East-West Axis and Asymmetry Will Mark Economic Recovery

Asymmetry and the emergence of new geopolitical axes will be the main results following an economic recovery from the COVID-19 crisis, which is expected to start by the end of summer. According to the OECD, the first positive signs will be seen when countries that have not yet reached the peak of infection abandon compulsory confinement measures. However, the recovery, like the return to the “new normal,” will be asymmetrical and slow. “The crisis will have long-lasting effects that will disproportionately affect the most vulnerable people,” reports the institution. “We are facing the deepest peacetime economic recession in the last century. It is perhaps the most serious crisis we have ever experienced,” explained Angel Gurría, Secretary General of the OECD.

Asymmetry is one of the main characteristics of this crisis, which will gradually hit the different countries where its effects have been seen. The first axis established in this context, which was already real before COVID-19 as a result of the commercial and technological war between US and China is the East-West axis. This was confirmed by Francesco Sisci, a researcher at Renmin University in China, to El País. “The pandemic is a consequence of the confrontation between the US and China,” he explained. Sisci gives the example of what happened in 2003 with the SARS epidemic, which was quickly and effectively eradicated thanks to the profound collaboration between the two powers. The geopolitical context at that time was, however, very different. In 2003, the US’ main concern was the war on terror that began after 9/11. Meanwhile, China changed its president, ushering in an era of economic and social prosperity that was accompanied by transparency never before seen. Today, that past is non-existent. China and the US are battling a trade war for economic control of the planet with 5G technology as a backdrop. Ideology is not so important today, either. The focus is not on US capitalism or the “one country, two systems” doctrine that China introduced at the beginning of the 21st century. Today the focus is on the social, political and cultural differences that, despite globalization, still exist between East and West and that COVID-19 has magnified.

China and Vietnam, countries with authoritarian systems, lead the list of those less economically affected. Alongside them there are other countries that are showing signs of recovery, many of them consolidated Asian democracies and trading partners such as Australia, Japan, South Korea, Hong Kong, New Zealand and Taiwan. An article published in The Guardian at the beginning of the crisis suggested a close relationship between success in the fight against COVID-19 and political authoritarianism, something that Ian Inkster, an economist at the School of Oriental and African Studies at the University of London (SOAS) denies. For Inkster, the key to success in the management of the crisis in countries like Japan, China, Hong Kong or South Korea (all of them with different political systems) can be found in their cultural traditions, which emphasize “benign reciprocity,” which according to Inkster “in the West is a weak and vague thinking, while in the East it is a basic precept that forms part of the personal responsibility of each citizen.”

The world’s trade is divided between producing countries (East) and buyers (West), and so the return to normal trade will be complicated, as predicted by the OECD, which in its latest report predicts a drop of 11.5 percent in global trade. “Governments must seize this opportunity to design a fairer and more sustainable economy, improving competitiveness and regulation, modernizing taxes, spending and social protection for their citizens,” Gurría explained in the report published by the OECD.

The asymmetry of recovery is illustrated by what happened in China. For the first time since Mao’s death in 1976, China did not see economic growth in 1Q20. The aggressive confinement imposed by the Chinese authorities, the closure of factories, ports and infrastructure and the limitation of internal trade led China to a recession that analysts from Bank of America Merrill Lynch, OECD and Fitch see as temporary. China was also the first country to reopen its economy, although without the demand of the West, which closed its doors at practically the same time as China opened them. In other words, once Europe and the US return to their pre-COVID-19 economic situation, China would have recovered that demand, which for the OECD may mean GDP growth of 6.8 percent in 2021 or 4.5 percent according to their worst forecasts.

The situation on the other side of the world seems much more complicated, especially if we focus on the projections of the OECD, which in addition to asymmetry in the global context sees a certain regional asymmetry in the recovery of the EU. Countries with a strong tourism industry such as Italy, France and Spain, will take the worst hit. This North-South situation, caused by the harsh confinements proposed by the authorities of these countries, adds to the East-West axis that emerged after WWII and whose traces can still be found in the power relations within this supranational organization.

OECD and Bank of America Merrill Lynch agree that the recovery will be individual, on a country by country basis. Unemployment rates in Europe and the US and the consequent decline in purchasing power will have a very different impact than the decline in demand expected in Asia. In this situation and with a globalized world mindset, the OECD is influencing the dialogue between countries and supranational organizations to overcome the crisis. “Returning to a constructive dialogue on trade would increase business confidence and the appetite for investment,” says Angel Gurría. “It is not a question of returning to the old normal, for it is the old normal that has brought us here.”