National

The current collapse in global equities markets is mirroring a broader collapse in global public confidence. 

The big picture: Both financial markets and public sentiment are reacting to uncertainty at three levels: the future trajectory of the coronavirus outbreak; the adequacy of the policy response; as well as the impact on the economy and financial institutions. 

At the heart of all three is a growing gap in public trust in our various national governments.

In part that's because folks have been told for so long that government is the problem, not the solution. 

In part it’s because critical public institutions mandated with the responsibility for defending public health have been defunded over time. 

It’s also because people understand that this crisis is bigger than any single national government can handle — yet the relevant institutions of international governance (i.e. the WHO) have been defunded as well.

Flashback: There are echoes of the Global Financial Crisis. After the Lehman Brothers collapse in September 2008, markets were in free-fall as business and consumer confidence collapsed and lines of credit dried up. 

What broke the fall was the G20 Summit in London the following March, when the world’s largest economies decided to act together.

They agreed on a coordinated global fiscal and monetary stimulus, a ban on protectionist measures to keep trade flowing, and a regulatory response including the future stress-testing of globally significant financial institutions to handle future crises.

The U.S. could have taken the lead by reaching out to Beijing at the height of the crisis — and Washington could still do so — to establish a Joint Coronavirus Taskforce. 

This could provide the political capital to break through any geopolitical nonsense currently impeding serious work on effective prevention strategies and vaccine development. 

Second, G20 health and finance ministers, including the WHO leadership, could meet weekly by video-link around a fixed agenda of work.

Third, a virtual G20 summit could be held to agree on global economic measures to reduce the risk of global recession and any associated threats to financial institutions.

The bottom line: Unless and until both public opinion and financial markets see major global governments working together with a credible, substantive policy response, then what we’ve seen so far will only be the beginning.

Kevin Rudd was the 26th Prime Minister of Australia and is President of the Asia Society Policy Institute and Chair of the International Peace Institute in New York. He also chaired the International Commission on Multilateralism which produced a report on Global Pandemics and Global Public Health.

People don't trust their governments to handle the coronavirus crisis

The U.S. could have taken the lead. It still can

World

Coronavirus

The current collapse in global equities markets is mirroring a broader collapse in global public confidence. The big picture: Both financial markets and public sentiment are reacting to uncertainty at three levels: the future <a class="gtmContentClick" data-vars-link-text="trajectory of the coronavirus outbreak" data-vars-click-url="https://www.youtube.com/watch?v=bLkh-FZ9XiM&amp;feature=emb_title" data-vars-content-id="14ad1cc1-2038-443a-bc88-52ee620924bb" data-vars-headline="People don&#x27;t trust their governments to handle the coronavirus crisis" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.youtube.com/watch?v=bLkh-FZ9XiM&amp;feature=emb_title" target="_blank">trajectory of the coronavirus outbreak</a>; the adequacy of the policy response; as well as the impact on the economy and financial institutions.

China is becoming the most formidable rival America has faced, and the risk of confrontation with Russia, North Korea or Iran still looms. Authoritarians are rising, the chaotic Afghanistan exit revealed the limits of U.S. power, and the pandemic, climate change and other critical challenges continue to pose grave threats.

Even as the U.S.–China trade war escalates, the two powers are fighting a greater battle at the frontiers of technology. With its “Made in China 2025” strategy — targeting sectors like aviation, high-speed rail, electric vehicles and agricultural machinery — China aspires to build firms that will not only replace foreign technology and products domestically but supplant them internationally.

Why it matters: In 2018 U.S.–China relations have entered a period of profound strategic drift, a pivotal moment in the transition from cooperation to competition. It’s an open question whether this split will spawn a cold war or even a military confrontation — prospects some policymakers are now considering for the first time — but there’s no doubt that a wider economic war is now upon us, to be waged over ownership of the technological innovations that will drive the 21st century.

The details: The U.S. and China maintain the largest trading relationship in the world, despite the escalating trade war, and the two countries have recently collaborated on efforts to rein in the North Korean nuclear weapons program, though with some skepticism from the Trump Administration. Some room remains to cooperate across elements of the G20 global financial agenda and on efforts to combat climate change.

But over the last half decade or so, the relationship has lost many of its traditional U.S. supporters, especially within the business community, which fears that China will achieve a position of global technological supremacy through the massive allocation of state resources, intellectual property theft and industrial espionage.

The other side: China sees pursuing these state-driven strategies as essential to its national interests, believing that the U.S. will prevent it from acquiring such capabilities in an open and competitive market. Xi Jinping’s recent statements on China’s artificial intelligence strategy echo these concerns as well, concluding that without innovation, adaptation and self-reliance, China’s long-term economic and national security would be under fundamental threat.

The bottom line: The shift in the U.S.–China relationship is a structural phenomenon, the result of economic, military and technological gains in China that constitute a threat to American dominance — and further reinforced by their radically different political, cultural and ideological systems. This cleavage goes far deeper that the current trade war. Policymakers in both Washington and Beijing will have to decide whether to let the relationship destabilize further or to agree on rules to govern, or at least guide, this new era of strategic competition.

Kevin Rudd is a former prime minister of Australia and the current president of the Asia Society Policy Institute.

Go deeper: More on the U.S.–China tech war and China’s rise under Xi

A new era of U.S.–China competition calls for new rules

There's a war over global technology dominance in the 21st century.

China

Expert Voices

Politics

Even as the U.S.–China trade war escalates, the two powers are fighting a greater battle at the frontiers of technology. With its “Made in China 2025” strategy — targeting sectors like aviation, high-speed rail, electric vehicles and agricultural machinery — China aspires to build firms that will not only replace foreign technology and products domestically but supplant them internationally.Why it matters: In 2018 U.S.–China relations have entered a period of profound strategic drift, a pivotal moment in the transition from cooperation to competition. It’s an open question whether this split will spawn a cold war or even a military confrontation — prospects some policymakers are now considering for the first time — but there’s no doubt that a wider economic war is now upon us, to be waged over ownership of the technological innovations that will drive the 21st century.

Secretary of State Antony Blinken and National Security Adviser Jake Sullivan are in Anchorage in the middle of their first meeting with their Chinese counterparts.

The big picture: After the tumult of the Trump administration, Chinese diplomats have gone into the meeting openly calling for the re-establishment of “strategic dialogue” and a more cooperative relationship. But the chances of that look slim.

From trade and technology, to the South China Sea and Taiwan, to Hong Kong and Xinjiang, the political terrain of the U.S.-China relationship remains overwhelmingly adversarial. 

In both Washington and Beijing, a new culture of strategic competition now runs deep across the board.

The state of play: While Chinese diplomats are still playing up the idea of a relationship based on “no conflict, no confrontation, mutual respect and win-win cooperation” in public, Chinese President Xi Jinping and his closest military and security staff are sounding a very different note:

Given China’s strong economic performance, the phrase “rise of the East and decline of the West” is now echoing around Beijing.

Xi has assured China’s top leadership that “the world is in a turbulent time that is unprecedented in the past century… but time and momentum are on our side.” 

Chinese Defense Minister Wei Fenghe recently declared that China’s strategic confrontation with the U.S. has entered a period of essentially equal balance and that “containment and counter-containment will be the main theme of bilateral ties in the long term.”

Meanwhile, in Asia, China has only stepped up its hardline approach, accelerating military sorties across the Taiwan Strait and into waters near Japan, dismantling Hong Kong’s democratic autonomy, brushing aside criticism of human rights abuses in Xinjiang, and pledging to step up “the extra-territorial application of Chinese law” to punish critics abroad.

Between the lines: The overall sentiment in Beijing two months into the Biden administration is one of strategic continuity accompanied by a degree of tactical diplomatic flexibility.

China’s strategy remains one of building its comprehensive economic, military, and technological power over the course of the decade ahead in order to achieve its territorial objectives without having to ever fire a shot.

Tactically, Xi’s goal for his diplomats is to buy as much time as possible in the short term by enmeshing the relationship in a complex of dialogue mechanisms while the relative balance power continues to move more decisively in Beijing’s favor.

The Biden administration isn’t buying it, having gone out of their way to specify that “this is not a strategic dialogue,” and their priority is to “engage China from a position of strength.”

Beijing’s initial hopes that the Biden administration might wind down the focus on “strategic competition” with China have largely been dashed. Both sides are settling in for a long struggle. 

What to watch: While it won’t make for great headlines, the best outcome from Anchorage is to agree on a channel for high level future political contact between the two sides, although this will be much narrower in scope than the Strategic and Economic Dialogue of the Bush and Obama years. 

There is also likely to be some level of agreement to advance practical cooperation in specific areas like climate change, which is too important for both countries to allow it to become a casualty of the competitive and adversarial nature of the rest of the relationship.

Kevin Rudd was the 26th Prime Minister of Australia and is President of the Asia Society Policy Institute and Chair of the International Peace Institute in New York. 

This article was adapted from a speech on Thursday evening at the Asia Society Policy Institute. Read the full text or watch the discussion with experienced China watchers Bill Bishop and Susan Jakes.

Beijing hopes for tactical reset with Biden, but prepares for long struggle

Both sides know confrontation is more likely than cooperation.

The U.S.-China meeting in Anchorage. Frederic J. Brown/POOL/AFP via Getty

Secretary of State Antony Blinken and National Security Adviser Jake Sullivan are in Anchorage in the middle of their first meeting with their Chinese counterparts.The big picture: After the tumult of the Trump administration, Chinese diplomats have gone into the meeting openly calling for the re-establishment of “strategic dialogue” and a more cooperative relationship. But the chances of that look slim.

While Americans were fixated on the U.S. presidential election, another major political event was happening in China: the Chinese Communist Party (CCP) Central Committee’s crucial Fifth Plenum meeting.

The big picture: The plenum underlined a further consolidation of Xi Jinping’s political hold on the party, lauding Xi as China’s “great navigator and helmsman,” a term last used for Mao Zedong. It also approved the outline of China’s all-important next Five-Year Plan for 2021-2025, and set 15-year goals out to 2035.

Why it matters: This 2020 plenum meeting will go down as a major political and economic turning point for China, and the world.

Xi accelerated targets to at least double China’s GDP by 2035, years ahead of schedule, likely surpassing the U.S. as the world’s top economy.

Beijing doubled-down on giving state-owned enterprises a leading role in transforming China into a “self-reliant” technological powerhouse.

The CCP adopted Xi’s new “dual circulation” economic strategy to transform China’s massive market into a “huge gravitational field” to capture global imports and pull other countries into its political orbit.

Xi prioritized national security to an unprecedented degree, describing “security as the precondition for development,” as well as hyping popular nationalism and pushing China’s military to fully modernize by 2027.

Xi also launched a new “party rectification” campaign for 2021 to purge anyone in the security organs of the party suspected of political disloyalty in the lead-up to the Party Congress of 2022, which will formally decide on Xi’s long-term tenure as China’s paramount leader.

Between the lines: Xi started the year off badly, with missteps on the economy and COVID-19 generating doubts in China about his leadership. But now his position looks stronger than before.

Amid a wave of promotions for Xi loyalists, no potential successor emerged at the Fifth Plenum — as has occurred in the past — providing the strongest sign yet that Xi will remain in power for the foreseeable future.

In 2035, Xi will be the same age as Mao at his death (82). He seems to be aiming, if successful in his ambitions, to have firmly cemented his legacy as equal to the Great Helmsman in party mythology.

The bottom line: Xi’s China looks radically different from the China of the past 40 years. With the U.S. and the rest of the world in disarray from COVID-19, Xi believes history is on his side and is growing more bold, not less. 

President-elect Biden will face a formidable China in the years ahead. The 2020's loom as the make-or-break decade for the future of China, America, and the global order.

Go deeper: This article was adapted from a speech I delivered at a special Asia Society Policy Institute event this week. Read the full prepared text or watch the discussion that followed with former U.S. Treasury Secretary Hank Paulson.

China has politics too: Xi Jinping prepares for make-or-break decade

The year started badly for Xi. Now he looks stronger than ever.

Expert voices

While Americans were fixated on the U.S. presidential election, another major political event was happening in China: the Chinese Communist Party (CCP) Central Committee’s crucial Fifth Plenum meeting.The big picture: The plenum underlined a further consolidation of Xi Jinping’s political hold on the party, lauding Xi as China’s “great navigator and helmsman,” a term last used for Mao Zedong. It also approved the outline of China’s all-important next Five-Year Plan for 2021-2025, and set 15-year goals out to 2035.

The resumption of U.S.-China trade negotiations in October, after an acrimonious summer, is likely to offer the last chance for a breakthrough before both sides flip to a more hardline nationalist Plan B in 2020.

The big picture: The protracted dispute is impacting growth, business confidence and economic uncertainty in both countries. A 2019 deal remains probable and in each leader’s best interests, as President Trump looks to his 2020 campaign amid a softening economy and Chinese President Xi Jinping faces political liabilities from slowing growth.

Where it stands: Bad blood has accumulated on both sides. While some parts of the agreement — such as provisions on intellectual property protection and prohibitions on forced technology transfer — can be preserved from the previous draft, new areas of flexibility are needed to get a deal across the line.

The U.S. could yield to Chinese redlines that object to America retaining tariffs post-agreement and remove clauses that enable the U.S. to reimpose punitive tariffs unilaterally if it judges China out of compliance. Under those circumstances, the U.S. would take action regardless.

China could improve its offer of a $200 billion reduction in the bilateral trade deficit — a personal and political priority for Trump.

State industrial subsidies remain a problem, but could be dealt with in an accompanying communiqué including a Chinese policy declaration that limits subsidies through enforcement of domestic competition laws and relevant World Trade Organization rules.

What's needed: Both sides recognize the need for a more positive political atmosphere before the negotiators meet.

China could place large orders for American soybeans and corn, while the U.S. could defer the additional 5% tariff poisonously timed for Oct. 1, the 70th anniversary of the founding of the People's Republic of China.

The Trump administration could also issue permits for some U.S. firms to sell nonsensitive applications to Huawei — permitted under the company's current status as a listed entity.

What's next: The 2 months ahead are critical. The Nov. 16 Asia-Pacific Economic Cooperation summit is the last chance to sign an agreement before the window closes.

Go deeper: Read Rudd’s recent address on the negotiations.

Critical window is about to close for U.S.-China trade deal

Mounting economic and political pressures could soon put an agreement out of reach.

Illustration of the hands of a clock getting closer to midnight with a star beneath

U.S. China trade war

The resumption of U.S.-China trade negotiations in October, after an acrimonious summer, is likely to offer the last chance for a breakthrough before both sides flip to a more hardline nationalist Plan B in 2020.The big picture: The protracted dispute is impacting growth, business confidence and economic uncertainty in both countries. A 2019 deal remains probable and in each leader’s best interests, as President Trump looks to his 2020 campaign amid a softening economy and Chinese President Xi Jinping faces political liabilities from slowing growth.

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Kevin Rudd

Stories

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People don't trust their governments to handle the coronavirus crisis

Critical window is about to close for U.S.-China trade deal

A new era of U.S.–China competition calls for new rules