Who Will Emerge the Geopolitical Winner of the Self-Harm Olympics?
Remember when sanctions were something imposed by enemies?
Any Anti-Empire reader will know how devastating US/UN sanctions can be. They stunt economies, retard life expectancy, and raise mortality and excess deaths.
So it was surreal to observe world powers one by one impose the equivalent of perhaps the most comprehensive sanctions ever — not on their enemies — but on themselves.
Where before the powers would be competing with each other trying to catch the GDP of the other, or prevent themselves from being caught up to, they were now assaulting their economic engines in a kind of global Xhosa Cattle-Killing Movement.
Where before a single percentage point of GDP growth may have been the difference between a feeling of concern and failure to one of optimism and success (eg the difference between 2 and 3 percent in the US, or between 5 and 6 percent in China) the players in the great power competition were suddenly suffocating their economies seemingly with scant regard to whether it cost them five, ten, or fifteen percent of the economy for the year.
But rather than dwell on the insanity of it let’s try to figure out who will emerge as the relative winner. All of the major world powers have dealt themselves a great deal of damage, but did some cause themselves more harm and stand to lose power relative to the others?
China eventually imposed an extraordinarily tight lockdown on Wuhan and Hubei but the radical measures were never nation-wide. In this sense, when adjusted for its geographic scope, its lockdown was the lightest and the least damaging. Had the world not later followed it into lockdown and thus assured a global contraction, China would have actually still been on track to grow in 2020 by 4 or 5 percent.
Russia was the last to go into lockdown when a lot more was already known about the disease which makes its self-sanctions particularly foolish. That said its lockdown period was also relatively short, doubly so outside Moscow, as the country is already reopening.
UK, France, and Germany dealt themselves a great deal of damage, Germany somewhat less so than the others. At the EU level the bloc has not only dealt itself extensive economic damage but has probably set itself up for increased instability, and bickering between members on the ECB “rescue” that could make the Greek debt crisis look like a loving family reunion.
The US economy is now expected to enter 2021 at 8 percent smaller than when it entered 2020. More than that, between the bailouts for big business and generous terms for the 40 million newly-unemployed, the US has decided it can outsource all of that pain onto the dollar. The US has had the idea it can spend months strangulating its economy without most feeling much because it will just print up and distribute that much more currency. But what makes lockdowns politically feasible also represents a new height of anti-dollar policies. Leaning on its ability to print the world’s trade currency to an unprecedented extent also risks undermining it to un unprecedented extent.
Overall, unless China blunders with an overreaction to a “second wave” it stands to make hefty gains relative to the West this year. The biggest loser is the dollar which is being pushed into an ever-more precarious position.
However, this is just the start. We were already on track for a great economic shock without corona lockdowns. As we now wade into this contraction in the worst possible circumstances the danger is that world governments will ad more destructive policies on top. Historically governments often react to contractions with policies that drags them out and make them worse. Be prepared for the powers to continue with the self-harm Olympics long past the corona infodemic. The relative winner of this far longer, second stage will be the power that shuns reacting to the contraction with economic regimentation that will bring further ossification and deepen a recession into a depression or endless stagnation. However, seeing that regimentation is precisely how the powers reacted to a virus (!) the odds of that are not necessarily great.
But maybe at least some will have learned a lesson??
One can hope.