The coronavirus is a borderless threat to social and economic activity on a scale that the modern world has never encountered. By definition, pandemics are global threats. It follows that the crisis in the world economy that has been triggered by the COVID-19 outbreak requires a global solution. And that won’t work until or unless the United States and China come together in a collaborative battle against this devastating disease.
The Trump administration’s lurching, finger-pointing response to the threat is making that all but impossible, and further eroding America’s standing in the global community. The pandemic did, of course, originate in China and China compounded the problem with its initial lack of transparency, to which Trump appropriately responded by limiting travel. However, branding it “the Chinese virus” is seriously stressing the U.S.-China relationship, inhibiting collaboration and enabling China to fill the global leadership void.
The prospects of prevailing over this pandemic will greatly improve if we shift from confrontation to cooperation with China. Open-architecture collaborative scientific research would surely accelerate the development of antiviral treatments and vaccines. And sourcing sorely needed hospital supplies and equipment like ventilators through a China-centric supply chain could immediately help save American lives.
China’s AI-enabled COVID-19 containment approach tentatively seems to be working, as reflected by independent tracking of Chinese energy consumption and intercity traffic flows. Western democracies already have determined the need for comparable unprecedented restrictions on public assembly, as have growing numbers of U.S. states and cities.
We certainly don’t need to admire China’s governance system to study and replicate many of its public safety practices, as many of our close allies — from South Korea to Israel — are doing.
The lesson here that seems pertinent can be dubbed the “growth sacrifice” — the willingness to take some short-term pain (a lot of it in this case) as a price to pay for longer-term sustainability. Like the Chinese economy in the first quarter of this year, the U.S. economy appears headed for a record contraction in the second quarter. Yet any snapback — the widely hoped-for V-shaped rebound — is more dependent on COVID-19 containment than on the “big bazooka” of massive monetary and fiscal stimulus that worked so effectively in dealing with the financial crisis of 2008-09. A battered stock market is screaming the same message.
This is a public health emergency that is morphing into an economic, employment, liquidity and, ultimately, a solvency crisis. Washington knows that the playbook of monetary easing aimed at promoting borrowing and investing is impotent when people are at home and businesses are shut down. While the U.S. Treasury is preparing to write $1,200 checks to most Americans and provide needed support for small businesses, “helicopter money” won’t help either of those during a full-stop lockdown; it will only create a bigger debt legacy for the next generation.
Of course, at zero interest rates, no one worries about deficit funding at the moment. But if foreigners become more aggressive about selling the nearly $7 trillion of U.S. Treasuries they own, and the outstanding Treasury debt grows as expected beyond $25 trillion, supply and demand — not Fed policy — might drive interest rates sharply higher. There have been some eerie early-warning hints of just such a possibility in recent days.
Flattening the COVID-19 infection curve requires much more than fiscal or monetary tools. Great powers are great when they work together — not when they attempt to belittle and blame the other. The U.S. started a trade war over Chinese abuses of rules-based trading practices and intellectual property protection. But this is the wrong relationship and the wrong moment for great-power rivalry. We don’t have to admire China’s authoritarian model, but it does get things done for its people; the early results of their COVID-19 containment efforts stand in sharp contrast to ours, which continue to suffer acutely from inadequate testing and hospital-capacity constraints.
Unlike the former Soviet Union, a so-called great power of the last century, China is an ascending commercial, financial and technological power. It undoubtedly will respond to heightened hostility from the U.S. by expanding its soft influence on other nations through its Belt and Road Initiative. China also might accelerate unloading its large holdings of U.S. Treasury securities and other dollar-based assets at just the moment when a savings-short United States is embarking on its biggest fiscal binge in history. Moreover, as China increasingly pays for its raw materials and is paid for 5G technology exports in yuan, the dollar’s status as global reserve currency — and America’s linchpin role in the world financial system — could well be drawn into serious question.
This is no time to stand on the conceit of false pride. An unprecedented global crisis must be addressed by collective action on a global scale. The United States and China have a common interest and unique opportunity to lead together in a way the world will never forget. If the United States fails to step up right now, many American lives will be needlessly lost, while China’s ascendancy continues on the global stage.
Stephen S. Roach is a senior fellow at Yale University’s Jackson Institute of Global Affairs. He previously was chairman of Morgan Stanley/Asia and chief economist of the New York-based investment bank. He is the author of “Unbalanced: The Codependency of America and China” (2014). Follow him on Twitter @SRoach_econ.
Daniel J. Arbess, CEO of New York-based Xerion Investments, is an investor, entrepreneur and policy analyst who has focused on geo-economic developments of the last three decades, including the market transition from communism in Eastern Europe and China, the 2008-2009 market recovery, and the social, economic and medical solutions offered by data analytics. He is a member of the Council on Foreign Relations and the Atlantic Council and a co-founder of No Labels, which promotes bipartisan solutions in American politics. Follow him on Twitter @danarbess.