The battle begins for the shape of the post-COVID world

Blog The Battle Begins For The Shape Of The Post Covid World01

An influential part of Australia was already in an apocalyptic mood before COVID-19 struck the world.

Many were attentive to Greta Thunberg, the oracle of climate change extinction, as she envisioned “Our house is on fire”.

Even more viewed Australia’s fire-season catastrophe as a harbinger of end-times for “life as we know it”.

Today, as their physical worlds are shrinking to fit the shape of a house or apartment, few Australians are concerning themselves about much beyond their radically restricted daily lives.

“If we get through this crisis” is a phrase being heard in some anxiety-soaked homes, as well as the more common, “when we get through it”.

We’re not unique in this. Much of the world’s population is in the same boat.

We shall indeed emerge from peak coronavirus, but it will be into a changed environment.

Our lifestyles will be altered.

In Hong Kong today, diners are commonly provided with two pairs of chopsticks—a permanent result of precautions that began to be taken during the SARS outbreak in 2003-2004. In Australia and other places, some of the routine meetings that are now, in the world of coronavirus, taking place via the Zoom app, are likely to shift online permanently.

Students in Australia and other countries had already largely shifted the fulcrum of their daily lives off campus and into their homes, where they watch lectures remotely; this may lead to the redesignation of only recently constructed university buildings substantially funded by revenues from international students who may themselves be less inclined now to travel abroad to study.

Sage pundits are suggesting strikingly contrasting ways in which our world will be shaped in the grander economic, social and political contexts too.

Some anticipate a more caring, nurturing, place in which we acknowledge mutual needs, and seek to strive more in concert to safeguard the environment we share, intensifying the campaign against climate change.

Some believe we shall endeavour to build on our national comparative advantages more rationally than BC—‘Before Coronavirus’—while breaking down economic barriers and rebuilding the international economy through intensifying globalisation.

Others state that the virus will be widely perceived as a warning against efforts to build a borderless world, that nations—and regions within them—will seek to increase self-reliance, for instance by restoring manufacturing processes previously outsourced internationally, such as for health equipment, and oil refining, now viewed as essential components of the national equilibrium.

Commentators and academics are mostly punting that their own predilections will be reinforced by the demands of the coronavirus world, and will emerge in triumph. In general, nationalists believe nationalism will be intensified, globalisers ditto re-globalisation, and liberal economists, Marxists, supporters of more migration and less, all also insist that history is now at last shifting their way, catalysed by the exigencies of the virus.

This feature cites some of the more cogent analysts, from Australia and from the world at large as they start to assess the shape of the PC, ‘Post-Coronavirus’, world—especially in our own Indo-Pacific region.

“The world before coronavirus is not returning. An economic and social shock of this scale is not a freeze-frame moment. 

The veteran Canberra journalist Michelle Grattan writes of “major changes in attitudes coming out of the crisis. Internationally and in Australia, there is likely to be a rise in the advocacy of protectionism. We can expect increased concern about our dependence on China. For the duration of the crisis, applications for foreign investment in Australia are being more extensively scrutinised; post crisis, there is likely to be a feeling we have become too deeply dependent on China”.

The former head of the Office of National Assessments, now national president of the Australian Institute of International Affairs, Allan Gyngell, agrees: “The world before coronavirus is not returning. An economic and social shock of this scale is not a freeze-frame moment. The balance of global power, the structure of the international and national economies, the role of multilateral agencies, patterns of social interaction and ways of work will all be different”.

Some existing trends in international behaviour have been strengthened by the crisis, he says. “The reassertion of state sovereignty against the fading dreams of cosmopolitanism has been powerfully reinforced. Authoritarian leaders on both the left and right have seized opportunities to strengthen their control. Across democracies, the role of the state has also been boosted”.

The geostrategic pressures for decoupling between China and the United States will be reinforced, Gyngell says, and “everywhere, calls for greater self-sufficiency will grow”. Although, he says, during this time “the formal processes of multilateralism, specialist parts of government regulatory agencies and informal research links of specialists networking with their overseas counterparts has been critical… the multilateral institutions most important to Australia will be weaker” in the future. “The G20 has proved itself entirely unable to mount an effective response”.

“the G20 must be the primary convener for a truly global response given its global authority”

Australian lawyer John Denton, now the Secretary General of the International Chamber of Commerce, and Peter Drysdale head of the East Asian Bureau of Economic Research at the Australian National University, argue that globalisation must be grasped with even greater determination post-virus. They write in the East Asia Forum that “in our hyperconnected world, this is true for every country: that all have a major stake in effective health and economic measures taken in other countries and cooperation that makes that possible”.

They urge that “the G20 must be the primary convener for a truly global response given its global authority… Difficult action at home is made easier when done with others through global cooperation”, since “in a global pandemic, we need to ensure essential supplies are available where they are needed most”—which may well involve lifting import taxes, quotas and other government-imposed costs, they say.

But so far, the indicators pointing towards success in achieving support for this reinforced globalisation appear to be wilting. The Asia Society in Australia says about COVID-19 that “the concept of a more unified Asia has been left wanting in the face of an unexpected crisis which actually started in the region. Deep seated historical grievances quickly soured the way the two most developed economies – Japan and South Korea – managed their bilateral travel bans. And the oldest institution – the Association of Southeast Asian Nations (ASEAN) – has only managed to produce a bland statement restating old commitments to trade openness”.

In its monthly commentary, the Asia Society notes that Asia’s collective focus on crisis preparedness since the 1998 financial meltdown has produced a spate of institutions ranging from the Chiangmai Initiative to the East Asia Summit, and that these western-styled, mostly geo-economic institutions may yet come to the fore in the economic recovery from the coronavirus crisis.

However, it says, the financial rescue packages to deal with the virus crisis have diverged sharply, with Singapore and Malaysia announcing measures equal to more than 10 per cent of GDP. But other countries from China to Indonesia have only announced stimulus equal to around one percent of GDP. “At this point it is an older, more utilitarian sort of Asia which has emerged with the most credibility from a crisis which has left the world’s traditional leaders from the United States to the newer Group of 20 looking flat-footed. But these seem to have been very organic (although drawn from the shared past SARS experience) rather than the result of any modern shared pan-regionalism”.

“after decades of falling unionisation, Western economies are confining much of their workforce to their homes while enormously increasing their reliance on a vital set of workers in the care, logistics, and retail sectors”.

The HQ of the Asia Society warns from its US base: “Once the virus is tamed – if the virus is tamed – there may be a rebound in production of some products for which demand is pent up; but for many items consumption once foregone does not return. You do not have dinner twice tomorrow because you skip it today, and the same goes for vacations, movies, fuel to commute to work or take business trips, and many other activities. The crisis will greatly exacerbate nonperforming loan rates at virtually all commercial banks and financial insolvencies at firms”.

Greg Sheridan, the Foreign Editor of The Australian, describes coronavirus as “the hunter-killer enemy of globalisation… It flew on the wings of globalisation, sailed down globalisation’s every canal, traversed all its highways. But it means to kill its host”. He says that “the centre of every citizen’s sense of accountability for this virus is their national government. No one asks: what is the Indian Ocean Regional Association for Co-operation doing about this? They ask: what is Canberra doing?”.

It is a global pandemic and therefore national governments will need to cooperate, he adds. But each nation has taken its own national measures. “When the Morrison government first banned direct travel to Australia from China, Beijing was furious. Then a lot of countries did the same. The epicentre of the crisis now is Europe. COVID-19 has been badly managed in Italy and other European nations. This is partly because the bizarre rules of the ­European Union limit what each nation can do. The EU is talking of closing its borders. But European nations cannot close their own borders”.

He concludes that the richer a national government, and the greater the sovereignty and real control it exercises, the better its chances of doing something effective to delay the spread of the virus.

Structurally, Sheridan anticipates, the crisis—often cast as a ‘war’ against a virus—will see power flow to national capitals everywhere. “For there is one perennial winner in war. If a nation is not wholly destroyed, the national government always emerges stronger, with new powers and new dominance”.

The federal income tax was introduced in Australia in 1915, to help pay for World War 1, he points out. In the US it was introduced by the national government during the Civil War in 1861, also to pay for the war effort. In Britain it was introduced in 1799 to help pay for the Napoleonic Wars. “In Australia, income tax became wholly national, rather than state-based, during World War II. Changes like this are never reversed. War is supremely a national undertaking and it always leads to greater concentration of power in the national government”.

Singapore’s Prime Minister Lee Hsien Loong told Sheridan in a Skyped interview, that “the logical extreme of a completely borderless world, where goods and people can move freely, and you do not mind being completely dependent on one source for important things—whether it is drugs or electronics or, for that matter, food—is going to come under very searching scrutiny”.

Nicholas Mulder, an historian at Cornell University, says in Foreign Policy magazine that “after decades of falling unionisation, Western economies are confining much of their workforce to their homes while enormously increasing their reliance on a vital set of workers in the care, logistics, and retail sectors”.

He notes that doctors, nurses, delivery people, postal and transport workers, grocery store employees, shelf stockers, refuse collectors and caretakers, mechanics and tech employees, and farm workers “are now, very clearly, the indispensable foundation of a functioning society. There is no precedent for the asymmetric mix of mobilisation and demobilisation of labour that we are witnessing right now. And as anyone currently working from home with children knows, the realms of office work, child care, and other forms of domestic labour are colliding as never before”.

Broadening this perspective, one can anticipate that the use of robotics will accelerate. Just-in-time production will decline. Governments will subsidise the establishment—or re-establishment—of facilities to produce medical and other items now perceived as essential for national security. Workers will only with reluctance, dread and resentment now enter the ‘gig economy’ or accept contract work rather than permanent employment.

International Relations Professor at Harvard University Stephen Walt, also writing in Foreign Policy, says that “the pandemic will strengthen the state and reinforce nationalism. Governments of all types will adopt emergency measures to manage the crisis, and many will be loath to relinquish these new powers when the crisis is over. COVID-19 will also accelerate the shift in power and influence from West to East”.

South Korea and Singapore have responded best, he believes, and China has reacted well after its early mistakes. “The response in Europe and America has been slow and haphazard by comparison, further tarnishing the aura of the Western ‘brand.’ Previous plagues—including the influenza epidemic of 1918-1919—did not end great-power rivalry nor usher in a new era of global cooperation. Neither will COVID-19”.

Walt anticipates a further retreat from ‘hyperglobalisation’, as citizens look to national governments to protect them and as states and firms seek to reduce future vulnerabilities. “In short, COVID-19 will create a world that is less open, less prosperous, and less free”.

What is likely to be the extent of the post-COVID-19 challenges in our Indo-Pacific region, more specifically?

ANZ Bank anticipates that the economy of the People’s Republic of China (PRC) will not merely slow but contract—for the first time since 1976, the climactic final year of the Cultural Revolution, during which Mao Zedong died and the Tangshan earthquake killed a quarter of a million people.

Thomas Gatley of GavekalDragonomics agrees: “China’s hopes of emerging from its own lockdown with a V-shaped growth rebound are evaporating. The unprecedented shutdown of normal economic activity across Europe, the US and a growing number of emerging markets is certain to cause a dramatic contraction in Chinese exports”.

The Japanese government is following Taiwan’s successful lead in 2019 in offering substantial subsidies—in Tokyo’s case totalling $A3 billion—to companies investing back home rather than in China. In Japan’s case, some support is even being made available to firms that shift production centres to South East Asian countries.

“By focusing on the fostering and amalgamation of medical, health, and technological advances, China will become the world’s leading economy sooner than expected”

The PRC too is persisting in its decade-long strategy, Made in China 2025, to shift away from being ‘the world’s factory’ to becoming a high-end, technologically advanced and self-reliant producer—crucially, dependent on home-grown corporations, both state and privately owned, and away from the high degree of international engagement that delivered its original rise during the 40 years of Deng Xiaoping’s reform-and-opening of China’s economy. This ‘old era’ is now contrasted by Beijing with Xi Jinping’s ‘Thought on Socialism with Chinese Characteristics for a New Era’ that is enshrined in both state and Party constitutions.

The complex supply and production chains that have formed the core of East Asia’s economic success stories, and that required the integration of manufacturing operations around Asia, often with final assembly taking place in the PRC—thus the extent of the ‘Made in China’ tags—appear likely to have hit their zenith, with their unwinding accelerated by COVID-19 as self-reliance re-emerges as a core economic value.

Alistair Nicholas, a Sydney-based business consultant with extensive China experience, and Guy McKanna, co-founder of the Australian Transformation and Turnaround Association, say that the answer is for Australia to engage far more fully, post-virus, with the PRC, confident in the success of its emerging strategies. They have written for the Lowy Institute that “as important as the health risks posed by the coronavirus pandemic and its containment are, leaders also need to start to think about the shape of the post–COVID-19 global economy. If they don’t, we all face a serious risk of succumbing to the new anti-globalisation protectionism that is on the rise”.

They posit that “China is very likely going to emerge from the coronavirus crisis much stronger economically”, as happened after the SARS outbreak of 2003. “By focusing on the fostering and amalgamation of medical, health, and technological advances, China will become the world’s leading economy sooner than expected… Chinese consumers will be more inclined to purchase goods and services online than at buildings where people gather. Even online education will become more attractive to China’s students—presenting both a risk and an opportunity for our tertiary education sector…”.

Nicholas and McKanna believe that China’s “commitment to innovative and transformative technologies… will see a leap across the board, extending from its leadership in drones and automation, driverless cars and better communications, and smart-cities, to especially focus on healthcare and biotechnology…”.

Rather than surreptitiously acquire these technologies from abroad, which was a major factor in the recent China-US trade war, they say, China will this time have to entice technology firms from around the world to bring it to them. “This will have a major impact on global financial services, with technology developers soon to find it easier to access a more open, yet still centralised, China”, they claim—despite the tone of its Made in China 2025 campaign.

Leading Australian economist John Edwards, also writing for Lowy, agrees—to a degree—within a broader macro context: “The increase in debt compared to GDP need not much affect economic performance and is regardless a necessary consequence of trying to sustain demand while the virus is brought under control. Central banks will have to keep rates very low even after economies have recovered. Lower for longer is going to be so low for so long that for many years we can forget about central banks capacity to stimulate economies. They will have none…”.

The crisis, says Edwards, has reminded us of the authority of the state over markets and supranational institutions. “At the same time it has reminded us of how much nations have in common with all others, of the inescapable and irreversible fact of globalisation. It has queried the pretensions of the superpowers. In the global contest between China and the US, neither of the proponents have done well”.

He agrees with many analysts that the most successful countries in dealing with the virus have been Singapore, Taiwan, Hong Kong and Korea—all, like Australia, relatively small and with good health systems. He says: “In this crisis the rest of the world owes nothing to the leadership of either superpower. Although the pandemic started in China, the Asian regional economy, with China at its core, is coming out the crisis faster and stronger than Europe or the Americas. Decoupling from China will seem even more of a fantasy”.

Yet the hard-won trade deal cobbled together recently between the PRC and the US looks to be at risk as the coronavirus pandemic rocks the global economy, making it tough for Beijing to fulfil its commitments, warns international news agency AFP.

It says in a commentary: “The US also faces huge disruptions from the deadly virus while a diplomatic spat between Beijing and Washington threatens to derail the phase-one deal that came after more than a year of escalating tensions between the world’s two biggest economies”. In the pact signed in January, China agreed to buy $A333 billion more in US goods over two years than it did in 2017—before the trade war erupted and triggered tariffs on billions of dollars of two-way trade. But concerns are mounting that the conditions of the deal cannot be met as the world economy is threatened by the lockdowns ordered by governments.

And what of regional organisations? As we have seen, ASEAN, APEC, the G20, have played minor roles if any during the pandemic, while the Regional Comprehensive Economic Partnership spin-off from ASEAN Plus has so far failed to find its feet following the decision last November to press on without India.

Could we see a revived Trans Pacific Partnership, stepping forward despite Trump pulling the US out of the pact in 2017, following COVID-19?

Nikkei’s Rintaro Tobita says that leading member Japan will make a fresh attempt to expand the TPP to include more Asian economies, such as Thailand, Taiwan, Indonesia and the Philippines, after the virus exposed the risks of supply chains over dependent on China. “Negotiations will officially begin in August, when the 11 existing members – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – hold a ministerial meeting in Mexico. Japan has already begun laying the groundwork by sending a high-ranking negotiator to Thailand”.

Tobita notes that Japan will chair the TPP in 2021, when talks are expected to kick into high gear. “The move comes amid a realisation that diversifying production is increasingly important”. But China has also played a growing role in Japanese supply chains in recent years, and it is not impossible to imagine Beijing considering the reforms needed to apply to join TPP itself.

Richard Martin, the Singapore-based managing director of leading regional business analysts IMA Asia, says that: “Most advanced countries and a lot of Asia can cope with a second weak year of global demand. The challenge will be for a small number of consumers, companies, sectors, and countries that have loaded up on cheap debt over the last few years and face a fall in income to service that debt”.

He warns that in this pandemic period, “countries with traditional uneasy relations with China, like Vietnam, will need to keep a lid on anti-Chinese sentiment”. While “China will continue to welcome foreign investors, a growing number will want to ring-fence China operations and reduce supply chain reliance. That’s a plus for alternative production sites in north east and south east Asia”. A big fall in oil prices generally means lower inflation across Asia, although a few prices will jump due to shortages of certain goods from China. hus, interest rates will remain low.

In China, Xi Jinping is using the trenchant manner of the anti-virus campaign eventually adopted after whistleblowers were initially rebuffed and punished, to reinforce his already massive political dominance—brandishing his new title of “People’s Leader”.

In South Korea, the conservative parties led by the Liberty Korea Party are seeking to gain control of the legislature in April 15 elections, which would make single-term President Moon Jae-in, leader of the Democratic Party of Korea, a lame-duck leader for his final two years. The comparative success of the COVID-19 control efforts may keep Moon’s DPK in control.

In Malaysia, with governance confused by the complex manoeuvrings that led to the recent change of leadership, the large export manufacturing sector, strong in electronics, is struggling due to shortages in supply from China.

Singapore is due for an election within the next year, and Prime Minister Lee Hsien Loong, likely to step aside during the next term, will be looking to capitalise on his government’s strong performance in virus control. The country may also gain from some trade diversion from China and Hong Kong.

Vietnam, a TPP member which has also signed an FTA with Europe, has opened itself to a program of reform—including independent trade unions­—driven by requirements associated with joining these economic pacts. Like Malaysia, it too is vulnerable to its big supply chain linkages into the Chinese economy.

Thailand, IMA Asia warns, “has the least capable political system for coping with COVId-19”, since its government, effectively still a military dictatorship, attracts only lukewarm popular support at best. Its economy had already stalled in the final quarter of 2019, as domestic and export demand tumbled.

President Rodrigo Duterte entered the COVID-19 year in strong political form, and with the economy in excellent shape, and could coast through his final two years of his single term while seeking to install a successor of his choosing, but he is following his instinct anyway to use the pandemic to crack down on a public that appears to continue to relish his threats and bullying.

Indonesia is one of the least exposed countries to China in Asia—16 per cent of exports and 13 per cent of tourists, though Chinese imports comprise 26 per cent. Growth has been slow under President Jokowi though, almost a percentage point below the 5.7 per cent average in the decade before he took office, and the virus will collapse this.

Taiwan, its government and President Tsai Ing-wen re-elected in a landslide in January, is viewed, alongside Korea and Singapore, as a model in combatting COVID-19, and with production already reshoring from China, appears as well placed as any in Asia to recover from the viral impact.

In Hong Kong, besieged chief executive Carrie Lam has come under further criticism for failing to close the border with China earlier. This year’s budget was already expected to fall into deficit—for only the second time in 15 years—of $A17 billion, and the impact of the virus will of course massively add to that, and to popular antipathy to both local and Beijing governments.

Japan of course lost the Olympic Games—for 2020, anyway— to COVID-19, as well as the historic visit from President Xi scheduled for April. But Asian countries concerned about the manner of Beijing’s initial management of the virus are likely to look to veteran prime minister Shinzo Abe to display regional leadership as the shape of the post-pandemic Indo-Pacific era opens itself to new directions.

Martin says that overall, “what is striking in the COVID-19 outbreak is the speed and scale of the response by government, organisations, and many firms” in the region—reflecting in part, lessons learned from prior virus outbreaks, and in part, the internet’s enabling of faster information and action.

“One of the other longer lasting fruit of COVID-19 is likely to be a sense of living in a provisional age”

It is possible that those countries whose patterns of response and of effectiveness in tackling COVID-19 feel drawn closer together—in which case, Australia’s connections with developed East Asian economies including Japan, South Korea, Taiwan, Singapore and perhaps Hong Kong, as well as its closer neighbour New Zealand, may be reinforced in the period of emergence from the grip of the pandemic.

But the appetite for greater globalisation overall, beyond some elites, appears to be waning, while the desire for greater enmeshment with the PRC is also tempered, by concerns about the light thrown on its governance through the manner of its initial management of COVID-19, and the tone of its more recent associated propaganda.

One of the other longer lasting fruit of COVID-19 is likely to be a sense of living in a provisional age, a reluctance to plunge into epic enduring commitments or to construct bold new worlds.

For many will from today onwards sense, as Albert Camus testified in the closing words of his classic 1947 novel La Peste, that “the plague bacillus never dies or vanishes entirely… it can remain dormant for dozens of years in furniture or clothing… it waits patiently in bedrooms, cellars, trunks, handkerchiefs and old papers, and… perhaps the day will come when, for the instruction or misfortune of mankind, the plague will rouse its rats and send them to die in some well-contented city”.

Originally posted by the Griffith Asia Institute

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