Share By : Dr. Dian Ediana Rae, S.H., LL.M.
IMF has projected this year will be the worst year on record since WW2. Instead of coming together to help global economy, COVID-19 has served as a catalyst for tensions between US & China.
No “strategic pause” between US & China possible. Remember what Sun Tzu said: “If you know the enemy and know yourself, you need not fear the result of a hundred battles”. However, the US does not know itself and does not know its enemy. This is dangerous. It is incapable of looking inwards and making adjustments to the new realities. China, on the other hand, is heralding the return of its strong civilization and this cannot be stopped. The Chinese Communist Party today has become a meritocracy where the best and brightest want to work.
COVID-19 will add fire to the strategic rivalry between US & China. It is becoming more obvious that decoupling will be unavoidable, especially in supply chain, investment and trade flows. The US & China increasingly exist in their own economic ecosystems. The lockdown in China has upended supply chains and shutting factories longer than originally planned. The US is using this as an opportunity to bring production back to the US and wean US companies dependence on China. It is also restricting investments in China and delisting Chinese stocks in the US, while China is moving away from dependence on US technology.
Timing of COVID could not have come at a worst time. We are at the tail-end of the longest period of economic growth, rising trade tensions between US & China and 6 months away from the US presidential election. As the curve flattens, US will assign blame and divert accountability. This blame game will need to be blown up to account for the loss of 30m jobs, 1m infected cases and 60k deaths.
The fatalities is of the same scale as the Vietnam War except that it took 10 years compared to COVID, which took 4 months. As this conflict rises, relations will become tense and trust will be low leading to new conflicts and unwelcome dilemmas for neighboring countries who are forced to choose between US or China. If China’s economy recovers faster than the US, US influence will sharply decline.
We will see a very bad 2020. The structure of the international system is becoming increasingly bipolar as both powers contend for leadership position. US is becoming more insulated as it shuns cooperation across international organizations such as the WHO. Even the soft power of America is in decline. The rest of the world including China wants a rule-based order but the US is now shouldering it’s responsibility to uphold this system. This also makes it harder for regional geopolitical cooperation as US & China see such platforms as a proxy contest - and use that to jockey for influence. It will be more difficult for small and medium powers to play a mediator role between the two.
Global economic recovery will depend on whether we get out of lockdown this quarter and if there is no second wave. IMF has predicted China will have 1% growth this year while the US will contract -5.9%. Corporates are most at risk as dollar-denominated debt is very high and there is a global dollar shortage. So far, 100 countries have already requested assistance from IMF, making this 4 times worse than the 2008 GFC, where only 25 countries requested assistance.
The US should ask itself why the average income of the bottom 50% of Americans have gone down the last 30 years more than all the other OECD countries. There is a sea of despair over the white working class in the US and fundamental economic and social problems. Instead of fighting costly wars in the Middle East, US should turn its attention to domestic issues.
Global trade is set to drop around 20 to 30% this year. Trade is collapsing and everybody is on their own. Will China import or keep whatever growth it has for itself? We need to be realistic how much China can offer the rest of Asia in terms of demand in the short term. China is unlikely to come up with any massive stimulus this time and will look at more gradual measures to stimulate domestic consumption and boost infrastructure.
Dangerous to underestimate China. As a Stanford psychologist said, “if you want a pulse of society pessimism go to the inner cities of the US, if you want to feel the pulse of optimism go to China”. To do this, China must make its center strong and continue to improve the livelihoods of the Chinese people.
The US should focus on three things: 1. Focus on domestic vitality that will win the battle at the end of the day 2. Cultivate friends and allies 3. Do not insult your enemy as you still have to work with them 4. Be humble. The US has to be humble and work with China but it’s not willing to accept this reality at the moment. 
The Author is the Head of Indonesian Financial Transaction Reports and Analysis Center (INTRAC) or Pusat Pelaporan dan Analisa Transaksi Keuangan (PPATK)
KOMENTAR ANDA