What is “great powers competition” in a time of global confinement?

As we write this article, half of the human species is or has been confined in homes or apartments, in cities and slums. In China, for example, confinement is a massive political and social undertaking. All around the world hundreds of millions of people are living “inside”. Since its start, the epidemic spread from the wet market of Wuhan to South Korea and other Asian countries, India, Europe, Africa, Latin America and the U.S. and Canada. In April 2020, more than 3 billion people are confined (Hélène Lavoix, “COVID 19- Worst case baseline scenarios, March 13 2020 and COVID 19 scenarios- Making sense of antiviral treatment”, The Red (Team) Analysis, April 8 2020).

The rapid spread of the virus triggers contrasted answers from the U.S. federal state and from the different levels of political authorities. Consequently, the U.S. economy is on a free fall trajectory, while social cohesion is under tremendous sanitary and financial pressure. In one week, 6.6 million American people filed for unemployment (Catherine Thorbecke, “6.6 million more Americans file for unemployment amid financial crisis”, ABC News, 9 April 2020).

This situation begs a series of questions about the geopolitical and strategic consequences of the Chinese confinement and of the U.S. reactions to the COVID-19 for the China-U.S. relationships. Indeed, their interactions are extremely deep, notably because of the economic interdependence that links these two giants, without uniting them.

Chimerica versus COVID-19

This relation is so dense that Niall Ferguson calls it “Chimerica”. This expression translates the quasi-intimate process of hybridation between these two mammoth national economies (Niall Ferguson, Xiang Xu, “Making Chimerica Great again”, Wiley one line Library, 21 December 2018). This process emerges both from the installation of thousands of U.S. industries and corporations in China and from the mammoth trade relation between the two countries.

This relation is also the driver of the fantastic trade imbalance between China and the U.S. As such, it is at the core of the trade war launched by President Donald Trump against China in 2018 (Jean-Michel Valantin, “The Midwest floods, the trade war and the pandemic swine flu: the agricultural and food super storm is here“, The Red (Team) Analysis Society, September 3, 2019).

In other terms, the present and future of “Chimerica” is fundamentally related to the consequences of the “global confinement” triggered by the global pandemic of COVID-19.

In this new series, we are going to evaluate and anticipate the way the COVID-19 is deeply redefining the U.S.-China interdependency. That is to say, we shall assess the potential types of partnerships or conflicts it could unleash.

In this first article, we shall see how the COVID-19 triggers the equivalent of a geo economic warfare on Chimerica.

From China’s lockdown to global confinement

At the start of 2020, after a few weeks of tragic hesitation, the Chinese political authorities reacted very strongly in the face of the COVID-19 epidemic. They locked down entire cities and provinces, with Wuhan and Hubei province in the first place.

The Chinese Central power cancelled the New Years festivities, and prolonged the official holidays, before confining hundred of millions of Chinese people. This decision intended to decrease the demographic density in working places in Chinese urban areas and especially to stop the dissemination through the travels of massive numbers of people in order to break the contamination chain (Hélène Lavoix, “Why the COVID 19 is NOT a Black Swan event”, The Red (Team) Analysis Society, March 6, 2020).

For example, on 23 January 2020, the Chinese national authorities decided to impose a complete lockdown on the 11 million people city of Wuhan. This drastic measure aimed at containing the spread of the COVID-19 outbreak, probably originating from the wet market of the city, throughout the country. An immediate consequence of China’s urban confinement was a massive decrease in economic activity (Associated Press, “China reports Jan-Feb economic activity worse than expected”, US News, 16 mars 2020).

Three weeks later, the epidemic being a matter of national emergency, measures of partial and total lockdown were vigorously enforced in numerous provinces and cities. This meant that 500 million Chinese citizens were living through confinement measures. This represented almost 7% of the whole of humanity.

From a strictly analytical point of view, this was, so far, a unique feat of social engineering. However, the international spread of the virus started before the confinement.

Towards international confinement

Pandemic

As a result, the pandemic blazed throughout the globalized world, from China to the rest of Asia and Eurasia. The virus expanded everywhere, from South Korea and Asia, to Italy, France, Great Britain and Europe, to Australia and New Zealand, Africa, Latin America, the U.S. and Canada. Thus, during February and March 2020, the COVID-19 became the first global human pandemic of the 21^st century.

Half of the human species is confined (Hélène Lavoix, “COVID 19-Worst case baseline scenarios”, ibid). The geopolitical consequences of this sanitary initially domestic crisis were developing at a gigantic scale.

From China to Chimerica

This dire sanitary-economic situation begs the question of what the confinement of both China and the U.S. means for Chimerica?

De facto, the Chinese economic reality is inseparable of the U.S.-China relationship. Indeed, if the U.S. industrial output represents “only” 16,6% of the world production, while China’s industrial output weighs 28%, it is the result of the installation of large segments of the U.S. industrial base in China and in Asia since the 1980s (Felix Richer, “China is the world’s manufacturing power”, Statista, Feb 18, 2020).

Chimerica results from the export of China-based products at very low costs to the U.S. consumer base.

Chimerica and China’s growth

Chimerica

From this point of view, Chimerica literally “is” the different dimensions of the fantastic trade imbalance between the two countries. Since 1986, this imbalance went from zero to more than 336 billion dollars in 2017 and 378 billion dollars in 2018 (Office of the United States Trade representative, “The People’s Republic of China – U.S-China Trade facts“).

One notes that, since 2002 when China joined the World Trade Organization, this imbalance has been growing and accelerating. The Chinese GDP follows the same dynamic. As it happens, according to the IMF, in 2001, China’s GDP corresponded to 13% of the U.S. GDP. It represented 25% of the U.S. GDP in 2007 and 60% in 2016. In 2016, the IMF was projecting a growth of the 2023 Chinese GDP that would make it equivalent to 88% of the U.S. GDP.

In other terms, Chimerica is at the core of the Chinese growth, as well as the heart of the U.S. economy (Niall Ferguson, Xiang Xu, ibid).

The COVID-19 slows down China’s economy…

The coercive measures of forcibly enforced urban lockdown and quarantine drastically slowed the Chinese economy down. They did so by diminishing the industrial and trade activity throughout the country. As a result, the import-export global relationship of China with Asia, and the rest of the world also slowed down.

Thus, as China accounts for a mammoth 28% of the world industrial output, its slowing down impacts the global industrial output. The Caixin/Markit China manufacturing PMI, as well as IMF studies, reveal that, in January and February 2020, China’s industrial production suffered a historic contraction. China’s industrial production was 25% lower than during the same period in 2019. In the meantime, retail sales also suffered a massive 35% drop (Huileng Tan, “China’s factory activity slumps in February in weakest reading on record, private survey shows”, in “A private survey shows shows China’s manufacturing activity expanded slightly in March”, CNBC, updated 1 March 2020).

Impacting America

From this point of view, the confinement of China and its industrial and economic consequence literally rippled through and down the China-U.S. production, trade, finance, and logistical arteries. Moreover, the confinement of part of America is rapidly affects the consuming habits of the U.S. population (Lucia Mutikani, “U.S consumer prices post largest drop in five years amid coronavirus disruptions”, Reuters, April 10, 2020).

Confinement as a geo-economic warfare

Oil as indication

However, “Chimerica” is also the core driver of the world economy. The viral crisis is reinforcing the slowing down trade. It is already translating through the fall of oil Chinese imports and on the oil prices, amid the Russia-Saudi Arabia-Mexico initial oil production dispute (Gillian Rich, “Oil prices mixed after OPEC+ surrenders to Mexico on massive deal”, Investors Business Daily, 10 April 2020). As of 12 April 2020, oil prices are at historic lows, between 22$ and 24$. One must remember that, at the worst of the 2008 crisis, oil prices slumped “only” at 40$.

However, oil is the material and energetic driver of the world economy and finance. This dizzying fall of the oil prices is expressing a global deceleration of production and transport activities. It also means a mammoth loss of petro-dollars that thus cannot be injected in international transactions.

Chimerica as an economic battlefield

So, the consequences of the COVID-19 are triggering the equivalent of a geo-economic warfare on the hybrid U.S.-China economy. However, since 2018, this US-China hybrid economy was already under pressure because of the U.S.-China trade war.

The combination of both the pandemic and the trade war turns Chimerica into an inside-out economic battlefield. As the virus and confinement policies spread through the road of globalization, the whole world is decreasing its interactions with China.

Pandemic as a geo-economic warfare

Actually, we may wonder if those safety measures are triggering a situation with consequences similar to a worldwide geo-economic conflict. Theorised since 1990, a “geoeconomic war” is thought as a way to inflict a country the same kind of damages that could be wrought by military means. This approach concerns infrastructures as well as the financial dimensions of life quality. The idea is to use economics as weapon systems (Edward Luttwak, “From Geopolitics to Geoeconomics”, The National Interest, 1990 and Robert D. Blackwill and Jennifer M. Harris, War by other Means, Geoeconomics and Statecraft, 2016)).

Thus, in a very strange and surprising way, the COVID 19 crisis appears as a new kind of economic disruptive force. As it happens,, this unwanted offensive strikes China, and the U.S., thus Chimerica.

However this battlefield deploys itself on numerous fronts. First, let us see what happens on the savage American front.

Featured image: Image par Gerd Altmann de Pixabay [Public Domain]