3. With global leadership at stake, China and U.S. both fumble
As the U.S. embraces President Trump's "America First" mantra and steps away from its traditional global leadership role, China is aggressively looking to fill the void but has so far come up short, Axios' Bethany Allen-Ebrahimian and I write.
Why it matters: The coronavirus pandemic desperately needs a united global response, but the U.S. and China are instead upping the ante in a battle for global supremacy that could leave both countries in a worse position.
The big picture: By mid-March, with its coronavirus epidemic largely under control, plenty of cash on hand, and the U.S. having woefully mishandled its response, China seemed poised to gallop ahead on the world stage.
- "We’re talking about relative opportunity that is tilted in favor of China because the safe haven that the U.S. represents is no longer a real safe haven" thanks to the COVID-19 outbreak, Keyu Jin, an economics professor at the London School of Economics, tells Axios.
Yes, but: While the Trump administration has dropped the ball, "the Federal Reserve has made a breathtaking expansion as basically central banker to the world," Kori Schake, director of foreign and defense policy studies at the conservative American Enterprise Institute, said during a recent media call.
- A global shortage of dollars and panic-induced selling in financial markets at the onset of the pandemic could have bolstered China's case for the world to move away from the greenback.
- Instead, the Fed's fast action to inject trillions of dollars into the financial system and open dollar swap lines with central banks around the world has had the opposite effect.
"This crisis has shored up and spotlighted the strength of the dollar," Joshua Meltzer, a senior fellow at Brookings Institution, tells Axios.
- "It underscores that when there is a crisis the only asset anyone wants to hold is dollars."
What to watch: China could still draw more of the world into its orbit as COVID-19 is likely to decimate economies in much of Africa, Latin America, the Middle East and the Indian subcontinent, which already receive economic assistance from Beijing and will be looking for more.
- But the U.S. remains the largest economy and home of the global reserve currency, uniquely positioning it to help offset the looming crisis by leading debt-reduction and aid packages.
The bottom line: China and the U.S. have stumbled but both still have powerful incentives to help dig the world out of its economic hole.