see China move awaydeveloping country status. The assumption underpinning this strategy is that China benefited from the World Trade Organisation (WTO) to the detriment of the US economy and jobs. The global trade system based on trade rules, particularly the dispute resolution WTO have been dismissed. The US is the first country to reprove the validity of the decision made by the Appellate Body in a case involving Canada over countervailing duties on glossy magazine-quality paper. He previously stated that he would withdraw the US from the WTO if the organisation doesn’t ‘shape up’.
Even though China’s major trading partners may want to embrace economic sovereignty, adopting a pragmatic approach is still an important diplomatic measure. Under certain conditions, trade is an arm of economic growth. The key to ensuring countries engage in economic development is being attune with what Linda Weiss calls ‘governed interdependence’. The term suggests processes of economic change, albeit global trade, can be managed by strategic government-industry linkages. It also applied to show the success of East Asian economies such as Japan and the way in which government consultation and coordination with the private sector was employed. The processes involved in building state-industry networks are measures that can help build internationally competitive industries. In this way, countries can avoid the poor risk management that occurred across many industries during the course of Covid-19. Even Adam Smith believed that government was a key stakeholder in bringing conditioned market forces to life. Coordination brings both strong and stable economic development, but this should never lead to over-regulation by government.
