The global Covid-19 pandemic has ipso facto demonstrated the complex interdependence that governs the global economy. While most of the commentators insist on exposing, after the effects of the Covid-19, preconceived points of view on the hegemonic dispute between Washington and Beijing, the dynamics of the global political economy continues to demonstrate that the interdependence of both contenders it is such that it makes an all-or-nothing conflict almost unimaginable like those that occurred in other hegemonic disputes. We are witnessing a novel double movement that has puzzled both locals and strangers. On the one hand, a drastic change in the importance and systemic responsibility of institutions such as the International Monetary Fund, the World Bank and the Federal Reserve system; on the other, the consequences caused by the type of “solution” that was given to the Great Recession of 2008.
On April 2, the United States announced that 6.6 million people had applied for unemployment benefits in the last week. The worst weekly performance of this indicator in its history. This despite the fact that on March 24 the Senate approved a rescue package of 2.8 trillion dollars which was added to the quantitative easing program carried out by the Federal Reserve that caused its balance to rise for the first time to 5 trillion USD. Despite the fact that unemployment data, that is, the base of the real economy, were extremely alarming and indicative of the size of the recession that the pandemic will cause, the dollar paradoxically continued to strengthen.
At this stage of the crisis characterized by an ipso facto paralysis of the global economy, the dollar has become an asset that is too appealing due to its reliability and liquidity for economic agents seeking to safeguard themselves from the coming crash. In the short term, the action of the FED as a provider of the liquidity that the global economy needs can allow itself to separate the destiny of the USD from the destiny of the United States economy as a whole. However, in the medium term, US demand will play an essential role in the recovery of the global economy. The key question here is to what extent can the well-being of the United States’ real economy be spun off from the performance of the FED-Treasury-Wall Street complex as a global lender of last resource?
China, for its part, has faced the Covid-19 demonstrating the strengths that have sneaked it into the race for the command post of the global economy: political effectiveness to face major challenges, autonomy in the face of financial turmoil and capital flight, an educated, healthy and disciplined society. At the same time, however, the Chinese development model has not yet managed to undertake the titanic task of breaking with dependence on Western demand and industrialization for export.
Hence, it is not enough for China to solve the pandemic in its territory if its main buyers, the United States and Western Europe especially, do not achieve the same. Without a doubt, the Great Contagion will promote a new “leap” of China in the process of rebalancing its economy, promoting internal consumption and the growth of the service sector, as well as a new impulse in its Great Strategy of “community of destiny for humanity. However, a major recession in the western world will make the exporters of the Asian giant suffer. This will have dire consequences across the entire East Asian value chain in the first place. And then move to suppliers of raw materials in the global South. Furthermore, the prudence with which the rulers of the People’s Republic have acted in the macroeconomic sphere is indicative that Beijing is not exempt from problematic knots such as the high levels of indebtedness of some sectors of its economy.
Finally, the Great Contagion has left peripheral and semi-peripheral countries as the first big macroeconomic loser. On March 23, the IMF’s managing director announced that $ 83 billion had been withdrawn from emerging economies since the start of the crisis. Obviously, the largest amount in history. Latin America is in the eye of the hurricane. According to the Institute of International Finance, Brazil and Mexico had been among the most affected, reporting outflows in the order of $ 11.73 billion and $ 2 billion respectively. Consequently, the Brazilian Real depreciated 15.84% and the Mexican Peso 25.71% in the last month. A constant that has been replicated throughout the region, evidencing the great vulnerability to global financial turmoil that flexible exchange rate regimes have, their profound impact on the capital account and the foreseeable domino effect on the entire economy.
The Great Contagion has caused a great threat to people’s lives on a global scale, proving the dire consequences that neoliberal policies of the last decades have had against health systems. However, the threat to life may be the first stage of a major crisis that has as a consequence the lack of livelihoods for a large part of the world population. This is why the dilemma between health and economy is largely false if we understand the situation as a two-stage process in which mitigating the effects of the pandemic on life will result in serious economic losses in which not only the millionaires of the world will lose their wealth (as is often caricatured), but millions of people on a global scale will lose their jobs, homes, food, access to education and health.
In the global North, the protection of health and the economy can be solved with conviction and the will to channel resources to households and the health system. In the global South, meanwhile, the structural lag and inequality are too serious not to set off alarms. A public health crisis can have a multisectoral crisis that goes from the external deficit to the external debt, from there to the public deficit, hence the devaluation and inflation, until it becomes a severe recession that, caused by a public health problem, becomes a crisis synthesis of multiple adverse circumstances.