After the crisis, opportunity

SOME YEARS loom large in history. Usually it is the end of a war or the onset of a revolution that punctuates the shift from one chapter to another. 2020 will be an exception. The defeat of Donald Trump marked the end of one of the most divisive and damaging presidencies in American history. A once-in-a-century pandemic has created the opportunity for an economic and social reset as dramatic as that of the Progressive era. The big question for 2021 is whether politicians are bold enough to grasp it.

Covid-19 has not just pummelled the global economy. It has changed the trajectory of the three big forces that are shaping the modern world. Globalisation has been truncated. The digital revolution has been radically accelerated. And the geopolitical rivalry between America and China has intensified. At the same time, the pandemic has worsened one of today’s great scourges: inequality. And by showing the toll of being unprepared for a low-probability, high-impact disaster, it has focused more minds on the coming century’s inevitable and even higher-impact disaster, that of climate change. All this means there is no going back to the pre-covid world.

That will not be obvious at the start of the year. Amidst the misery of a resurgent second wave, attention in many countries will still be focused on controlling the virus. As the New Year begins a vaccine will be on the horizon, though not yet widely available. Only as 2021 progresses, and vaccines are rolled out, will it become clear how much has permanently changed.

And that will turn out to be a lot, particularly in the West. The post-covid world will be far more digital. From remote working to online retail, the pandemic has compressed years’ worth of transformation into months, bringing with it a dramatic shake-up in how people live, what they buy and where they work. Winners from this bout of creative destruction include the tech giants (whose profits and share prices have surged) and large companies more broadly (which have the biggest troves of data and the deepest pockets to invest in digital transformation). Big cities will have to reinvent themselves. Expect a flood of closures, especially among small businesses and in the retail, travel and hospitality industries.

Although globalisation will still be about goods and capital crossing borders, people will travel less. The Asian countries that controlled the virus most effectively were also those that shut their borders most strictly. Their experience will shape others’ policies. Border restrictions and quarantines will stay in place long after covid-19 caseloads fall. And even after tourism restarts, migration will remain much harder. That will dent the prospects of poor countries that rely on flows of remittances from their migrant workers abroad, reinforcing the damage done by the pandemic itself. Some 150m people are likely to fall into extreme poverty by the end of 2021.

Global commerce will be conducted against an inauspicious geopolitical backdrop. Mr Trump’s mercurial mercantilism will be gone, but America’s suspicion of China will not end with the departure of “Tariff Man”, as the president was proud to be known. Tariffs, now levied on two-thirds of imports from China, will remain, as will restrictions on its technology companies. The splintering of the digital world and its supply chain into two parts, one Chinese-dominated and the other American-led, will continue. Sino-American rivalry will not be the only fissiparous influence on globalisation. Chastened by their reliance on imported medical supplies and other critical goods (often from China), governments from Europe to India will redefine the scope of “strategic industries” that must be protected. State aid to support this new industrial policy has become and will remain ubiquitous.

All this will leave the world economy divided and diminished. The gap between strength in China (and other post-covid Asian economies) and weakness elsewhere will remain glaring. China’s was the only big economy to grow in 2020; in 2021 its growth rate will exceed 7%, substantially faster than the pace of recovery in Europe and America. And unlike Western economies, its recovery will not be underpinned by gaping budget deficits or extraordinary monetary stimulus. China’s economic success and quick vanquishing of covid-19 will be the backdrop for a year of triumphal celebration in Beijing, as the Communist Party marks its centenary.

The contrast with the West will be stark. America will start the year with wobbly growth, not least because of the failure to pass a sufficient stimulus package in the last days of the Trump administration. Europe’s economies will be sluggish far longer, with generous furlough schemes tying people to jobs that no longer exist and zombie firms propped up by the state. On both sides of the Atlantic, the inequity of the impact of covid-19 will become ever clearer: the most vulnerable hit hardest by the virus; job losses concentrated among the less skilled; educational disruption harming poorer kids’ prospects the most. Public anger will grow, particularly in America, which will enter 2021 still a deeply divided country.

With the West battered and China crowing, plenty of pundits (including in this publication) will declare the pandemic to be the death knell for a Western-led world order. That will prove premature. For all its “vaccine diplomacy”, China inspires fear and suspicion more than admiration. And for all his determination to bring China centre-stage, its president, Xi Jinping, shows little appetite for genuine global leadership. Although Mr Trump’s contempt for allies and forays into transactional diplomacy have shaken trust in the American-led global order, they have not destroyed it.

That means America, once again, will have disproportionate ability to shape the post-pandemic world—and the man most able to set the tone is a 78-year old, whose political career began closer to the presidency of Calvin Coolidge than today. Joe Biden, a consensus-building moderate whose own political positions have always tacked close to his party’s centre of gravity, is an improbable architect of a bold new era.

But he could be just the right person. Mr Biden’s policy platform is ambitious enough. Behind the slogan of “build back better” is a bold, but not radical, attempt to marry short-term stimulus with hefty investment in green infrastructure, research and technology to dramatically accelerate America’s energy transformation. From expanding health-care access to improving social insurance, the social contract proposed by Bidenomics is a 21st-century version of the Progressive era: bold reform without dangerous leftism.

In foreign policy Mr Biden will repair relations and reaffirm America’s values and global role. A veteran of diplomacy and instinctive multilateralist and institution-builder, Mr Biden will send strong signals quickly: America will re-enter the Paris climate agreement, stay in the World Health Organisation and join COVAX, the global coalition to distribute a covid-19 vaccine. He will head quickly to Europe to reaffirm America’s commitment to NATO and the transatlantic alliance—though his first stop will be Berlin or Paris, rather than Boris Johnson’s Brexit Britain. Mr Biden will reassert the importance of human rights and democracy to American foreign policy. Expect tougher criticism of China for its treatment of Uyghurs in Xinjiang and its oppression in Hong Kong; there will be no more palling with dictators.

On the most important issues, however, Mr Biden’s presidency will offer more a change of approach than of direction. America will remain concerned about the threat posed by a rising China: the Trump administration deserves credit for focusing attention on it. But rather than attack with unilateral tariffs, Mr Biden’s team will focus on building a multilateral coalition to counter China. Expect talk of a transatlantic grand bargain, where America assuages European concerns about its tech giants, particularly the personal data they gather and the tax they don’t pay, in return for a joint approach towards Chinese tech companies. Expect talk of a new global alliance, binding Asian democracies into the Western coalition to counter China—the basis, conceivably, of a new kind of American-led world order.

The opportunity is there. The question is whether Mr Biden will grasp it. The risk is that, both at home and abroad, a Biden presidency proves to be long on soothing words and short on effective action; that, whether or not he is constrained by a Republican Senate, Mr Biden himself is too focused on repairing yesterday’s world rather than building tomorrow’s, and too keen to protect existing jobs and prop up ossified multilateral institutions to push for the kind of change that is needed. The biggest danger is not the leftist lurch that many Republicans fear—it is of inaction, timidity and stasis. For America and the world, that would be a terrible shame.

Zanny Minton Beddoes: Editor-in-chief, The Economist