by Mohammad Ali Zafar
by Harsh Mahaseth and Sabrina Hilali
by Mohammad Ali Zafar
by Harsh Mahaseth and Sabrina Hilali
COVID-19 and the New World Trading Order
Ian Inkster 12.07.20
There is little attention being paid to the loss of a U.S.-led initiative, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which has been increasingly taken over by China. The Regional Comprehensive Economic Partnership (RCEP) initiated by the Association of Southeast Asian Nations (ASEAN) in 2012 has been frequently regarded as a China-led counterpart or in response to the CPTPP. The agreement initiating the new RCEP was signed by video conference on November 15.
The acronyms are confusing, but the message seems clear enough. A post-COVID-19 world will almost certainly embrace a different configuration or balance of economic powers. At present the top six economies in the world are the United States, China, Japan, Germany, India, and the UK. Under Donald Trump, the United States withdrew from its well-established role in the world, represented in such extremes as acrimony towards NATO, and the U.S. withdrawal from the Iran nuclear agreement and global climate change agreements.
As economic relations are cemented in a new global architecture, the recovery of any nation in a post-COVID world will become increasingly dependent upon trading relations and expansive visions and policies in both private and public sectors. The United States may be the largest economy, but it is not otherwise exceptional. Indeed, it could well be argued that recovery in the U.S. will be far too dependent on its established trading partnerships with Canada, Mexico, the European Union, China, and Japan. China’s trade is of true importance to the United States, with some 22% of U.S. imports coming from China, principally as a result of Chinese utilization of U.S., Japanese, and European high-tech imports.
All the rhetoric of the Trump administration did little or nothing to modify this established position. A principal task of the incoming Biden administration must be to heal wounds with Europe and move rapidly from the posturing of the Trump initiated trade wars.
One way of illustrating the U.S. problem is suggested in Table 1, which highlights the major features of the RCEP for post-COVID new world order. India is highlighted in bold as at present it has decided against membership. The reasons for that position seem solvable with a little realpolitik (described by India as ‘significant outstanding issues’ the leading problems being India’s existing trade deficits with several RCEP members, and the heightened danger of the dumping of Chinese goods into the Indian market). It thus seems appropriate to show the Indian dimensions of this discussion.
In terms of immediate elements of recovery from COVID, it is at once clear that RCEP has distinct advantages as measured by Cm (cases per million people), Dm (deaths per million), and tests per million. The bottom row shows the world averages for COVID infection and mortality, and it will be seen that all RCEP nations except Singapore have a lower Cm, and all have much lower Dms than the world at large. The registered mortality rates are much lower than those of the other three leading world economies the U.S., Germany, and the UK, as may be seen in Table 2 below.
The countries involved in RCEP account for almost half of the world’s population (column G), contribute to over a quarter of world exports, and makeup around 30% of the global gross domestic product. More importantly for considering the dynamics of world recovery after COVID, such key members as Singapore, South Korea, Thailand, China, and Japan presently have much healthier current account surpluses as a proportion of their GDPs than is exhibited by the world estimate of 0.5%. (column F).
In sheer size, China and India easily predominate within RCEP as shown in column D (GDP in billions of U.S. dollars), but with its much higher income per capita (column E, measuring per capita incomes by purchasing power parity, or PPP) Japan is clearly the third main point of a potentially very powerful trading, investment, and technological triangle.
This profile becomes more significant when we compare RCEP with the 11 largest high-COVID nations, seven of which have now registered over one million cases each.
Leading this group of the highest COVID nations are three of the largest economies in the world, the U.S., UK, and Germany, the other side of the coin from that of the three largest RCEP economies China, India, and Japan, all very low-COVID and high income. The contrast is quite startling and marks a likely divergence in post-COVID economic experience. The final human, social, and infrastructural damage done by COVID can be estimated for this group as well above that for the RCEP nations, especially in U.S. dollar terms.
But here, real problems occur for the high-COVID economies, for they overrepresent not only the pandemic but also unfortunate aspects of the global system as seen in our bottom row. Current trading accounts as a percentage of GDP are commonly in the minus, including the major economies of the U.S. and UK. Germany is exceptional with lesser COVID presence and mortality and a much stronger trading position. On this basis it could well emerge as a growth engine for Europe on the one hand and for the U.S. and UK on the other. However, the remaining problem for the large high-COVID economic systems is that even Germany has a relatively low rate of GDP growth since 2012, as shown in the last column of Table 2. Not one of the eleven nations reached the world level of economic growth during 2012-17.
But the even greater strength of the RCEP grouping in a post-COVID world – even without India – would be its many existing trade complementarities. The trading leadership of China and Japan is itself complementary. China’s leading exports are telecoms equipment, electrical goods, office machinery, clothing, and textiles, Japan’s are capital equipment, industrial supplies, consumer durables, and others; between them, they supply the range of high-and-mid-technology products and inputs to service the new complex world grouping as well as each other.
Again, Chinese leading imports are electrical machinery, petroleum products, metal ores, and scrap, Japanese imports are led by industrial supplies, capital equipment, as well as foodstuffs, and a wide range of consumable products. The lower-income and less sophisticated members of RCEP, drawing upon such leadership for their imports, can exchange them for their exports of mining products, agricultural goods, mineral fuels, chemicals, transport equipment, and the host of assembled products based on the processing of Japanese and Chinese semi-manufactured exports, such as mobile phones, computers, and footwear. Adding India to the mix also adds potential supplies of engineering products, gems, and jewelry.
Measuring the trade complementarity of a group of economies is complex, but here we can focus down on the place of China. This is summarised in Table 3 below:
It is very clear that in both exports and imports, China is with only two partial exceptions, either the greatest or the second player for each of the RCEP nations. Exclusive of all the official and media rhetoric of the Belt and Road Initiative, and of the growing influence of China in Africa, for some time China has been established at the centre of an eastern-moving trade dominance.
In brief, this is the long-term outcome of a strategy of technological development that began in the 1980s with exports of labour-intensive consumer products to a wide range of nations, and the import of increasingly high-technologies from the United States, Japan, and Europe. These latter, together with the purchase of Western and Japanese know-how and exploitation of the global system of intellectual property rights, became the inputs to the new range of Chinese higher-tech export products, components, and services into both intermediate economies (of the RCEP type) and the major economies of the world, including, of course, the United States.
So, the post-COVID years shall certainly represent a highly renovated version of the older Atlantic-based world system, something that has been coming since the beginning of our present century but which has accelerated for strong reasons.
First, the failure of most industrial economies to effectively recover from the recession of 2008-onwards through not capturing available opportunities to increase productivity in existing industries and devote more resources to environmental technologies and industries. As this occurred so too China, India, Brazil, and other very large-populated economic systems accrued the superior technique of modernity.
Second, the coming of Donald Trump served to distract the U.S. economy from economic reform, despite the fact that his attempts to move towards some form of trade protectionism made some sort of sense in U.S. terms. But it distracted from coming to constructive terms with China, the fastest-growing major economic system in the world. COVID-19 hit this world confusion just at the time when this itself could trigger a watershed or tipping-point that speeded-up rather than engendered some significant shifts in attitude and worldview.
The United States needs to come to terms with these forces sooner rather than later if the older prosperity of the Atlantic system is to be revived. This requires a return to proper diplomacy.
Ian Inkster is professorial research associate at the Centre of Taiwan Studies, SOAS, University of London; a senior fellow at the Taiwan Studies Programme, China Policy Institute, University of Nottingham; and the editor of the International Journal of History and Technology.