- Vinay Nair
Economic Consensus for a "New World Order"
The novel-coronavirus induced outbreak of COVID-19 has left the world in a state of shock. As it spread across borders, affecting a total of 215 countries causing more than 500,000 deaths.
A fear has been growing since WHO declared a pandemic.
Some nations have been efficient in tackling the virus and are now moving to stabilise their economies in a secure and planned manner. On the other hand, some nations are still struggling to deal with the virus and an economic stabilisation seems like a distant dream for them.
Status Quo on the Situation
The virus was first found in China and gradually spread to other regions. While China’s action on containing the virus was swift, countries like the United States, Italy, Spain, Brazil, India etc. were not able to follow suit with such efficiency as asserted by China in the containment of this virus.
China is trying to capitalise on this imbalance, to their advantage.
They have already set into motion plans to expand and take control over disputed regions amongst many other strategic manoeuvres that have been envisioned under the banner of the Belt Road Initiative and One China Policy.
Most recently Chinese and Indian soldiers are at stand-off with huge military buildup, proceeding to the events of a violent skirmish at Galwan Valley, Ladakh. It is considered to be one of the deadliest combat since 1967 between the two sides. Chinese and Indian troops have now engaged in a confrontation at seven different places in India’s long border with China along the Tibet region with confrontations in Eastern Ladakh and Sikkim. If this wasn’t enough China is stepping up operations opposite Arunachal Pradesh as well mainly in Tawang and Walong.
If not just India, China is pressing on territorial claims aggressively around its neighbouring regions. In the same week that Chinese and Indian troops faced off, one of China’s submarines cruised through waters near Japan. Chinese fighter jets and a bomber have buzzed Taiwan’s territories at least once daily. The People’s Republic of China (PRC) claims that all their moves are defensive, but they are increasing military activity along its border with clear motives, if not offensive.
The Chinese equation for threat
These practices from China have resulted in resentment amongst nations across the world. Many Countries are also losing trust with China as COVID-19 pandemic was the second such viral outbreak, emerging from the People’s Republic of China. Hard hit countries in Europe like Italy, Spain and the UK are now slowly emerging out of their lockdowns.
The UK has already started easing the restrictions with the re-opening of restaurants, hotels, etc. In Italy the situation is now much under control and the authorities are in works to formulate a plan to restart economic activities. Spain and Portugal have now opened their joint border and are working on ways to bring life back to normal.
On the other hand countries like India, Brazil and Mexico are experiencing a steady increase in new coronavirus cases every day. The Indian government has partially started activities with strict social distancing measures to ensure the economy is moving forward, even if it is at a reduced pace.
The United States is seeing a resurgence in cases as political unrest continues in the country. With the presidency elections coming up the country is still in a state of turmoil.
India’s GDP was already slowing down before the pandemic hit the country. India was experiencing a period of slow growth and the growth rate in 2019 had fallen to 5.1%.
The GDP for almost all countries is expected to contract in FY21.
An Economic exclusion of China
Given the Chinese aggression at it’s border region, India has moved to issue a ban on 59 Chinese Apps, impose strict restrictions on imports from China (in lieu of promoting domestic manufacturers - आत्मनिर्भर भारत), a complete ban on Chinese companies to participate in highway projects, and Indian government counterparts like CAIT (The Confederation of All India Traders) is promoting a trade ban on Chinese goods and supplies.
The India government is wary of Chinese investments, trading via third party companies in Hong Kong and Singapore. Data suggests significant indirect inflow of Chinese goods and investments through locations with which India has Free Trade Agreements (FTAs), Preferential Trade Agreements (PTAs) or other Bilateral Commercial arrangements.
India’s trade deficit with China has been widening ever since 2005, proving India’s dependence on China. China accounts for almost 14% of India’s imports and is a major supplier for sectors like mobile phones, Pharma ingredients, telecom, power, electronics and plastic toys.
In 2018, US President Donald Trump imposed sweeping tariffs on China on grounds of unfair trade practices. Ever since then the countries have been involved in a tariff war, fought World Trade Organisation (WTO) cases and introduced foreign technology restrictions.
The Five Eyes Alliance (FVEY) wants to end western reliance on China.
The Five Eyes Economic Pact includes UK, US, Canada, Australia and New Zealand. And to accomplish their mission the alliance seeks to add three other countries namely India, Japan & South Korea. Amongst the Five Eye alliance nations, Australia is the most dependent on China followed by New Zealand and U.S.A. As many countries are moving towards reducing their dependency on China, self–reliance and new trade policies can be the first step taken in this direction.
The Way Forward for Everyone
In India the government has eased restrictions despite the number of cases increasing. The opening up of the economy has led to a rise in demand, compared to March & April. Demand in the FMCG sector has been the fastest growing, followed by digital payments. The sectors that have been the worst hit includes automobile, housing, travel and hospitality. The automobile sector guy saw no demand for the first time in April. Even though the government has resumed operations for flights and hotels, people are still skeptical about it. Unemployment numbers have also started to fall signalling the economy will recover, but it’s obviously going to be a slow process.
The full extent of the effects of the pandemic are yet to be seen, but it is safe to assume that the world will go through a significant number of economic and social reforms.
Trade wars have been intensifying and political unrest in countries like the United States and Hong Kong is a major cause of worry. The coronavirus pandemic has had a more negative impact on the global economy than anticipated and to return back to pre-covid levels is a daunting task.
The importance of the healthcare sector has now come to light and is expected to receive priority funding. Government policies such as subsidiaries, tax rates and interest rates will play a major role in reestablishing the corporate segment.
Strong multilateral cooperation remains essential on multiple fronts.
FDI’s and FII’s would be required to fund government operations. Self-reliance and improved trade pacts will also play a key role in the growth of the economy.
China hopes to emerge as the ultimate superpower post the pandemic, it is already stepping up their operations in the same direction. The major economies of the world have identified China’s motives and have increased collaboration to prevent such a situation. It would be in the best interest for all countries to come to a mutual understanding while supporting and providing for each other to come out of this global crisis.
As goes with any major event the world is set to witness a new order rising and a recession is imminent. Economists are predicting that by FY22 the global economy should return to a normalised state.