The International Order has been historically referenced with the event that brought about a major change in the same; be it a Post-Westphalian international structure, a Post-World War Order or a Post-Cold War era.
With a pandemic of this magnitude that has brought even developed economies to their knees, the international order will certainly take a new shape Post-COVID19. A key takeaway is going to be the reorientation of global supply chains along the lines of economic nationalism.
The fight of major Asian economies like South Korea, Japan, India, as well as, China against COVID-19 has caused immense damage to both life and livelihood, with the International Monetary Fund (IMF) stating that for the first time in almost 60 years, Asian economies will see “zero growth” in 2020.
This was not the Asian Century that had been imagined; a realm of economic prosperity, connectivity and shifting of the global power stage to Asia with Asian powers at important tables had been the reality under which the 21st Century was to operate.
At the regional level, a post-COVID-19 economic and political Asian trajectory is concurrently emerging. How likely is economic nationalism to shape the future of post-COVID-19 Asia?
Addressing Supply Chain Conundrums
A major change in a post-COVID Asia, if not the world, is going to be a rise in and increased thrust by administrations on economic nationalism. Prolonged focus on extended and specialised global supply chains is going to be discouraged; extreme over-reliance of global supply chains on China, be it in sectors of pharmaceuticals, consumer goods, electronics or automobiles, has become alarmingly clear during the COVID-19 pandemic.
An extended emphasis on economic nationalism has been on the rise since the 2008 financial crisis-era; however, economic liberalism and globalisation continued to hold the larger sway, supported by Bretton Woods institutions.
The coronavirus pandemic and its effect on national economies can prove to be the very thrust needed for economic nationalism to become the policy implemented by major economies. China, for its part, has been largely critical of Bretton Woods institutes like the IMF, WTO, and World Bank, earning itself the tag of a “revisionist” power by the US in its 2017 National Security Strategy and 2018 National Defence Strategy while in 2019, the US Treasury labelled China a ‘currency manipulator’.
However, China’s miraculous rise to a global economic power has been a result of perks it enjoyed due to the US-led liberal economic order. Hence, while China has tried to Asianise or lead by offering an alternate platform to existing Bretton Woods institutions, as seen in the case of the Asian Infrastructure Investment Bank (AIIB), the BRICS New Development Bank (NDB) or its attempts to increase its voting power base in the IMF, it has hoped for continuation of globalisation trends that aid its economic growth.
For China, a manufacturing giant and trading hub, economic nationalism imbibed by Asian nations is going to result in loss of its regional dominance and serve as a major fallback to its ambitious Belt & Road Initiative (BRI).
A report by Dun and Bradstreet claims that globally, over 51,000 companies have direct while 5 million companies have one or two-ties suppliers in China.
Examples of economic nationalism being exacerbated by the COVID-19 crisis can be seen already. For instance, Japan, for whom China is its largest trading partner, has announced that USD 2.2 million from its huge coronavirus stimulus package will be dedicated to solely encourage its manufacturers to shift their businesses out of China, preferably into Japan itself or to other neighbouring countries.
Economic nationalism has already taken a front seat in US President Donald Trump’s “America First” policy which has led to the withdrawal of US support from multilateral trade agreements like the Trans-Pacific Partnership (TPP) and North Atlantic Free Trade Agreement (NAFTA).
Further, while citing that it was responsible for “mismanaging and covering up the spread of coronavirus”, Trump recently suspended US funding from the World Health Organisation (WHO) which had come under rebuke by the US for its pro-China dealings.
Prime Minister Narendra Modi’s decision to keep India out of the Regional Comprehensive Economic Partnership (RCEP) in 2019 is also remnant of its economic nationalism interests while the United Kingdom’s exit from the European Union (EU) has been interpreted as London making a strong case for national economics a priority over globalisation.
Economic Nationalism Takes a Lead
Economic nationalism, unlike economic liberalism, will prove to be a zero-sum game. It will allow nations to benefit at the expense of other countries or groups; it threatens the positive sum-game interdependency a globalised international order has thrived on.
Beijing has followed a dual policy of implementing economic nationalism in its own national initiatives (case in point, the BRI which follows a debt-trap, unilateral, state-run policy of functioning) while benefiting from the economic liberal order that trade institutions and multilateral initiatives have created (BRI does indeed fulfil, albeit at the questionable expense, the infrastructure and connectivity needs of developing nations).
Economic nationalism is hence not new in China; it has varied forms of management and aggressiveness under Xi Jinping’s Communist Capitalism lead. What is emerging as a disturbing trend is the emergence of economic nationalism as a core foreign policy tool among countries like Japan, India and South Korea as well.
These are critical top trading partners of China and this trend is likely to severely damage its supply chain networks.
Implementation of economic nationalism in a pre-coronavirus world could have worked in favour of China; theoretically, the concept threatens Bretton Woods institutions and rules-based trading, as championed by the US and its alliance and close strategic partners. It ultimately promotes a national-interest oriented and non-intermediary form of trade that does not necessarily follow international norms but rather bilateral settlements.
It would have ultimately supported China’s BRI objectives, as it has done in the past with Hambantota Port in Sri Lanka and BRI’s extensive Pakistan associations threatening Indian sovereignty.
Economic nationalism in pre-COVID era worked in Chinese favour because while Beijing followed its national interest-driven economic plans, it also actively engaged in institutions like the WTO, IMF, UN, AIIB and New Development Bank (NDB) while spearheading agreements like RCEP.
This allowed it to present a global leader narrative, enunciating inclusion in the erstwhile Westernised world order, while becoming the world’s production centre. China’s global might and political power stems from its economic prowess. However, in a post-COVID 19 order, economic nationalisation will strengthen ‘Make in’ self-territory initiatives and also lead to shifting from single-source supply chains. Ultimately, the pandemic is only going to strengthen trends that have been already in the play of moving away from China-centric supply sources.
While economic nationalism is at the core of competing foreign policy outlooks, it has been harder to implement the same due to the heavily ingrained globalisation framework modern trade has been built around. However, the resurgence of economic nationalism must be studied in the context of the emergence of an environment that has become increasingly unfavourable towards economic integration.
Take for example India’s decision to not join RCEP; it came in light of intense domestic pressure, with the agrarian sector and political affiliate parties of Modi’s Bhartiya Janata Party (BJP) citing disapproval with the FTA.
Similarly, public disapproval and pushback against the TPP as well as the Trans-Atlantic Trade and Investment Partnership (TTIP), even with their net economic benefits, lead to US withdrawal from the same.
Even though globalisation is here to stay and will not be completely done away with, a largely localised manner of globalisation with national interests at its core is highly likely to be implemented.
This trend, which has seen a reflection in Japan’s post coronavirus manufacturing withdrawal from China, goes to show that thrust in economic nationalism and protectionism in brewing and could possibly have the potential to bring massive changes to the existing global economic and trade system.