Geo-Economics of COVID-19

19.5 COVID-19 AND WORLD ORDER

In 2020, as practically the whole world went into lockdown, it was obvious that many countries, and distressingly the world’s superpower, were unprepared to deal with pandemics.   The United States and many European countries suddenly realized that they needed to import huge amounts of PPE from China, which held a near monopoly in these supply chains. The realization, in the midst of a pandemic, that the so-called global supply chains were, in essence, China’s supply chains, caused much distress and angst in many developed states.  The competition among developed states for the limited supplies of PPE manufactured in China made them realize that depending on foreigners was not the way to ensure their survival during pandemics. The United States resorted to wild west practices, paying top dollars to divert medical supplies destined for other countries to itself.  Governments, hospitals, businesses, and their middlemen, descended on China to secure ventilators, masks and other protective equipment.  Chinese factories were dictating the terms of such deals.[1] 

India banned the exports of medicines and there was a huge disruption in the supply of critical drugs from China.  Some European countries had a shortage of critical medications, such as anesthetics, antibiotics and muscle relaxants, which were necessary for treating the serious ailments caused by the coronavirus.  China and India supplied about 90% of the active pharmaceutical ingredients for the generic medicines used in the EU.  The EU’s overwhelming dependence on China and India for critical intensive care medicines led it to reevaluate its industrial policy and its dependency on these states.  Japan, who is China’s biggest trading partner, set aside $2.2. billion of its pandemic response package to help Japanese companies deal with chokepoints in their supply chains.  Such chokepoints were presumed to exist when a product could only be imported from China.[2]

The calls for de-globalization, self-efficiency and national resilience, that kept echoing around the world during the pandemic, were not new.[3]  The pandemic was wreaking havoc in a world that was still reeling from the aftershocks of the 2019 US-China trade war.[4]   In 2019, the United States was already treating China like an adversary, as it was trying to decouple the US economy from the Chinese economy.  The trade war between the two states was, at its roots, a conflict about technological supremacy. The United States, for example, had prohibited its private companies from providing software and semiconductors to Huawai, a Chinese private company and a leader in 5G technology.[5]  The goal of the prohibition was to blunt China’s emerging advantage in novel technologies.[6] 

China sought to use its battle against COVID-19 to bolster its image as a new superpower.  China provided the world with 4 billion masks, during the peak of the pandemic.  It tried to take advantage of the pandemic to inaugurate the ‘Health Silk Road’ by presenting itself as a responsible leader in global health.   In addition, China’s private sector, including the founders of Alibaba and Huawai, two big technology companies,  sent planeloads of PPE and ventilators to 54 African states.[7]  In 2020,  China was already enjoying the status of the biggest bilateral creditor of Africa, having provided credit of about $140 billion to African countries since 2000.[8]    The United State, on the contrary, cancelled shipments of medical supplies abroad because they were badly needed domestically.[9]   US governors, hospitals, and even the federal state,  tried to outbid other states in China’s PPE marketplace reinforcing the view that the United States was a selfish superpower.[10]

China projected itself as the state successful at containing the deadly virus outbreak.  This success, according to the Chinese government, demonstrated the advantages of state capitalism.  China’s system was presented as superior when compared with the US’ spasmodic and haphazard efforts to battle the pandemic.   The United States used every opportunity to portray China as a secretive state that suppressed information about the initial virus outbreak, including imprisoning the doctor that notified the Chinese government about COVID-19. The US government persistently called the virus the ‘Wuhan virus’ or the ‘China virus,’ a label that offended Chinese sensibilities.    China, in turn, disseminated unfounded information that the virus was intentionally spread to China by the US military.  The United States further alleged that the virus might have been the result of an accident or lax safety procedures at a Chinese lab, the Wuhan National Biosafety Laboratory.[11]  This was not such an outlandish claim given prior laboratory accidents in Singapore, Taiwan and China.[12]   

As the pandemic was spreading and people were sheltering in place, the demand for energy collapsed. On April 20, 2020, the US benchmark[13] (the price per barrel of oil)  fell to minus $37.63, for the first time in history, meaning, in effect, that sellers were paying buyers to take barrels of oil off their hands.  This was despite the fact that the US President had taken the unprecedented step of brokering a deal between Russia and Saudi Arabia (that were engaging in a price  war) to reduce oil supply by cutting oil production.[14]   Companies operating in the OPEC, and other oil producing states, were asked to reduce their production as refineries, storage facilities, pipelines, and even ocean tankers, were filled to capacity.[15] The two-million-barrel ships known as VLCCs (Very Large Crude Carriers) were in high demand since they were used to store oil unable to find buyers. Mexico and Russia were immediately affected by the collapse of the oil market, which triggered the depreciation of their currencies.  In the United States, 70 highly indebted oil producers were on the brink of bankruptcy.  The plummeting oil demand, due to the pandemic, threatened to dislodge the United States as the top oil-producing country in the world.

The collapse of the oil market obviously hurt Saudi Arabia, the swing producer in the oil market,[16]  but not as much as other oil producing states.  In a market of excess oil, controlling storage was power and  Saudi Arabia had ample storage.  Oil stored within the country rose from 8 billion barrels to 79 billion in the 2½ weeks before March 26, 2020.[17]  Saudi Arabia secured additional storage capacity in Egypt.[18] 

Furthermore, the collapse of the oil market did not prevent Saudi Arabia’s SWF, the Public Investment Fund (PIF), from amassing stakes worth roughly $1 billion in four major European energy companies whose assets were undervalued in a market depressed by the pandemic.  The PIF brought a stake worth about $200 million in the majority-state-owned Norwegian oil company Equinor.  It bought also stakes in the Royal Dutch Shell, Total (France) and Eni (France).[19]  The PIF purchased sizable chunks of US companies including Facebook, Citigroup and Boeing.[20]  

In Europe, the frenzied acquisition of companies by the United States, China, and the oil-producing states alarmed the European Commission. The commission asked governments to carefully evaluate all takeover bids.[21]  France and Germany, the two largest EU economies, were rightfully concerned that strategic companies, including pharmaceutical companies, could be snapped up by foreigners.  The European Commission warned that the crisis should not result in the sell-off of European businesses and industries.  This frantic plea was the result of a huge shock.  The realization that reliance on foreign imports undermined Europe’s resilience when dealing with crises.

All in all, in 2020, as the world was gripped by the pandemic, unshackled globalization started to appear like a quaint and a dangerous idea.    Great power competition, articulated afresh in the US-China struggle, jettisoned a world in which the survival of the fittest was unpretentiously declared the norm.


[1] Liza Lin and Eva Xiao, China’s Medical-Goods Market is ‘Wild West’ Amid Surging Coronavirus Demand , WSJ, Apr. 23, 2020, https://www.wsj.com/articles/chinas-medical-goods-market-is-wild-west-amid-surging-coronavirus-demand-11587654973.

[2] Rachel Pannett, China’s Clout Loses Punch as Trading Partners Push Back Over Coronavirus, WSJ,  May 14, 2020, https://www.wsj.com/articles/chinas-clout-loses-punch-as-trading-partners-push-back-over-coronavirus-11589448604.

[3]Mark Carney on How the Economy Must Yield to Human Values, Economist, Apr. 16, 2020, https://www.economist.com/by-invitation/2020/04/16/mark-carney-on-how-the-economy-must-yield-to-human-values

[4] Elli Louka, The Global Economic Order: The International Law and Politics of the Financial and Monetary System 132 (2020).

[5] Id.

[6] Id. See also Katy Stech Ferek, Commerce Department Tightens Rules on Exports to China, WSJ, Apr. 27, 2020, https://www.wsj.com/articles/commerce-department-tightens-rules-on-exports-to-china-11588016185.

[7] China’s Post-Covid Propaganda Push: Thanking Big Brother, Economist, Apr. 16, 2020, https://www.economist.com/china/2020/04/16/chinas-post-covid-propaganda-push.

[8] Id.

[9] Id.

[10] Id.

[11] Warren P. Strobel and Michael R. Gordon, U.S. Intelligence Sifts Evidence for Origins of Coronavirus, WSJ, Apr. 16, 2020, https://www.wsj.com/articles/u-s-intelligence-sifts-evidence-for-origins-of-coronavirus-11587077170.

[12]WHO,  WHO SARS International Reference and Verification Laboratory Network: Policy and Procedures in the Inter-Epidemic Period 1 (2003), https://www.who.int/csr/resources/publications/en/SARSReferenceLab.pdf.

[13] The West Texas Intermediate (WTI).  The price of Brent Crude, the international benchmark also sank.

[14] OPEC, The 9th (Extraordinary) OPEC and non-OPEC Ministerial Meeting concludes, Press Release, Apr. 9, 2020, https://www.opec.org/opec_web/en/press_room/5882.htm.

[15] Ryan Dezember, Oil Takes Historic Dive Below $0, WSJ, Apr. 21, 2020

[16] Louka, supra note 153, at 64.

[17] Benoit Faucon and David Hodari, Behind Oil-Market Gyrations: Few Places Left to Store Unwanted Crude, WSJ,  Apr. 24, 2020, https://www.wsj.com/articles/storage-crisis-worsens-for-glut-of-crude-caused-by-coronavirus-11587755805.

[18] Id.

[19] David Hodari et al., Saudis Take Big Stakes in European Oil Companies, WSJ, Apr. 8, 2020, https://www.wsj.com/articles/saudis-take-big-stakes-european-oil-companies-11586382353.

[20] Rory Jones and Summer Said, Saudi Sovereign-Wealth Fund Buys Stakes in Facebook, Boeing, Cisco Systems, WSJ, May 2020.

[21] Regulation 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, OJ L 79 I/1, 21.3.2019.