MUNDO #9 - The scar of economic nationalism
Updated: Jul 24, 2020
G'day, and welcome to the ninth edition of Mundo. My wife and I are safe and sound in our apartment here in New York. A tragedy is unfolding here, but thankfully for us our lives are a routine of home life on repeat.
In this edition I give my base case scenario of where US foreign policy, international economic policy and diplomacy will fall in the coming months up to the November presidential election. Economists are constantly modelling economic outlooks for an economy. As a political economist, I think it's essential that political factors are properly considered too.
This isn't the only possible scenario that I see, but it's what I believe is most likely. Agree with me? Disagree? I would love to hear your own thoughts and comments.
Approximate reading time: 6 minutes - a little more than normal for the long weekend many of you have.
Globalisation brought the coronavirus to the United States, but its scar will be economic nationalism
After initial complacency, denial and bravado, Donald Trump’s America is facing an unprecedented health and economic crisis as it struggles to control COVID-19. As this emergency and recovery unfolds in the coming months, what impact will it have on America’s foreign policy, international economic policy, and diplomacy? How will it influence US grand strategy? Domestic and international factors will push President Trump to first pursue “strategic cooperation” as it seeks the international goods and policies needed to stabilise a country in a public health emergency. As the intensity of the crisis transitions into a deep economic recession, the Trump White House will revert to economic nationalism. Businesses in the United States should prepare for an intensification of politics in the economy in the lead up to the November presidential election. America’s allies and rivals alike will turn inward to address their own crises, but this fragile stability will eventually crack along deepening geopolitical fault lines.
Domestically, the “Coronavirus Crisis” is pushing voters to an even greater inward focus on stabilising the economy. Recent polling shows 87% of Americans are “Very” or “Somewhat” worried about the effect of the coronavirus on the U.S. economy, up from 55% in mid-February. As mass unemployment spirals and the suffocation of recession becomes evident, the American voter’s appetite for global leadership will continue to wane. It will be ceded to anti-migrant anxieties and economic protectionism.
President Trump will redouble rhetoric on an “America First” economic recovery, redeploying protection around industries romanticised as American bulwarks such as auto, manufacturing, and agriculture. Workers in these industries were already hurting from a long-term decline in competitiveness, and Trump’s trade tariffs. The coronavirus fallout will hit them particularly hard. Small businesses are scrambling to apply for loans forming part of the $2 trillion CARES Act, however they worry these loans may be too little, too late. Industry giants General Motors and Ford are also strained from plummeting demand, and costlier financing via credit rating downgrades and heavily drawn credit facilities.
March 15, 2017 (AP Photo/Paul Sancya)
The social reaction will intensify as the economic contraction deepens, drawing more political energy inward. This has already begun with the politicisation of the Trump Administration’s response to the pandemic. Restlessness over quarantine policies, and a growing realisation of the unequal health and economic vulnerability to the virus that American’s across different social classes face will form a combustible mix.
Abroad, America’s strategic rivals and allies face similar domestic pressures, absorbing their own attention. China has passed the first wave of the virus, however they face the looming threat of a resurgence – as all countries will, and the daunting prospect of rehabilitating their economy from its weakest position in decades. The Chinese Communist Party busied itself pushing a disciplined narrative of global leadership, espousing the benefits of the “Chinese model” of governance, and self-praise for donations of medical supplies to carefully chosen countries.
But President Xi knows that China’s swift return to economic productivity and consumption is paramount to the stability of the CCP. Propaganda will continue as an efficient method of promoting their narrative to domestic and international audiences. However Xi will remain cautious in deploying further material resources abroad at the expense of a domestic recovery. He will be equally wary of provoking unnecessary foreign spats.
Other authoritarian rivals such as Russia face mounting domestic challenges from the Coronavirus Crisis, paired with weak oil prices. President Putin is a wildcard in this situation, given his track record for bold opportunism in Crimea, Syria, and the Ukraine while the US’ attention was caught elsewhere.
In Europe, the pandemic has again divided the European Union along a north south split. The recession and debt troubles in southern Europe are exposing the EU’s dysfunction anew, occupying its political leaders.
The domestic desire to turn inward for economic recovery, coupled with similar incentives from their allies and rivals pushes the Trump White House toward a strategy of economic nationalism and retrenchment. While the U.S. remains in a public health crisis there will be instances of “strategic cooperation” between the U.S. and China, although thus far interactions have remained icy. International economic cooperation is possible through the G20, however the lack of leadership so far has prompted a group of current and former world leaders to pressure the G20 into more urgent action. As the health emergency subsides and the gravity of the economic toll reveals itself, U.S. economic nationalism will dominate.
For businesses with American interests, this means a more complex domestic political environment, as politics injects itself into the economy for the supposed sake of national and political interests. While this bodes for a level of stability between the U.S. and its rivals in the coming months, it's based on U.S. economic nationalism, where the global economy is framed as groups of "winners" and "losers". It's a foundation whose cracks will inevitably lead to friction. If unaddressed, it foreshadows a continued decay of the international order, and the waning of American leadership.
How Trump drives a narrative
Last week I did a quick Tableau visualisation analysing retweets of Donald Trump's coronavirus tweets. Tweets referencing "Chinese Virus" were retweeted more than twice as much as those referencing "Coronavirus", "COVID-19", or simply "Virus". The white line in the first chart is Google search interest for the term "Chinese Virus". You'll see there was minimal search interest prior to Trump's tweets.
Some weekend reading
Vanity Fair reports on the ingenuity of a team of Colombian engineers who developed three ventilator prototypes inside of 10 days at a fraction of the current market price.
While I'm writing an analysis on the $2 trillion CARES Act stimulus passed by US Congress for Oxford Analytica, I'm following the reporting of Ruth Simon and Kate Davidson of the Wall Street Journal, who are covering the small business funding program.
These and many other interesting pieces I come across are on my Twitter feed. Pop on over to @mhayes1, give me a follow, and have a look.
Please feel free to send through your own thoughts and articles to me. Forward this along to others who might find this an interesting read.
Stay calm, think of others, stay healthy.