This column was previously published in Les Echos on april 20th, 2020
For over half a century, the USA has been exporting its successive financial crises to the rest of the world, by means of the dollar. Today, for the first time, the shoe is on the other foot: the coronavirus, which first appeared in China where it is now under control, is about to destabilize the American economy in a way that has not been seen since 1929. The wheel of history is turning, with the emergence of a new political, economic and financial order.
From a political standpoint, the West continues to set democracies and démocratures [démocrature = a combination of democracy and dictatorship] against each other, whilst Asia prefers to underline the contrast between competency and incompetency. Not only in China, but also in Japan, Taiwan, South Korea, Hong Kong and Singapore, governments have had to find the right formula to combat the virus: a mix of technology, testing, control, confinement, public-spiritedness and the wearing of masks. On the other hand, the UK and the USA show the very high price to pay for having left the political sphere to amateurs. In continental Europe, planes chartered by the Jack Ma foundation are bringing us ventilators and masks, a symbolic equivalent of the Berlin airlift by the Americans in the 1960s, and this is promoting a new Sino-European solidarity.
An uncoupling of the the world economy
From an economic standpoint, it is a safe bet that, after such an unprecedented crisis, world recovery will not follow the same pattern as in 2009. At that time, China was in a recovery plan costing 600 billion dollars — considered a massive sum at the time — and its imports saved the whole world, whilst dramatically increasing its indebtedness. Today, a very different scenario seems to be presenting itself: the relaunch of Chinese domestic consumption, including the distribution of “helicopter” vouchers that seem likely to favor Chinese products over others. The result could therefore be an uncoupling of the world economy. China would be the main beneficiary of this, in contrast to the West — which will be faced with a crisis of both supply and demand — and the Middle East and Russia, enmired in a self-destructive oil war.
The coronavirus began in China but will have a long-lasting effect on Western economies, with the USA at the top of the list.
In this way, it is speeding up the swing of the world’s center of gravity towards Asia.
Finally, from a financial standpoint, even though Western central banks and governments have been quick to take exceptional and praiseworthy measures, there is no doubt that the USA and Europe are being “Japanized” with near-zero interest rates for the foreseeable future and central banks showing balance sheets exceeding 40% of GNP. A new monetary order should come out of this, favoring the rise of new digital currencies. Far from wishing to join a traditional monetary system in distress, China will be more concerned with promoting a new digital RMB, leapfrogging in order to get back on the global monetary stage.
A turnaround in the situation
From all these points of view, the coronavirus should speed up the swing of the world’s center of gravity towards Asia, and more specifically towards China. It will be obvious to everyone that the Chinese will have been clever enough to turn a situation that at first appeared to harm them into one that favors them. It is also certain that the USA will be unlikely to sustain its loss of influence as passively as it has done over the last half century. The bipartisan support given by the US Congress this week to the “Taipei Act” already seems to indicate that, even if China is winning a battle, it has not won an outright victory in the Sino-American war that will be waged for decades to come.