The Consequences of Coronavirus

The Birdseye

• Coalitions of nationalists orient around China and America in a new domain of internationalism where protectionism rules and confederate cooperation is key.
• Economic inequalities, central bank inefficiencies, and cultural friction explode in unison with the European Union best witnessing the collapse of its societies as well as the structure of the union itself.
• Domestic economic and technological booms may rise from the fallout of the coronavirus but backlash threatens to break the Great Wall of the Chinese economy.

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A couple years back, I spent my down time playing a video game called Plague Inc. The game starts off with you playing as a bacteria, parasite, fungus, or of course as a virus. Your objective is to spread yourself across the globe infecting as many humans as possible, eventually leading to the culling of all of humanity. To win, you must silently evolve and spread, careful to not alert too many humans nor remain too isolated. On the way, you cause travel bans, mass hysteria, political clashes, etc… Sound familiar?

Now, we are seeing an eerily recognizable reality to the fantasy of that game. Coronavirus-19 has become the modern plague of our times. And while it is no where near the level of Plague Inc’s apocalyptic end game, COVID-19 threatens to upend many of our society’s given structures and force the world down a new path.

The Eagle and the Dragon

The in vogue ideology amongst politicians these days is nationalism. Various reasons have made leaders place primacy on their internal interests, but COVID-19 has exacerbated this introspection and isolation to new levels. Countries have begun closing their borders and stopping flights. Unfortunate ethnic suspicions have cropped up against those with East Asian features and ancestry. Protectionism in trade will skyrocket as leaders seek indigenous supply chains and diversification away from China.

But something interesting is happening in the midst of this continued rise in nationalism. We are beginning to see a new internationalism arise. One not based on a Western axis, but one based on a fealty to Big Brother.

China is now being asked and tasked with saving various countries from its own viral spawn. The trade off being that those that accept its aid will tow its line in word and soon enough in action. Serbian President Aleksandar Vučić recently has called European solidarity a “fairy tale” and publicly exalted China for their aid. Italy, a country increasingly hostile to the EU, continues to crumble as its European neighbors watch on. In an amazing turn of events, we are watching China deftly replicate its debt traps with a biological twist. By providing desperately needed aid to fight a virus they generated and then covered up, China is turning its problem into its opportunity.

On the other hand, the US is squarely focused on internal efforts and economic clout. The US Dollar flexes its muscle as the de facto reserve currency of the world even as the Fed is pumping out trillions in liquidity into the stock market. American states and local governments have increasingly been put on a war footing concerning health measures as the federal government tries to fix finances. America was fairly quiet on the Chinese origin of COVID-19; that is until very recently with President Trump calling it a “Chinese Virus.”

The reasoning for this sudden outburst lies in the revelations of Chinese malpractice compounded with their recent arrogance have added fuel to the fire of US-China conflict. From the initial coverups in January 2020 to the crackdown against whistleblowers such as Li Wenliang, China’s government has shown a penchant for deceit and ruthlessness. While they seemingly have gotten their situation under control (then again, this is coming from a regime who are experts at manufactured consent), China has now chosen to gloatingly chide other countries and even push wild conspiracy theories that COVID-19 was an American plot to defame the Middle Kingdom.

COVID-19 may prove to be the spark to truly light a Sino-American tussle, but in the midst of a clash of titans is the implosion of another – Europe.

The Fall of Rome

Bruno Maçães, a geopolitical analyst, has recently provided a damning critique on Europe’s reaction to COVID-19. Singling out the arrogance of European leadership and society alike, Maçães contrasted Europe’s nonchalant reaction with the Asian blitzkrieg against the virus.

Over the past several years, we have the European leaders’ internationalist streak halted by their own people, and now the European Union itself sits in jeopardy because their leaders didn’t stand up to make tough decisions. Rather their curate policy for their people, the EU has acted more like an NGO or a mercurial money lender rather than a mission of European unity.

The meandering pace of European politics has been blindsided by the manic pace of COVID-19. Even worse, is the effect on Europe’s economy. The Eurozone is facing a potential economic contraction with more and more cases reported each day.

What does this mean for the future? I believe we will see a further disintegration of the EU, especially with the UK setting a precedent and an already irate Italy facing the brunt of COVID-19, with little help from its European neighbors. The only possible lifeboat for the EU’s sinking ship would be a wholesale reformation. A union that cares more about a united European defense pact rather than granting open borders. A union that is seeks more economic cooperation and less political interference. A union that can actually define what it means to be a “European.”

When great societies encounter difficulty, they band together to face their problems united. They are bound by culture, language, religion, or other transcendent paradigms. However in Europe’s case, there is scant historical precedent for a “united” Europe politically or even culturally. Contrasting with the Indian subcontinent that had clear civilizational markers, traditions, and borders, Europe may finally reach a point where individual states wake up out of the European dream into a broken reality.

What is the breaking point? As with most transitions in the world, it involves money and power.

A Dismal Science

One of my favorite authors, Nassim Taleb, despairingly compares macroeconomics to astrology. While I agree that having humility in economics is more important than not, it is important to (attempt to) demystify policy impacts on markets and economies. Taleb himself leans toward a more Austrian lens in economic policy, a perspective that may come more to furor with the increasingly tumultuous banking situation in Austria’s continent itself.

Central banks across the developed world are entering uncharted territories with prolonged low/negative rates and massive liquidity pumped into markets. For a long time, both of these policies were theoretical and thought to be reserved for extreme contractions and deflation. However, over the past decade long bull market, governments have brought rates lower and liquidity higher at the slightest sign of danger during their economic adventures. European banks have especially become precarious with their countries’ central banks capitulating to the slightest scares and stresses of the EU as well as their own politicians. Now that a true crisis emerges with the coronavirus, monetary measures have been almost exhausted with banks continuing to dig themselves in bigger holes.

This is where the fiscal policy steps in tandem with state power. Emmanuel Macron has become one of the first leaders to announce gargantuan fiscal measures to aid small businesses, the poor, and those most affected by COVID-19. Similar extreme fiscal measures are being followed by other world leaders as monetary actions stutter. Post-2008 bailouts had regular citizens seething at elites and politicians alike, a hatred that would manifest years later as a factor leading to populist nationalism. This time around is a chance to instead directly send aid, assistance, and yes even “bailout” small businesses and underclasses rather than irresponsible rent seekers who give themselves massive bonuses.

Macron has also adopted the Asian path of wide reaching preventative policies that have strapped civil liberties in a time of need. The creep of state power has now become a leap in numerous countries; and while aggressive preventative measures may save lives, there may be fewer liberties safe after the storm.

Ebb and Flow

Today’s coronavirus restrictions may birth a whole new category of freedoms tomorrow. Economic booms have usually followed historic pandemics. Innovation has thrived in the cut throat environment post recessions. If countries continue to double down on their preventative measures and bailouts for vulnerable sections of the society, COVID-19’s aftermath may see the bloom of new technology and economic growth. We may even see real wages rise after this calamity as protectionist policies of low immigration and trade barriers are tested in a globalized world.

We may finally see the much touted rise of remote work as well as artificial intelligence as the benefits of both becoming glaringly clear in an environment where face to face human interaction is limited and efficiencies must be maximized for companies to survive. Both of these evolutions have the potential to drastically change how people work and markets operate.

On a global level, localization of economies and supply chains will see new coalitions of nations coalesce. China’s tremendous success over the past couple decades of globalization may unravel in an attrition laden confrontation with the USA. But perhaps, it it may not be the Sino-American relationship that is most transformed, but China itself.

Red Scare

China is an ancient civilization, the last surviving one along with India today. I have a strong admiration for a culture and people that have survived for thousands of years, even with my personal disdain of the Chinese Communist Party. But even here, I must applaud the CCP’s accomplishment of lifting hundreds of millions out of poverty in the last few decades (though this is after they killed tens of millions in their Great Leap Forward and Cultural Revolution). Xi Jinping has transformed China into a juggernaut. Erecting the towering Chinese economy, Jinping has had China leapfrog the world in infrastructure, technology, and various other fields. The crimes of the CCP against the Tibetans, Uighers, and many other Chinese citizens have been thrown under the rug as governments and companies alike have bent the knee to the Dragon.

But the coronavirus’ plot threatens this Chinese story.

Democracies react to internal strife with a changing of the hands. Dictatorships react to internal strife with an iron fist. The CCP may finally be facing challenges from its own people, not only as questions arise in the aftermath, but also as its financial clout is threatened by this debacle.

China’s economic strength was the golden armor that protected it from internal and external dissent. But now cracks have begun to form as exports have collapsed, local economies have frozen, and potential deflation of its currency. China’s powerful placation to the masses, its economy, is shuddering, and we may finally see a similar backlash of the proletariat we witnessed decades ago.

Yet, I still would not count out Xi Jinping. Xi’s story is one of success, and winners usually keep winning in China.

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“All models are wrong, many are useful, some are deadly.”

— Nassim Taleb