While China and U.S. signal harmony on trade, in times of crisis, global rivalries tend to intensify rather than abate. Thus it comes as no surprise that Washington and Beijing are sniping at one another about the true extent and origin of the coronavirus outbreak. U.S. President Donald Trump threatened tariffs again. The two countries have even squabbled about the South China Sea issue.

The uncomfortable truth, however, is that China and the United States are both likely to emerge from this crisis significantly diminished. Neither a new Pax Sinica nor a renewed Pax Americana will rise from the ruins. Rather, both powers will be weakened, at home and abroad. And the result will be a continued slow but steady drift toward international anarchy across everything from international security to trade to pandemic management. With nobody directing traffic, various forms of rampant nationalism are taking the place of order and cooperation. The chaotic nature of national and global responses to the pandemic thus stands as a warning of what could come on an even broader scale.

As with other historical inflection points, three factors are likely to shape the future of the global order: changes in the relative military and economic strength of the great powers, how those changes are perceived around the world, and what strategies the great powers deploy. Based on all three factors, China and the United States have reason to worry about their global influence in the post-pandemic world.

 

China's Tiananmen like global backlash?

Contrary to the common trope, China’s national power has taken a hit from this crisis on multiple levels. The outbreak has opened up significant political dissension within the Chinese Communist Party, even prompting thinly veiled criticism of President Xi Jinping’s highly centralized leadership style and the concern about a Tiananmen-like global backlash over the virus.

The report, presented early last month by the Ministry of State Security to top Beijing leaders including President Xi Jinping, concluded that global anti-China sentiment is at its highest since the 1989 Tiananmen Square crackdown, the sources said.

Also, debates in China rages on the precise number of the dead and the infected, on the risks of second-wave effects as the country slowly reopens, and on the future direction of economic and foreign policy.

Thus contrary to the common trope, China’s national power has taken a hit from this crisis on multiple levels.

The economic damage has been massive. Despite China’s published return-to-work rates, no amount of domestic stimulus in the second half of 2020 will make up for the loss in economic activity in the first and second quarters. Drastic economic retrenchment among China’s principal trading partners will further impede economic recovery plans, given that pre-crisis, the traded sector of the economy represented 38 percent of GDP. Overall, 2020 growth is likely to be around zero, the worst performance since the Cultural Revolution five decades ago. China’s debt-to-GDP ratio already stands at around 310 percent, acting as a drag on other Chinese spending priorities, including education, technology, defense, and foreign aid. And all of this comes on the eve of the party’s centenary celebrations in 2021, by which point the leadership had committed to double China’s GDP over a decade. The pandemic now makes that impossible.

As for the United States’ power, the Trump administration’s chaotic management has left an indelible impression around the world of a country incapable of handling its own crises, let alone anybody else’s. More important, the United States seems set to emerge from this period as a more divided polity rather than a more united one, as would normally be the case following a national crisis of this magnitude; this continued fracturing of the American political establishment adds a further constraint on U.S. global leadership.

Meanwhile, conservative estimates see the U.S. economy shrinking by between six and 14 percent in 2020, the largest single contraction since the demobilization at the end of World War II. Washington’s fiscal interventions meant to arrest the slide already amount to ten percent of GDP, pushing the United States’ ratio of public debt to GDP toward 100 percent, near the wartime record of 106 percent. The U.S. dollar’s global reserve currency status enables the government to continue selling U.S. treasuries to fund the deficit. Nonetheless, large-scale debt sooner or later will constrain post-recovery spending, including in the military. And there’s also a risk that the current economic crisis will metastasize into a broader financial crisis, although the Federal Reserve, other G-20 central banks, and the International Monetary Fund have so far managed to mitigate that risk.

The Trump administration’s chaotic management has left an indelible impression of a country incapable of handling its own crises.

Chinese leaders have a simple Leninist view of the United States’ power. It rests on two fundamentals: the U.S. military and the U.S. dollar (including the depth and liquidity of the U.S. financial markets that underpin it). Everything else is detail.

All states are mindful of what Leninists call “objective power” and the willingness of the great powers to deploy it. But the perception of power is equally important. China is now working overtime to repair the enormous damage to its global standing that resulted from the geographical origin of the virus and Beijing’s failure to contain the epidemic in the critical early months. Whatever China’s new generation of “wolf-warrior” diplomats may report back to Beijing, the reality is that China’s standing has taken a huge hit (the irony is that these wolf-warriors are adding to this damage, not ameliorating it). Anti-Chinese reaction over the spread of the virus, often racially charged, has been seen in countries as disparate as India, Indonesia, and Iran. Chinese soft power runs the risk of being shredded.

For different reasons, the United States does not come out of the crisis much better. The world has watched in horror as an American president acts not as the leader of the free world but as a quack apothecary recommending unproven “treatments.” It has seen what “America First” means in practice: don’t look to the United States for help in a genuine global crisis, because it can’t even look after itself. Once there was the United States of the Berlin airlift. Now there is the image of the USS Theodore Roosevelt crippled by the virus, reports of the administration trying to take exclusive control of a vaccine being developed in Germany, and federal intervention to stop the commercial sale of personal protective equipment to Canada. The world has been turned on its head.

In Washington, and return to a pre-2017 world of strategic engagement with Beijing is no longer politically tenable. A second Trump term will mean greater decoupling and possibly attempted containment, driven by Trump’s base and widespread national anger over the origins of the virus, although this strategy will be rendered incoherent at times by the president’s personal interventions. In a Biden administration, strategic competition (and decoupling in some areas) will continue, likely to be executed on a more systematic basis and leaving some scope for cooperation in defined areas, such as climate, pandemics, and global financial stability. On balance, Beijing would prefer Trump’s reelection over the alternative, because it sees value in his tendency to fracture traditional alliances, to withdraw from multilateral leadership, and episodically to derail the United States’ China strategy. Either way, the U.S. relationship with Beijing will become more confrontational.

In Beijing, China’s response to the United States’ ever-hardening posture is now under intense review. This process began in 2018, during the first full year of the U.S.-Chinese trade war. It has now been intensified, because of the pandemic and its international consequences. The review is part of a broader internal debate in Beijing about whether China’s national strategy, at this stage of its economic and military development, has in recent years become insufficiently reformist at home and excessively assertive abroad.

 

China’s response to the United States’ ever-hardening posture is now under intense review.

Prior to Xi, the strategy was to wait until the correlation of economic and military forces shifted in China’s favor before seeking any major adjustments to the regional and international order, including on Taiwan, the South China Sea, and the U.S. presence in Asia. Under Xi, Beijing has become significantly more assertive, taking calculated, and so far successful, risks to bring about changes on the ground, as demonstrated by island reclamation in the South China Sea and the Belt and Road Initiative (BRI). The United States’ reaction to this approach has been deemed to be manageable, but that calculation could change in a post-trade war, post-pandemic world. Xi could seek to ameliorate tensions with the United States until the pandemic is lost to political memory; or facing internal challenges, he could take a more nationalist approach abroad. Both of these tendencies will likely appear in Chinese policy behavior until China’s internal policy review process concludes, which may not happen until shortly before the 20th Communist Party Congress in 2022. But if Xi’s style thus far is any indication, he is likely to double down in the face of any internal dissent.

That would mean hardening China’s posture toward the United States, including on issues such as Taiwan, the single most destabilizing element in the U.S.-Chinese relationship. Beijing is likely to sharpen its strategy of shrinking Taiwan’s international space, even as U.S. efforts to secure Taiwan’s readmission to the World Health Organization intensify. Given that this comes on the heels of other recent U.S. efforts to upgrade official-level engagement between Washington and Taipei, the understandings of the “one China policy” that underpinned the normalization of U.S.-Chinese relations in 1979 could begin to unravel. If these understandings collapse, the prospect of some form of military confrontation over Taiwan, even as the inadvertent result of failed crisis management, suddenly moves from abstraction to reality.

                                     

Dysfunctional and chaotic world?

Prior to the current crisis, the postwar liberal international order was already beginning to fragment. The United States’ military and economic power, the geopolitical fulcrum on which the order rested, was being challenged by China, first regionally and more recently, globally. The Trump administration was adding to the order’s problems by weakening the U.S. alliance structure (which in conventional strategic logic would have been central to maintaining a balance of power against Beijing) and systematically delegitimizing multilateral institutions (effectively creating a political and diplomatic vacuum for China to fill). The result has been an increasingly dysfunctional and chaotic world.

The current crisis is likely to reinforce such trends. The strategic rivalry will now define the entire spectrum of the U.S.-Chinese relationship, military, economic, financial, technological, ideological, and increasingly shape Beijing’s and Washington’s relationships with third countries. Until the current crisis, the notion that the world had entered a new Cold War, or Cold War 2.0, seemed premature at best; the two countries’ financial systems were so intertwined that true decoupling was unlikely, and there seemed to be little prospect of geopolitical or ideological proxy wars in third countries, a defining feature of the U.S.-Soviet rivalry.

 

It may not yet be Cold War 2.0, but it is starting to look like Cold War 1.5.

But the new threats that both sides are making as COVID-related tensions grow could change all that. A decision in Washington to end U.S. pension-fund investments in China, restrict future Chinese holdings of U.S. Treasury bonds, or start a new currency war (exacerbated by the recent launch of China’s new digital currency) would quickly remove the financial glue that has held the two economies together; a decision in Beijing to increasingly militarize the BRI would raise the risk of proxy wars. Moreover, as U.S.-Chinese confrontation grows, the multilateral system and the norms and institutions underpinning it are beginning to falter. Many institutions are themselves becoming arenas for rivalry. And with a damaged United States and a damaged China, there is no “system manager,” to borrow Joseph Nye’s phrase, to keep the international system in functioning order. 

There are better alternatives to this scenario. They depend, however, on significant political and policy change in Washington; a reformist and internationalist readjustment in Beijing; the development of a new architecture of détente between the United States and China (drawing on the U.S.-Soviet experience), which places clear parameters around the competition in order to avoid military disaster; and efforts by other countries to pool political and financial resources to preserve the essential multilateral institutions of the current system as a form of institutional triage until there is a return to geopolitical stability. History is not predetermined. But none of this will come about unless political leaders in multiple capitals decide to change course. With the wrong decisions, the 2020s will look like a mindless rerun of the 1930s; the right decisions, however, could pull us back.

 

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