The Corona Virus pandemic casts a dark shadow over this global framework. It raises fundamental questions about how much economic interdependence nations want. The answers will differ by country, industrial sector, and trading partner. Larger countries, especially the U.S., will opt for somewhat more autonomy. Smaller ones and the European Union will face hard choices. The biggest impact, though, will be on China as the full impact of its deception, malevolence, repression, secrecy, and aggressiveness become clear. The results won’t be happy ones for the country’s communist regime.
BY Charles Lipson FOR THE INTERNATIONAL CHRONICLES
The horrific spread of COVID-19 has filled hospitals and graveyards, shut down the global economy, and exposed deep fissures among nations. The international problems, such China’s rising threat and reliance on foreign sources for critical supplies, are not new. But the contagion puts them in sharp relief and will surely affect relationships going forward.
Most changes won’t come until the crisis passes. Right now, policymakers are preoccupied with life-and-death decisions. They don’t want to challenge Beijing while they need its medical supplies and data. They also want to see if it will fulfill its promises in the Phase I trade deal or cheat, again. But make no mistake, changes are coming.
The biggest will involve China. The pandemic not only originated there, it spread because of how China is governed. The Chinese Communist Party, like all dictatorships, maintains tight control over information. It gives out only what helps the regime, hides whatever hurts it, spews propaganda, and cracks down on anyone who speaks out of turn. The Wuhan doctors who first sounded the alarm bells were immediately silenced. Science labs, which decoded the viral structure, were shut down and their data destroyed. China still won’t share vital information about how the virus works and how it affects different populations. Reporters, both professional and amateur, who mentioned the pandemic were suppressed. Some international reporters were expelled. Some locals have not been seen again.
These harsh, secretive measures are not accidental. They are essential to how the CCP governs China. Still, some information has leaked out, despite the peril. It looks like 40,000-50,000 funeral urns have been shipped to Wuhan, 20 times as many as the official death toll. Yet China is still handing out make-believe data, hindering other countries’ efforts to cope.
We don’t know exactly when Beijing officials learned about Wuhan’s troubles, but it was probably early- to mid-December. They didn’t learn earlier because local officials know the surest way to lose your position is to give your boss bad news. So they withheld it. When Beijing did learn, it intensified the crackdown and enforced stay-at-home orders. The CCP then delayed telling the world. It also refused multiple offers of medical help. Some say they refused out of national pride. Perhaps, but they also feared what outside professionals might find.
Meanwhile, Beijing continued to send official delegations around the world, including one to the White House and a huge one to Davos, long after it knew the dangers. Far worse, it allowed more than 750,000 people to fly to the U.S. in December, January, and February, again, after CCP officials knew the virus was highly contagious and spreading quickly. Where did they fly, besides America? Well, Italy, for starters. Wherever Chinese people like to vacation. And wherever China has economic and strategic interests. The first global hot spots show exactly where they landed. The contagion spread its deadly tentacles from there.
Why didn’t the World Health Organization sound the alarm? For two reasons: It had bad information (from China) and it never confronts Beijing, which effectively controls the organization, even though it is a far-smaller donor than the U.S. The CCP has a crucial say over who holds senior positions at the WHO, and it shows. That’s why a top official there actually hung up — on camera — when a reporter had the temerity to ask about Taiwan’s success in combating the virus. That’s why, in mid-January, the WHO was still telling the world exactly what China told them: The novel-coronavirus did not spread by human-to-human contact. The WHO probably believed that, but by then Beijing must have known it was false. The WHO also opposed President Trump’s decision to block travel from China, the most important early step to limit the pandemic in America.
The WHO’s fecklessness mattered. According to Dr. Deborah Birx, reports from the WHO and China led U.S. health officials to think, wrongly, that this problem was much like SARS, serious but manageable. It was far worse than that and far more contagious. We should have been told.
The WHO is probably beyond repair. China won’t give up its authority there, and the U.S. shouldn’t give China more weight by withdrawing. But it should cut back sharply on funding, and so should other advanced democracies. Together, they should form a parallel organization, a NATO/Health entity that includes not only America, Canada, the U.K. and EU but also Israel, Ireland, Japan, South Korea, Australia, and Taiwan. All are established democracies with developed, high-tech economies and sophisticated medical research and public health systems. Their data can be trusted, and they are transparent enough to share it. They need an easy, institutionalized way to cooperate, outside the politicized, corrupted WHO.
The next big change will be to repatriate production of vital medicines and equipment to the United States. Since the U.S. refused to share some masks and other equipment with Canada and other close allies, you can also expect those countries to seek more self-sufficiency, or at least bigger stockpiles of medicines and devices made abroad.
Self-sufficiency has always been important to military planners. For a century, they have focused on heavy industries, essential for building tanks and planes. Over the past two decades, as modern warfare changed, they realized that several other economic sectors are equally important to national security and require their own indigenous research and production capabilities. That is obviously true of super-computing, artificial intelligence, chip fabrication, and cybersecurity. What was less clear, until now, is that medicine and health equipment also fall into that “essential” category.
This pandemic has shown that the United States not only needs sophisticated research in biotechnology and bioengineering, it needs more manufacturing capability. It cannot depend on the People’s Republic of China, simply because it is the low-cost supplier.
Another change, likely to come soon, is authorizing the Food and Drug Administration to find out where our medicines and supplies are produced. We need to know. The FDA and White House can then decide which medicines, precursor ingredients, and medical devices ought to be made solely (or mainly) in the United States. That production will be brought back with subsidies and restrictions, such as “Buy American” provisions for government purchases.
International corporations will act on their own to reevaluate where they produce key products and component parts. They will reevaluate any supply chains that pass through China on their way to sales in the U.S. and Europe. They will also face political pressure, not just from Washington but from London, Brussels, Berlin, and elsewhere. If President Trump is going to tell 3M not to sell masks to Canada during an emergency, then Ottawa will have to decide whether to manufacture those locally, build a stockpile of essential supplies, or perhaps strike a bilateral deal not to restrict supplies in emergencies.
Small countries, like Belgium or Denmark, cannot pursue a strategy of self-sufficiency, even for vital items. Their domestic markets are simply too small for large-scale manufacturing. To produce efficiently, they need to sell abroad. They can, thanks to the Europe Union’s open market and other international trade agreements. The EU is designed to provide a vast internal market with few barriers, but this crisis has exposed cracks in that design.
Facing potential shortages of medical supplies for their own citizens, some EU nations have erected temporary export barriers. The most shocking was Germany, which chose to block some ventilators and masks from being shipped to Italy, which needed them desperately. (France did the same thing.) Since Germany is both a strong EU supporter and the continent’s biggest economy, its decision is a troubling sign for European integration. The centerpiece of Germany’s foreign policy since World War II has been to forge close ties with neighboring democracies: economic integration within Europe, military integration within NATO. That was the only way for Germany, with its deeply troubled history, to build a huge industrial base without terrifying its neighbors and prompting an anti-German alliance.
One question, then, is whether the rise of these nationalist sentiments in Germany, France, and elsewhere will dampen the EU’s goal of ever-closer integration. Europe is also likely to face three other problems, and face them soon.
First, this pandemic could devastate some economies and ruin some major banks. Who will bail them out? The rich countries (in northern Europe) are naturally reluctant to do it, but they also fear financial troubles could cascade across borders and threaten the whole European project. Second, to revive production after a crisis, weaker economies normally devalue their currencies, hoping to stimulate exports and dampen imports. Unfortunately, they can’t do that within the single-currency Eurozone, which covers most of the continent. The best they can do is borrow, if they can find lenders. The larger questions are whether the crisis will lead to a prolonged recession in Italy, Spain, and other troubled economies and whether it will shake the single-currency system and perhaps the EU as a whole. Third, the crisis offers an opportunity to shed some of the EU’s burdensome regulations, which could hold back a recovery. Will they do it? We’ll see, but Brussels’ sclerotic bureaucracy is the heart of the entire system, and it would take a massive, coordinated effort by national leaders to roll it back.
Despite the Trump administration’s talk about “America First,” we still live in an integrated world economy. The rapid spread of the virus is a sign of those pervasive ties. The United States has been the political lynchpin of this “liberal world order project” since its beginning after World War II. Trump is the first president to challenge that order in principle. His practice has been more interesting. In negotiations with Mexico, Canada, and China, the president has used the credible threat of closing America’s huge market to pry open theirs, giving American producers fair access. Europe is next in line for that bracing treatment. Although Trump’s rhetoric has been nationalist, the net effect has actually been globalist.
This pandemic casts a dark shadow over this global framework. It raises fundamental questions about how much economic interdependence nations want. The answers will differ by country, industrial sector, and trading partner. Larger countries, especially the U.S., will opt for somewhat more autonomy. Smaller ones and the European Union will face hard choices. The best outcome would be for the U.S. to negotiate to pry open foreign markets and for all advanced democracies to cooperate more extensively on health data and sharing critical supplies, even in emergencies. The biggest impact, though, will be on China as the full impact of its deception, malevolence, repression, secrecy, and aggressiveness become clear. The results won’t be happy ones for the country’s communist regime.