U.S.-China Trade Tensions Are Back: Global Economy Week Ahead By Ana Monteiro and Zoe Schneeweiss

Carmen Reinhart -- the World Bank’s incoming chief economist -- just declared that globalization is probably dead, and flaring trade tensions between the world’s two biggest economies is supporting that theory.

At the National People’s Congress, the pinnacle of its political calendar, China on Friday reiterated its commitment to implementing the phase-one trade deal signed with the U.S. The agreement, signed in January, compels it to buy goods in goals that seemed lofty even before the Covid-19 pandemic hit demand and battered supply chains.

Yet within hours, White House economic aide Kevin Hassett told CNN the U.S. is closely studying economic penalties for China related to the nation’s plan to enact sweeping national security legislation in Hong Kong.

That’s not all: President Donald Trump escalated his rhetoric against China over the pandemic, the Senate approved legislation that could lead to Chinese companies being barred from trading on U.S. stock exchanges, and a retirement-savings plan for federal workers deferred a plan to include Chinese stocks in its investments.

Beijing’s fight isn’t just with Washington: Last week, it slapped anti-dumping duties on Australian barley for five years and suspended meat imports from four processing plants in the nation after the government in Canberra called for an independent investigation into the origins of the coronavirus.

With China’s NPC continuing this week, and Trump never far away from a microphone, investors will be on the lookout for more comments to help decipher the situation.

What Bloomberg’s Economists Say...

“With the global economy in a historic slump, and growing fears of slide back into U.S.-China trade war, the echoes of the Great Depression are getting harder to ignore. A rapid bounce back from the lockdown recession already looks tough to achieve, add in fresh barriers to trade and capital flows, and it will get even harder.”

--Tom Orlik, chief economist

Elsewhere in the world economy, Federal Reserve Chairman Jerome Powell and European Central Bank President Christine Lagarde address the public, and South Korea and Kenya are predicted to cut interest rates.

Click here for what happened last week and below is our wrap of what’s coming up in the world economy.

U.S. and Canada

The weekly jobless claims report will indicate if U.S. workers are getting any relief from the pandemic, while other data will show the depth of damage to incomes and consumer spending in April. Revised figures will show whether the economy suffered a deeper hit in the first quarter than originally reported, and there will also be reports on consumer sentiment, housing and trade.

Investors will also be all ears for any insights on the economy from Fed Chairman Powell, who speaks in a virtual event Friday.

Bank of Canada Governor Stephen Poloz gives the final speech of his term on Monday, delivering the annual Hanson lecture via webinar.

Europe, Middle East and Africa

Britain’s finance minister, Rishi Sunak, is expected to spell out how he’ll taper his much-heralded job retention plan. It’s the toughest decision he’s had to make in his short -- yet eventful -- career. If he gets it wrong, he risks cratering businesses and triggering a wave of unemployment.

In the euro area, confidence figures may show sentiment is stabilizing after dramatic drops in April, but won’t shift the view that there’s a very uneven recovery ahead.

ECB speakers, including President Lagarde, will likely emphasize how getting the euro area out of the worst recession on record will require more action, especially from governments. That view will be backed up by inflation data, which is forecast to show a reading of just 0.1% for May.

Elsewhere in the region, the central banks of Israel, Hungary, Poland and Nigeria are predicted to keep rates unchanged, while Kenya may lower borrowing costs yet again.

• For more, read Bloomberg Economics’ full Week Ahead for EMEA

Asia

On Tuesday, Singapore’s government is set to present a fourth set of stimulus measures to boost an economy that started the year with its worst performance since the global financial crisis and is expected to struggle even more this quarter. On Thursday, the Bank of Korea meets, with economists expecting a rate cut to 0.5%, according to an early tally of those surveyed.

• For more, read Bloomberg Economics’ full Week Ahead for Asia

Latin America

On Tuesday, Mexico’s statistics agency publishes its final reading on first-quarter output, confirming that the economy suffered its deepest contraction in over a decade. Later in the week, the central bank updates economic forecasts and scenarios in its quarterly inflation report, before posting the minutes from its May meeting where policy makers cut the key rate for the eighth time in 10 months.

On Friday in Brazil, first-quarter data should capture the onset of what economists expect to be the deepest recession in at least four decades. Reports from Brazil’s central bank during the week will likely show a sharp deterioration in both the current account and primary budget balance, giving investors added cause to sell their Brazilian assets and currency.

Central banks in Colombia, Guatemala and the Dominican Republic hold interest-rate decisions.

Russia proposes shelving jurisdiction issue in isle talks with Japan

Russia has proposed that the stalemated issue of legal jurisdiction over joint economic activities with Japan on disputed islands be shelved, sources close to the two countries' relations said Saturday.

While the proposal is Moscow's compromise in talks on promotion of joint activities as a confidence-building effort toward resolving the territorial spat, Tokyo still faces the task of bringing the two countries' leaders together to discuss the return of the islands seized by the Soviet Union after Japan's surrender in World War II.

It is not known whether the Japanese government plans to accept the proposal.

There was a similar arrangement under a bilateral fishing agreement in 1998, with Russia allowing Japanese fishing boats to operate in designated areas near the disputed islands and shelving the question of sovereignty over the waters in those areas.

Photo taken Jan. 30, 2019, from a Kyodo News airplane shows Russian-held, Japanese-claimed islands off Japan's northernmost main island of Hokkaido. Seen in the center is Kunashiri. (Kyodo)

Despite the accord, Russian authorities have conducted boarding inspections of Japanese boats in those waters.

Moscow wants to promote the economy in its Far East region through the joint operations in such areas as tourism and fish farming, while Tokyo sees economic cooperation as a step toward negotiating the return of Russian-controlled islands -- Kunashiri, Etorofu, Shikotan and Habomai islet group known as the Southern Kurils in Russia.

The territorial row has prevented the two countries from signing a postwar peace treaty.

Last British governor says Hong Kong 'betrayed' by China

HONG KONG (AP) — The last British governor of Hong Kong said China has betrayed the semi-autonomous territory by tightening control over the city it had promised could keep freedoms not found on the mainland.

“What we are seeing is a new Chinese dictatorship,” Chris Patten told an interview with The Times of London. “I think the Hong Kong people have been betrayed by China, which has proved once again that you can’t trust it further than you can throw it.”

He said the British government “should make it clear that what we are seeing is a complete destruction of the Joint Declaration,” a legal document under which the former British colony was returned to China in 1997 under a “one country, two systems” framework.

It gives Hong Kong its own legal system and Western-style freedoms until 2047. But many fear those are being chipped away after authorities clamped down on massive pro-democracy protests that rocked the city last year.

Last week, Hong Kong pro-democracy lawmakers sharply criticized China’s move to enact national security legislation in the territory, which was submitted on the opening day of China’s national legislative session. It would forbid secessionist and subversive activity, as well as foreign interference and terrorism.

U.S. Secretary of State Mike Pompeo called the move “a death knell for the high degree of autonomy” that Beijing had promised Hong Kong.

Patten told Times he believed that “one country, two systems,” the treaty logged at the United Nations, would be enough to protect Hong Kong’s capitalist economy and its way of life.

“China cheats, it tries to screw things in its own favor, and if you ever point this out their ‘wolf warrior’ diplomats try to bully and hector you into submission,” he said. “It’s got to stop otherwise the world is going to be a much less safe place and liberal democracy around the world is going to be destabilized.”

He called on Britain to do more to stand up to China and protect Hong Kong under its legal obligations.

“Britain has a moral, economic and legal duty to stand up for Hong Kong,” he said. “The real danger is that we are entirely limp on this. We have obligations because we signed the agreement … If we don’t have any responsibilities for the people of Hong Kong and their way of life, who do we have responsibility for?”

China has criticized Patten’s comments before. China’s foreign ministry said last week Hong Kong is China’s internal affair and “no foreign country has the right to intervene.”

Americans Need Work, Not Coronavirus Handouts Federal assistance can help bridge a temporary gap in employment and incomes, but the only long-term solution is to let people get back to work. by Rachel Greszler

With more than 1 in 5 Americans filing for unemployment benefits over the past eight weeks, policymakers’ top priority is clear: restoring conditions that allow workers to resume their previous jobs or find new ones.

Federal assistance can help bridge a temporary gap in employment and incomes, but the only long-term solution is to let people get back to work. After all, deficit-financed unemployment checks are no replacement for the valuable goods and services Americans produce.

Two bills, both introduced in Congress on Tuesday, take a very different approach to helping American workers.

The first, the Getting Americans Back to Work Act introduced by Reps. Ted Budd, R-N.C., and Ken Buck, R-Colo., would fix a highly problematic component of the CARES Act that Congress passed in March.

In addition to vastly expanding eligibility for unemployment benefits, CARES added an additional $600 a week on top of usual unemployment benefits. The Budd-Buck legislation would cap total unemployment benefits at 100% of workers’ previous wages.

Full income replacement is still a big increase from the usual 40% to 50% of workers’ wages that typical state unemployment benefit programs replace.

The CARES Act’s additional $600 per week in federal pandemic unemployment benefits is certainly generous. Too generous, in fact: It’s caused an overwhelming majority of unemployed Americans to receive more from unemployment benefits as from their previous paychecks. In many cases, workers are receiving at least twice their usual paychecks.

These excessive benefits are no doubt welcome to the newly unemployed workers. But in an ironic twist, businesses have factored those benefits into their decisions to furlough or lay off workers instead of keeping them on the payrolls. And those benefits are making it harder for businesses to reopen or ramp back up after temporary shutdowns and slowdowns.

In essence, businesses—especially hard-hit ones such as restaurants, hotels, and retailers—are having to compete with the federal government’s generous unemployment benefits.

When you consider that someone who usually makes $600 per week is receiving $900 from unemployment insurance, it’s not surprising that they might not want to go back to work. After all, the additional benefits amount to an extra $10,000 between April and July 31, when the $600 per week is set to expire.

Another bill, the House Democrats’ HEROES Act (a partisan laundry list that spans more than 1,800 pages), would extend those benefits through the end of next January, including additional extensions through March 31.

It’s too soon to know how long unemployment will remain highly elevated, but one thing is for sure: extending already excessive unemployment benefits won’t help. It will increase unemployment and reduce economic output.

According to a study by researchers at the New York Federal Reserve, the extension in unemployment benefit duration during the Great Recession resulted in a prolonged increase in unemployment, with 4.6 million more people unemployed in 2010 and 3.3 million more unemployed in 2011. And those consequences came with unemployment benefits averaging less than $400 per week as opposed to nearly $1,000 a week today.

Moreover, my colleague and I at The Heritage Foundation estimated that Congress’ provision of the additional $600 unemployment benefit through the end of July could increase unemployment by up to 13.9 million and reduce output by $955 billion and $1.49 trillion between May and September. An additional six- to nine-month extension would significantly exacerbate lost jobs and economic output.

It’s one thing to provide short-term and targeted unemployment benefits during forced shutdowns, but providing a year’s worth of unprecedented additional unemployment benefits—up to an extra $31,200 more per worker—would cripple small businesses as they try to get back on their feet.

It’s also incredibly unfair, and wholly un-American, to pay unemployed workers more than the hardworking Americans who continue to work each day.

Tacking the cost of excessive unemployment benefits onto future taxpayers is not only unfair, but also perilous, considering America’s already-unsustainable fiscal outlook. If unemployment averages 10%, these additional benefits could cost every household in America an extra $3,300 to $4,000 in taxes.

Policymakers should be focused on helping Americans get safely back to work, including granting new flexibilities to allow workplaces to adjust to the conditions of COVID-19.

Humans are hard-wired to be productive. They will be far better off if policymakers focus on enabling work opportunities—such as removing barriers to working, trading, innovating, and investing—than on incentivizing unemployment.

How Angela Merkel Talks About the Coronavirus Without Using Metaphors German chancellor Angela Merkel does not use war imagery when talking about the coronavirus. In fact, she hardly uses any metaphors at all. by Dagmar Paulus

Many political leaders around the world have reached for the imagery of conflict to describe the coronavirus pandemic. In France, President Emmanuel Macron said his nation was at war with an invisible enemy. Over in the US, President Donald Trump positively revels in the idea of being a “wartime president”. In the UK, Prime Minister Johnson has spoken of the virus as an “enemy” and even said that “we must act like any wartime government” to protect the economy.

But in Germany this kind of language is not circulating. The virus is not an “enemy”, and the process of containing it is not a war. Perhaps there’s a tendency among German politicians to avoid war metaphors for historical reasons. There may be a feeling that it does not go down well nationally and internationally if German political leaders speak about war, even metaphorically.

This is particularly the case because the far-right AfD party has been trying to expand the limits of what is acceptable in Germany. One of its leaders recently lamented Germany’s loss of territory after the second world war – a position that has been condemned by many, including the Central Council of Jews in Germany.

So German chancellor Angela Merkel does not use war imagery when talking about the coronavirus. In fact, she hardly uses any metaphors at all. Her first major public interaction during the crisis was a televised address on March 18. Merkel’s words to describe the crisis were simple and straightforward. She spoke of “this situation”, “a historical task”, and a “great challenge” ahead.

When Merkel alluded to the past, it was to express a desire not to return to it. She referred to her own history growing up in the GDR when emphasising that the decision to curtail democratic freedoms had not been taken lightly.

In a speech to the German parliament on April 23, Merkel again used few metaphors. She called the current situation a “real test”, “serious times”, a “dramatic crisis”, a “gigantic challenge”. The only figurative expressions she used were “thin ice” and “long-distance run”. These metaphors evoke challenge, but not combat.

It’s true that drastic words and passionate statements were never Merkel’s style, but other German politicians have taken a similar approach. Among the 16 regional leaders, two have been especially prominent in the debate about the coronavirus: Bavarian leader Markus Söder and Armin Laschet, of North Rhine-Westphalia.

Like the chancellor, Söder mostly uses straightforward vocabulary to describe the virus: it’s “an exponential development”, a “crisis”, and a “task”.

Laschet, too, has been been vocal in the debates about the coronavirus, possibly because he aspires to be Merkel’s successor as chancellor and may therefore feel the need to make his mark. He used rather more dramatic language but still stops short of going to war. He speaks of an “adversary” (but not an “enemy”) and has warned that people have to make sacrifices. By the end of April, he also had gone back to more neutral expressions: the “situation”, the “event”.

While speeches by German politicians have mostly been easy to follow and unambiguous, there has been some confusion, too. Different states across the country’s federal structure decided on different rules at the beginning of the lockdown. For example, when Lower Saxony closed DIY stores in March, there was an exodus of people to neighbouring states where they were still open, causing Lower Saxony to backtrack.

Low death rate

Overall it looks like Germany has done comparatively well so far. The German government imposed containment measures on March 17, at a fairly early stage in the pandemic. At the time of writing, there were 179,000 cases and 8,300 deaths in Germany, which is far fewer than in many other European countries.

The response from the German public has been mostly positive. Approval ratings for Merkel and her party, the centre-right CDU, went up in recent weeks.

However, a small but vocal minority of protesters has been demanding an end to the measures. Paradoxically, they are gaining traction at the moment, now that the lockdown has been relaxed, and although the measures in Germany were fairly mild compared to Spain, Italy, or France.

The protesters are a rather strange alliance – some are worried about their democratic rights or about the economy, but others are members of the extreme right, conspiracy theorists, anti-vaxxers, and anti-Semites. The financial crisis of 2008 had in all probability contributed to the rise of the AfD. Now, with another massive economic slump on the horizon, the threat of right-wing extremism is likely to increase.

Coronavirus Means It's Even More Urgent to Fix California's Housing Crisis Rent and eviction freezes can create more problems than they solve and can’t last forever. Failing to build more housing will ultimately make the pandemic’s toll worse. by Michael D. Tanner and David Hervey

For Californians who have long opposed building more housing in their communities, COVID-19 has provided a new and seemingly convincing argument: density is dangerous. Some have even suggested that the pandemic vindicates proponents of “single‐​family sprawl” or justifies a moratorium on new housing legislation, which are views these observers would likely hold regardless of the current crisis.

At first glance, the argument against density seems correct, but evidence suggests there are other factors at play. A virus that transmits person to person is much more likely to spread in areas where large numbers of people congregate. That’s one reason why urban centers like New York City, Chicago, Detroit, and Los Angeles have been hit hard. And, it is the logic behind social distancing. But, as with so many anti‐​housing arguments, there is less here than meets the eye.

Simply look at those Asian countries that have done a far better job of containing the virus than we have, despite extreme density. For example, Seoul, South Korea is about 50 percent denser than NYC but has had less than one percent as many cases per capita. Likewise, extremely dense Singapore, Hong Kong, and Taipei have held their infection rates to much lower levels than cities in this country. Undoubtedly, previous experience with infectious diseases like SARS improved not only governments’ responses to the current crisis but also individuals’ responses, vastly outweighing any effect density may have had.

Turning to Europe, we also find the link between density and infections to be weaker than expected. Berlin, for instance, is about four times as dense as France’s Ile‐​de‐​France region (which includes Paris) and only slightly less dense than London but has only about half as many COVID-19 cases as either, on a per capita basis. Density clearly wasn’t the central determinant here: other factors had a much bigger impact.

Even looking at New York City and its surrounding environs shows a muddled picture, with less dense Westchester and Suffolk counties showing higher infection rates than extremely dense Manhattan. And, in California, San Francisco has a lower infection rate than Los Angeles, despite being about six times denser. Perhaps even more surprisingly, San Francisco’s infection rate is about the same as Kansas’ (2.24 cases per thousand San Franciscans versus 2.54 cases per thousand Kansans).

In addition, we should remember that California’s lack of affordable housing creates its own kind of density, one that is even more conducive to the virus’s spread. There is a big difference between people in their own apartments in a dense multi‐​family structure and several roommates jammed together in a tiny space because it is all that is available or affordable.

A study of COVID-19 cases in New York showed that crowding (generally defined as more than one resident per bedroom) contributed to higher rates of COVID-19, while density, in general, did not. The data from California also indicates this: San Diego County, with about 7% of households living in crowded homes, has a lower rate of coronavirus infections than either Los Angeles or San Francisco counties, which have higher rates of crowding. Conversely, Los Angeles County, with a higher rate of crowding (about 11%) has the highest infection rate of the three counties. San Francisco’s crowding rate is only slightly higher than San Diego’s. at 7.1%, and this helps explain its similarly‐​low infection rate.

California’s lack of affordable housing also contributes to the state’s growing homelessness crisis. Yet, the homeless are both extremely vulnerable to infection and a potential source of spread to the population at large. In addition to makeshift efforts to get the homeless off the streets by housing them in hotels or other temporary fixes, California would be well‐​served by ensuring a bigger supply of affordable housing.

Moreover, the economic toll from the pandemic and “shelter in place” orders will fall most heavily on California’s poorest citizens, many of whom are already one missed paycheck away from homelessness. Rent and eviction freezes can create more problems than they solve and can’t last forever. Failing to build more housing will ultimately make the pandemic’s toll worse.

In turns out that the evidence of the impact of California’s excessive housing regulations is far stronger and more convincing than arguments about density and coronavirus. We know that strict zoning and density regulations prevent the construction of affordable housing in America’s urban areas. We also know that many of these laws are part of America’s history of institutional racism and segregation. The COVID-19 crisis does not change these facts.

Perceptions and expectations, whether they are accurate or not, have a way of shaping future behavior and policymaking. Housing affordability will remain a problem for America’s cities long after the current crisis subsides. We can’t afford to let misinterpretations of the pandemic’s causes get in the way of long‐​term efforts to relax the outdated restrictions that prevent affordable housing in so many of California’s cities.

Post-Coronavirus Asia: A Land of Great Power Tensions Set to Boil Over? Discussion has flourished about what kind of "new" world will emerge after the coronavirus pandemic recedes. There is nothing new about hoping a global crisis will generate peace and cooperation, and nothing new about how it will turn out. The world will go on as before because nothing has changed geopolitically in the last few months other than major trends have accelerated. A quick tour around the Indo-Pacific region shows continued tension and conflict. by William R. Hawkins

Discussion has flourished about what kind of "new" world will emerge after the coronavirus pandemic recedes. There is nothing new about hoping a global crisis will generate peace and cooperation, and nothing new about how it will turn out. The world will go on as before because nothing has changed geopolitically in the last few months other than major trends have accelerated. A quick tour around the Indo-Pacific region shows continued tension and conflict.  

On May 8, a gun battle erupted when Chinese troops crossed the border into Muguthang Valley in Sikkim province, a long-disputed region under Indian control but which Beijing claims is being illegally occupied. Tensions have been rising since January. In April, a Chinese “surveillance” ship rammed and sank a Vietnamese fishing boat in a disputed area of the South China Sea. Both countries claim sovereignty over what Hanoi calls the Hoang Sa archipelago and Beijing calls the Paracel islands. Besides sitting across vital shipping lanes, the islands also mean access to potentially rich undersea energy and mineral resources. Beijing has claimed Sikkim and the entire South China Sea as its territory based on the long past historical domination of these areas by Imperial China. 

On May 4, the Ministry of National Defense confirmed that China will establish an air defense identification zone (ADIZ) in the South China Sea, to match the one they have in the East China Sea where they have disputes with Japan. An ADIZ requires all aircraft to identify themselves, the point of which is to acknowledge the official expansion of Chinese airspace over the expanded maritime domain it claims. 

The United States, along with other maritime powers including Japan, India, the United Kingdom, and France have conducted "freedom of navigation" operations to demonstrate their rejection of Beijing's territorial claims. On April 28, the People’s Liberation Army boasted it had “expelled a US warship that trespassed into Chinese territorial waters off the Xisha Islands in the South China Sea.” The story in Global Times, the media outlet of the ruling Chinese Communist Party, featured a photo of a Chinese warship firing a missile, but no shots were fired in the confrontation.  By its own accounts, all the PLA did was “organize naval and aerial forces to follow the U.S. guided missile destroyer USS Barry.” They warned it to leave the area and claimed it had been expelled when all it did was complete its transit through the area. A bold PLA claim for propaganda purposes that further raised tensions. As the Global Times story asserted, “US warships and aircraft have been frequently operating in the South China Sea, East China Sea and Taiwan Strait recently. Chinese troops will resolutely fulfill their duty, safeguard national sovereignty and security as well as peace and stability in the South China Sea.” In Beijing’s view, it is the United States and its allies who are provoking conflict by upholding international law.

The Taiwan Strait deserves mention as tensions are mounting there in the wake of the re-election of President Tsai Ing-wen. She leads the Democratic Progressive Party which is based on Taiwanese nationalism. The DPP has been growing in strength as younger generations have come to identify themselves as Taiwanese, not Chinese. Taiwan has been governed from Beijing for only four years (1945 to 1949) out of the last 125. A May 11 article in the South China Morning Post claimed that Beijing was trying to tap down rising “nationalist fervor” on Chinese social media calling for an invasion of Taiwan. The article also noted, “recently a number of commentators and retired military commanders have called for Beijing to retake control of the island….Some former military leaders have argued that the United States – which is bound by law to help the Taiwanese government defend itself – is presently unable to do so because all four of its aircraft carriers in the Pacific have been affected by the Covid-19 outbreak.” After the U.S. aircraft carriers Theodore Roosevelt and Ronald Reagan had to return to port to handle flu cases among their crews, China sent its carrier Liaoning with its escorts through the “first island chain” into the Pacific to demonstrate it was the local superpower. The United States responded by bringing in reinforcements and stepping up its operating tempo to counter any perception of weakness. 

A previous SCMP article cited Chinese strategists as fearing an invasion of the democratic island would be too costly and that Beijing will have to mobilize greater strength to do so. However, a lengthy essay published on May 12 by the PLA reported “The Chinese People's Liberation Army (PLA) has carried out combat readiness patrols in the Taiwan Strait region on many occasions…since February this year” and that its troops “are determined and capable of thwarting all ‘Taiwan independence’ separatist activities.” The article carried a direct threat to America at its conclusion, stating in bold type. “The Taiwan question is China's core interest and the bottom line of China that cannot be challenged” and that if the United States “repeatedly probes and even breaks through China's bottom line, it will eventually bring fire to itself.” President Xi Jinping is adamant that Taiwan “must and will” be absorbed into the mainland and during his tenure in office if possible. 

Further north, Japan has released its 2020 East Asian Strategic Review. The report proclaims a "free and open Indo-Pacific" that goes beyond the Japan-U.S. alliance to expand military cooperation with South Korea, Australia, India, and within ASEAN. It has already signed “Acquisition and Cross-Servicing Agreements” with the armed forces of Australia, the UK, Canada, and France. Another is pending with India. It also uses military aid to build ties within Southeast Asia. These efforts are all meant to build a coalition to contain a China that is threatening islands that form a strategic link between Tokyo and Taipei.

The carrier Ronald Reagan, which is based in Japan, is now back at sea. And to fill in the gap while the carrier Theodore Roosevelt recovers in Guam, the amphibious assault carrier America (which now embarks F-35B fighters) and the guided missile cruiser Bunker Hill have been operating off the coast of Malaysia near an area in dispute between Indonesia and China, and also showing the flag off Vietnam. China’s aggression in Southeast Asia is not confined to the sea. Beijing has built a series of dams at the headwaters of the Mekong River to produce electricity for southern China. But these dams also give Beijing leverage over Southeast Asian lands which depend on the Mekong for rice irrigation and fishing. Food security is already jeopardized by drought and has been further endangered by erratic water flows from the Chinese dams.

China has reacted strongly to an Australian demand for an investigation into the origin of the coronavirus outbreak. Beijing is threatening trade with Canberra. The Global Times stated on May 13 how China views commerce as a part of foreign policy, “When the world enters the buyer's market, China has the right to select trading partners that can maximize its interest.”   

The United States has increased its backing for those resisting Chinese aggression since “the pivot” from the Middle East to the Pacific Rim instituted by the Obama administration. President Barack Obama was, however, reluctant to strike at the economic roots of Beijing’s rise. President Donald Trump has focused on international economics, targeting the outsourcing of American jobs and production capacity to China and Beijing’s theft of intellectual property. He has based his case on national security grounds. The pandemic has highlighted to the American public the dangerous dependency the United States has fallen into with China for a variety of strategic goods starting with medicine and including electronics, steel, auto parts and a host of critical supply chains. Efforts to decouple from China in key areas are underway led by the State and Commerce departments.

It is hoped that many of these industries can be brought back to America but even if they are merely diverted to trading partners who are allies or otherwise aligned with the United States, the gain to security will be substantial. New Delhi is putting itself forward, sending out invitations to 1,000 American firms doing business in China asking them to shift operations to India. Trump has been actively courting Prime Minister Narendra Modi on a variety of high-tech projects and arms sales. India has been designated a Major Defense Partner of the United States.

The Japanese government is also offering incentives to its firms to shift critical production out of China. Business firms may resist efforts to put national security ahead of private profits. The U.S. Chamber of Commerce still says its “policy and advocacy efforts are guided by the belief that commercial engagement and the expansion of trade and investment ties between the United States and China benefit both countries and their business communities.” However, just as the pandemic has postponed the Chamber’s eleventh China Business Conference, the international situation will require commerce to follow the flag and adjust to a world that will operate on the basis of great power competition for the foreseeable future.