As Trump cuts off funding from the WHO amid a worsening US Covid-19 crisis, it’s clear we’re entering a new world order of every nation for themselves.
This has been a long time coming. But the coronavirus pandemic, that has seen over 100,000 lose their lives to Covid-19, has both accelerated and exacerbated global tensions, driving more and more states into nationalism and isolationism.
We’ve seen so many examples of this. Within the European Union, we have seen countries close their borders to their EU peers and suspend exports of certain types of medical equipment in a bid to protect their national supply.
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Internationally, we have seen widespread travel bans, including the US bans against Chinese and European visitors, as well as export restrictions on goods and other nationalist trade interventions. The US, for example, tried to compel manufacturer 3M to send masks it made in its Asian factories to the US rather than to the customers in Asia who had ordered them. Poor countries have struggled to source needed medical equipment as rich countries have bid them out of the market.
As governments desperately try to avoid the worst health and economic ravages of Covid-19, we can expect to see further and sharper restrictions on the movement of goods and people.
But the process isn’t likely to end there. With Trump’s announcement that the US will suspend funding for the WHO – which is a key bulwark against disease in much of the developing world – we are moving into the second phase of the transition to a new world order. In this phase, we can expect to see a collapse in support for multilateral organisations.
This trend is not new. For the last few years, the US under Trump has been systematically withdrawing support from global forums. For example, the World Trade Organization (WTO) has been a prime target for the Trump administration, and as the US has starved the WTO of resources and personnel, global trade conditions have deteriorated.
Because much of the old world order was underpinned by the US commitment – both material and ideological – to multilateralism, open trade, free communication, and international cooperation, the withdrawal of US support has been painful. But the lack of support from a weakened Europe and an emboldened and embittered China is also a problem.
As the Covid-19 crisis continues, we can expect to see many of the global organisations that have served as the scaffolding for the global system for the last 50 years to wither. Without US financial support, organisations like the UN, the WTO, the WHO, and even the IMF will find it harder to fulfil their mandates. As they struggle, global cooperation will deteriorate. This will, in turn, help make the case for further defunding these organisations in a vicious cycle.
In this environment, regional alliances will become much more important. The US is large and diversified enough to survive on its own, although it will be a lot poorer and less innovative in the absence of global trade and immigration. The long-term decline of US global power will likely accelerate as the US pulls up its drawbridges. Over the medium-term, even the powerful position of the US dollar may come under threat, although any move in that direction is at least a decade away.
For countries in Europe, the EU will become far more important. Access to a bigger market is vital for the many small nations in the EU, and larger nations are just as reliant on small ones for labour and other inputs. While the survival of the EU is clearly under threat, given the bloc’s struggle to come up with a Covid-19 strategy and rising nationalism, the EU in some form will be essential to European nations’ survival in a post-Covid-19 world.
Other regional blocs, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in Asia may become more important as ways for countries to trade and interact in the absence of broader global forums.
Where does all of this leave SA? Certainly, the outlook is challenging. With global funding drying up, SA may be more reliant on multilateral organisations for aid just as those organisations are entering a period of weakness. Global aid organisations that have helped SA manage its Aids crisis, for example, may not be around in the same form in the future. This will put pressure on SA at the exact moment it is struggling to rebuild.
Borrowing money is going to be harder and more expensive for SA in the future and global trade opportunities will be fewer. Even if we somehow found the appetite for developing a China-like strategy of export-oriented manufacturing, it’s unlikely we’ll find markets for our goods as trade barriers rise.
In this environment, SA needs to start thinking very seriously about building bridges with regional organisations. Our ratio of trade with our near-neighbours is inexcusably low. There is no reason why SA should not be driving an aggressive regional trading bloc. Indeed, the way things are going, such a bloc may be the only game in town – other than offering China a cheap source of minerals and a ready market for cheap manufactured goods, which is not a recipe for success.
For South African investors, well, the time to globalise the portfolio was three or four years ago. Those who had moved meaningful allocations offshore into US, European, and Asian assets should, hopefully, emerge from this crisis more-or-less intact (although it may take a few years to get there). Those who failed to diversify are facing a much tougher outlook.
I hope that all of the above is wrong. It is possible that somehow, in the end, the Covid-19 crisis will in fact strengthen our resolve to work together at a global level. After all, the crisis underscores the extent to which we are all profoundly vulnerable to global shocks. We may emerge from the crisis wiser and more willing to cooperate in areas of mutual interest.
But the evidence so far is that the crisis is having the opposite effect. We are withdrawing, not expanding, and we are fearful, not hopeful. I hope I am wrong, but I fear I am not.
