The Impact of COVID-19 Pandemic on Sino-U.S. Economic and Trade Relations

The Impact of COVID-19 Pandemic on Sino-U.S. Economic and Trade Relations

Song Guoyou

Deputy Director and Professor of Center for American Studies, Fudan University

The COVID-19 pandemic is still spreading all over the world. Even if the novel coronavirus vaccine can be available and popularized worldwide in 2021, the number of infected cases worldwide is still around 50 million, and may cause 2 million deaths. The COVID-19 pandemic is a historic event in shaping international relations in 21st century, not only has a significant impact on the global economic pattern, but also has a profound impact on Sino-U.S. economic and trade relations.

First, the gap of economic strength between China and the United States is further narrowed, and the relative advantages of China and the United States over other major countries are expanded, and the trend of economic polarization between China and the United States has become more prominent. Under the impact of the pandemic, the unbalanced development of major countries has intensified. First of all, the pandemic outbreak has further narrowed the gap in economic strength between China and the United States. If China's gross domestic product (GDP) can grow by about 3% in 2020 and the U.S. GDP will downsize by about -4%, China's GDP will account for more than 70% U.S. GDP. The impact of the pandemic on the compared economic strength between China and the United States is even greater than that of the financial crisis. Secondly, as most of the other major economies have negative GDP growth in 2020, the economic strength gap between China and other economies except the United States is widening. For example, as the world's third largest economy, Japan's economy may decline by about 5% in 2020. As a result, China's GDP will more than triple that of Japan. Similarly, if we compare the total economic volume of other countries with that of the United States, the gap is widening too. In overall view, in terms of exchange rates, the GDP proportion of both China and the United States amount to 38.5% of global GDP in 2019, and will rise to more than 40% in 2020. The COVID-19 outbreak has highlighted leading position of China and the United States in the international economic architecture.

But two points need to be stressed. One is strength, especially economic strength. Sino-U.S. strength polarization is indeed accelerating, but is still in the process of "polarizing". The future comparison of economic strength between the two countries remains to be observed after the pandemic. Two is the polarization between China and the United States in the global economic pattern, and the political and security consequences are uncertain. The economic polarization between China and the United States does not mean that the two sides naturally enter the stage of bipolar confrontation, or even that the two sides will lock in inevitable confrontation with each other. In addition to the bipolar confrontation, there may also exist such order forms as bipolar cold peace and bipolar governance.

Second, the pandemic outbreak has accelerated the de-globalization, and China and the United States have turned to the independent and resilient construction of domestic economic system. The achievements of domestic economic construction have become the key to the strategic competitiveness of both sides. The pandemic has led to a sharp decline in global trade, investment and people-to-people exchanges. Even if the pandemic is brought to an end, it will take years for globalization to return to its pre-pandemic level. Judging from the measurement index, the short-term ebbing of globalization is inevitable. In addition, the global production chain and supply chain are partially broken due to the pandemic outbreak; therefore, countries speed up the introduction of policies and measures to ensure the safety of their own supply chain. Short chain, fixed chain and strong chain become the common choice of most economies.

China and the United States are no exception. On the basis of studying and judging the situation, China proposes a new development concept of "internal circulation as the mainstay, domestic and international duel circulation reinforcing each other", builds and gives play to the advantages of super large-scale domestic market, and continuously promotes the upgrading of domestic industrial chain and supply chain. During the pandemic outbreak, the U.S. government also recognized the strategic importance of manufacturing independence and launched the National Defense Production Act, requiring domestic enterprises to produce anti-pandemic materials. The Trump administration also continues to promote the home-returning of manufacturing industry, trying to reduce the dependence on manufacturing products such as China's medical supplies and others, and attracting domestic and foreign manufacturing multinational companies to expand investment in the United States. As a matter of fact, it is the consensus of political and strategic circles in the United States to promote the home-returning of manufacturing industry. Both Trump and Biden emphasized the importance of manufacturing industry to economic development in their party's election platform, and planned to introduce new supporting policies such as tax incentives. Under the background of economic introversion caused by the pandemic outbreak, the stability and development of the domestic economic system has become the key to the competition between China and the United States. Whoever can perform better in the domestic economic driver and vitality will be able to obtain the relative competitive advantage.

Third, the pandemic outbreak and the pandemic-caused prospect of economic recession have led to the increasing involvement of countries in economic operation, and the issues related to economic security have become the new focus of the game-play between China and the United States. The pandemic has incubated difficulties in global economic growth, and various countries have stepped into the market to deal with the possible economic crisis through intensive formulation of financial, tax and other economic policies. Global market liberalization space and economic welfare logic are increasingly squeezed by national security logic. The intense economic competition between China and the United States has made the intersection of economy and security more obvious. China and the United States also play games on political and military security, but from the perspective of tit for tat issues, and offensive and defensive means since the outbreak of the pandemic, they focus more on the economic field. Economic security is more highlighted than other security issues. Economic security has both economic and security attributes. If China and the United States highlight the mutual benefit and win-win nature of economic and trade relations, there will be a wider range of economic interests convergence. However, if China and the United States attach importance to the relative benefits of economic relations, the security attribute of economic and trade relations will be highlighted.

The pandemic situation has made Sino-U.S. economic relations become security issue more prominently. The two countries view economic and trade relations not only from the perspective of "money", but also from the perspective of "life". In the field of economic security, the two sides have waged fierce struggles around the competition in high-tech industries represented by Huawei, with various kinds of economic sanctions constantly launched by the United States against China, and the fierce struggle over the financial threat from the United States against China. To a large extent, the Sino-U.S. economic security has also fallen into a typical "security dilemma": any defensive measure that one party considers necessary to enhance its own security, such as reducing dependence on the other party or enhancing its own economic competitiveness, will be considered by the other party as damaging its economic security; any measure that one party takes to enhance its own economic security will make the other party feel insecure, so as to take targeted measures.

Fourth, on the one hand, the COVID-19 outbreak has accelerated the process of partial "decoupling" between China and the United States; and on the other hand, has proved that the two economies are highly complementary and difficult to completely decouple. After the outbreak of the pandemic, the United States strengthened its efforts to "decouple" China in the fields of high technology, industrial chain and Internet, and constantly adopted policies to interfere with or even cut off the ties between China and the United States in relevant fields. Under the shaping of U.S. technological nationalism and China's "decoupling" strategy, the process of "decoupling" between the two sides in the above fields has accelerated, and a proportion of some Chinese enterprises and products in the U.S. market has dropped sharply, or even been completely excluded from the U.S. market. As a result, some Chinese high-tech companies are unable or unwilling to use technologies containing U.S. intellectual property rights, which will increase the possibility of further decoupling between Chinese and U.S. technologies in the future. It can be predicted that in the fields related to high technology and national core security, the long-term trend of "decoupling" between the two countries cannot be fundamentally reversed.

However, the reality of the development of Sino-U.S. economic and trade relations under the pandemic situation also shows that the economic structures of the two countries are highly complementary and there is still good room for growth. China's Customs data show that from January to August 2020, China's exports to the United States accounted for 16.9% of China's total exports, and its exports to ASEAN and EU accounted for 14.8% and 15.6% respectively. According to U.S. statistics, in the second quarter of 2020, U.S. exports to China increased by 3.8% year on year and 23% month on month. Again in the second quarter, the proportion of U.S. exports of goods to China rose sharply to 10% of its total exports, in contrast to 5.8% in the first quarter. Under the pandemic situation that the U.S. exports to other major economies have decreased significantly, the increase in its exports to China is particularly noticeable.

The three-year trade war between China and the United States and the first phase agreement have reshaped the economic and trade relations between the two countries. The sudden pandemic outbreak has made the Sino-U.S. economic and trade relations more complicated and changeable. China-U.S. economic and trade relations, like other relations between the two countries, are difficult to return to the state of the past. Both China and the United States seek a new mode of interaction on the basis of safeguarding their own interests. Under the background of intensified competition and accelerated "decoupling" between the two countries, the competitiveness and conflict of the Sino-U.S. economic and trade relations have increased, but there are still the possibility and feasibility for the two sides to expand economic and trade exchanges. The economic interests of China and the United States are not completely antagonistic, and the two sides can promote the deep integration of economic interests by controlling differences and pushing negotiations and coordination so as to cultivate positive friendly force in their respective countries and stabilize the medium and long-term Sino-U.S. relations.