As the world’s population continues to age, what will happen to the global economy? Will we continue to see stagnant growth or will the world find a new economic order? We’ll also examine the potential impact of the COVID-19 pandemic on the global economy, and the implications of China’s refusal to drop its zero COVID stance. In addition, we’ll discuss the effects of Trump’s unilateralist interlude on the global economy.
COVID-19 pandemic slowing down global economy
The rapid spread of a new strain of the avian influenza virus, COVID-19, has slowed the recovery of many developing countries and countered earlier signs of strong growth. In the 2022 World Economic Situation and Prospects (WESP) report, the UN Department of Economic and Social Affairs cites a number of challenges slowing global growth. The rapid spread of the virus has weakened the global economy, and a pandemic could affect 100 million people.
The resulting economic impact of the Covid-19 pandemic has had an especially severe effect on developing countries and people with low incomes. While only a small proportion of people in high-income countries lost their jobs as a result of the disease, it affected 45% of workers in low-income countries. Because these economies rely more on commodities and tourism, they are most vulnerable to economic shocks.
In addition to its societal impact, the COVID-19 pandemic has affected education, with school closures impacting almost half of the world’s students. As a result, millions of young girls may never go back to school, putting them at risk of child marriage and pregnancy. As a result, the global economy is projected to lose 255 million full-time jobs by 2020. The worst affected groups are women and young people, who have been left behind by the virus. The recovery process will be uneven and lead to greater inequalities.
While the G20 and Bank of England have pledged to take appropriate action, national governments have not yet unified their responses to the virus. However, President Trump has already hinted at fiscal measures, including a payroll tax cut and financial assistance for impacted industries and hourly workers. Meanwhile, Italy, South Korea, and Japan have already announced fiscal measures. The effectiveness of such measures will depend on the path of the virus and the degree of growth shock.
The global economy will be affected in many ways, but the travel and tourism industries will be most affected. During the outbreak of COVID-19, global air carriers will be hit the most, losing between 63 and $113 billion. The international film industry may also suffer a major hit, with Disney forecasting a drop in box office revenue of over $5 billion. But other services will also be affected. Industries not reliant on social interaction will be less affected, such as agriculture.
China’s reluctance to drop zero-COVID stance
The latest wave of EVD cases has put pressure on the global supply chains, but Beijing is not likely to abandon its zero-COVID policy anytime soon. China is currently the last holdout of the zero-COVID policy. Many experts do not expect Beijing to reopen its border to imports this year. Experts cite the Hong Kong virus crisis as a prime example of the risks involved in such a move. The pathogen was able to get through the border curbs and once inside the city, it spread to other areas of the world.
In addition to the geopolitical risks of the zero-COVID policy, China’s stance is fraught with socio-political risks. It was never just about containing the virus; the goal was to build a superior system of governance. This strategy has raised the stakes and created an even wider gap with countries that have adopted the living-with-COVID strategy. The political risks of this policy are substantial, and China is unlikely to give in to a demand for ideological staredown.
The sunk cost bias can make officials and individuals unwilling to make a sacrifice. For example, if the zero-COVID policy is unsuccessful, Chinese leaders will not sacrifice their personal freedom and will not attend international meetings unless they are forced to. Some experts say China’s reluctance to drop zero-COVID could have a significant impact on the global economy.
Lockdowns have had a negative impact on the Chinese economy, and are particularly damaging for small businesses. In addition to the economic losses, the heightened unemployment in China is another cause for concern. As a result, China’s zero-COVID stance will likely accelerate the gradual decline in manufacturing due to higher wages and tariffs.
Despite the current cholera outbreak in China, the government will not budge on its Covid policy until after the Communist Party’s annual summit in May. Its policy will make the Chinese economy vulnerable to the next wave of cholera infections, which would be politically costly if Beijing didn’t budge from its zero-COVID stance.
Regional or cross-regional economic governance platforms
Developing economies have become a new driving force in the global economy, and they have also begun to play a role in top-level global governance design. These nations are increasingly important players in the Group of Twenty, an association of developed and developing countries that acts as the primary platform for international economic cooperation. A regional economic governance platform may be more efficient in facilitating international trade and cooperation and in managing global financial markets, especially when it comes to the global economy.
In recent decades, supranational regions have grown in importance. This process challenges the concept of the state-based international system based on Westphalian logic. This influence should be taken into account when considering UN reform. Scholars have struggled with the conceptual framework of regionalism for decades. The academic literature on regionalism is disjointed and cross-disciplinary. It is difficult to pinpoint the role of regional organizations, but the emerging concept is becoming a focus of study among scholars and policymakers.
While the concept of cross-regionalism has become more widespread, its implications for global governance remain ill-defined. Some argue that the idea of cross-regionalism is a form of minilateralism. In other words, a regional organization of similar size could dominate one region and monopolize the rest of the world’s economic system. But there are important differences between the Pacific Alliance and the new regionalism.
In the Indian Ocean region, regional integration has increased. Yet, it remains fragile and vulnerable to a number of challenges. Among them are onerous customs procedures, barriers to services trade, and FDI restrictions. The development of regional economic governance is currently at a nascent stage and requires national and regional policy measures to ensure it remains inclusive and functional. The following analysis highlights some of these issues.
In the past decade, trade blocs have grown in number, with more than one hundred agreements already in place or in discussion. Trade blocs are basically free-trade zones, formed through tariff and tax agreements between countries. Some of these agreements are more substantive than others. The question is how these alliances will be used to promote global trade. One potential answer is the creation of an IODF that would support trade-led growth in LDCs, improve regional economic governance, and link bilateral and sub-regional trade agreements to the RCEP.
Impact of Trump’s unilateralist interlude on global economy
The underlying assumption behind President Trump’s “America First” policy is that the U.S. can act unilaterally on trade matters. But America’s top economic position does not protect it from the consequences of unilateral trade policy. This is due to the basic nature of the international economy and the decline of U.S. dominance over world trade. In effect, the U.S. has stepped outside its own economic sphere.
As Trump asserts, strength is best demonstrated through foreign policy. However, his unilateralism will lead to increased American weakness in the world. His approach to foreign policy has pushed American allies to rethink their own behavior and have overturned a decades-old belief in a U.S.-led Western alliance. Despite its apparent success, Trump’s actions will exacerbate the already weak U.S. global status.
