[EAI Working Paper] Post-COVID World Political Economy Series ①_ Introduction: The Post-COVID World Political Economy Order

The global spread of COVID-19, which became apparent in 2020, has sent significant shockwaves through the world order for two years. As of December 2021, it is a massive health crisis with over 270 million confirmed cases and more than 5 million deaths; an economic crisis that has impacted the global economy with negative growth rates; a social crisis that has led to the quarantine and lockdown of individuals from society, as suggested by the term 'quarantine'; and a diplomatic crisis marked by the absence of international cooperation and collective governance. As a result of these multifaceted shocks to the globe, the world is undergoing many changes.

Above all, the global economy has experienced a crisis due to the pandemic. It is facing the most rapid economic recession since World War II. The COVID-19 crisis is unprecedented in both its depth and scope. While the 1997 financial crisis primarily impacted East Asia and the 2008 financial crisis hit the United States and Europe, this crisis has spread as a global crisis. Approximately 95% of the world economy simultaneously experienced a decline in GDP, and about 300 million adults faced the risk of unemployment (Tooze 2021, 5). Britain and the United States, which have seen a shift in global hegemony, have experienced a dire health crisis, while the underdeveloped Global South has fallen into a prolonged recession, leading to food crises, climate crises, and development crises, thereby accelerating global economic imbalances and inequalities. Meanwhile, in the case of the 2008 global financial crisis, the impact on the real economy could be mitigated through rapid liquidity supply and emergency relief by the United States or major countries. However, the current situation exhibits a transmission path from real economic recession and employment crisis, caused by demand contraction and supply chain disruptions, to fiscal and financial crises, revealing aspects that make it difficult to block the spread of the crisis.

What impact is this crisis having on the world political economy order? Are we at a moment of great transformation, or is it triggering an ongoing transformation? Is the pandemic accelerating the decline of the liberal international order? Is it bringing about fundamental changes in the global division of labor? Is it exacerbating US-China economic conflict? What are the reasons for the differences in crisis response across countries? Is it leading to changes in democratic and capitalist models? Posing these questions, this book analyzes the changes in world and domestic order from a political economy perspective.

1. Acceleration of US-China Competition

Coronaviruses are accelerating transformation. First, the acceleration of US-China strategic competition. The United States' physical capabilities and authority have diminished, and China has emerged as a competitor, leading to a long-term strategic competition between the two nations. Since the global financial crisis of 2008, China has steadily pursued the United States, and by around 2030, the GDP of the two countries is expected to reverse. However, the COVID-19 pandemic is not causing a rapid change in the physical gap between the two countries. The US hegemonic foundation remains strong in terms of military power, advanced technology, reserve currency, and cultural influence. However, the period for China's economy to catch up to the US may be shortened, which means the competitive phase between the two countries will accelerate. The coronavirus has highlighted the importance of non-traditional threats and non-traditional security in international relations, but US-China strategic competition has made it difficult to address non-traditional threats globally and has further increased the instability of traditional competitive relations (Brands and Gavin, 2020, 11-12).

The US-China competition is evolving and transforming in various ways through the COVID-19 crisis. The first is the competition in digital platforms, which is taking place in a non-face-to-face environment. Kim Sang-bae's article (Chapter 1) predicts that the US-China platform competition, which began in the computing and mobile sectors, has evolved through competition in internet search, artificial intelligence, cloud, and data platforms, and is now expanding into SNS, video, OTT, and gaming platforms due to the COVID-19 environment, with competition in e-commerce and fintech platforms emerging in the future. The author foresees a high probability of the internet eventually splitting into two, with countries following the US and China potentially being incorporated into their respective divided internet camps. In such a scenario, countries like Korea, caught in the middle of the competition between the US and China, may face a situation where they have to choose one of the two internet worlds.

The United States and China, which had focused on bilateral competition and negotiation, are showing a policy shift towards relatively increasing the importance of regional cooperation strategies after COVID-19. Lee Seung-ju's article (Chapter 2) analyzes the steps taken by both countries to strengthen regional cooperation, using vaccine development, production, and distribution as examples. While the US was initially passive in international vaccine cooperation due to situational factors requiring focus on domestic rapid spread and the Trump administration's "America First" policy, China actively engaged in vaccine diplomacy targeting developing and non-Western countries. The US has shifted from a defensive to an offensive stance, criticizing the risks of Chinese vaccines and the Chinese government's strategic intentions, while strengthening vaccine cooperation within the Quad framework and engaging in proactive cooperation with developing countries, such as the temporary waiver of vaccine intellectual property rights. This demonstrates that the US and China are leading a competitive phase even in the provision of a global public good like vaccine supply.

In the context of the COVID-19 pandemic, US-China strategic competition is also forming fronts in the Global South. The first is the competition for influence between the US and China in helping developing countries in the Global South achieve economic recovery and health security. The second is the phenomenon of the Global South's intra-regional hegemonic competition between China and India transforming into new conflicts and cooperation. China has long pursued its own strategy of consolidating a platform for expanding its hegemony in the Global South through the Belt and Road Initiative (BRI) and upgrading it through the COVID-19 pandemic, while India has strengthened economic cooperation with the US and Europe during the COVID-19 phase and simultaneously joined US-led regional cooperation platforms such as the Indo-Pacific strategy led by the US, Japan, and India.

Kim Tae-gyun's article (Chapter 3) analyzes, first, how the US and China are supporting vaccine supply and economic recovery in the Global South to stabilize international health security and the international economic order, and expand their influence within the Global South, from the perspective of a confrontation between American and Chinese civilizational standards. This largely reflects the path dependency of Japan's pre-COVID-19 accelerated US-China competition. Second, the article focuses on the conflict between India, which seeks to expand its hegemony by leveraging the COVID-19 crisis within the Global South, and the US-EU alliance, which seeks to counter China's hegemonic expansion. The author analyzes India's rise as an example of new path-shaping and predicts that India will engage in a power struggle with China through vaccine diplomacy targeting developing countries in the Global South.

2. Digital Transformation and Political Economy

The second change brought about by the coronavirus is digital transformation. It is a well-known fact that the advancement of the digital economy is accelerating due to the spread of COVID-19. As direct face-to-face interactions have decreased due to COVID-19, online activities based on digital technology have increased explosively. With technological characteristics such as unmanned operations, remote work, and virtualization representing the post-COVID-19 era, the transition to a digital economy is accelerating in daily life as well as in various production and service sectors. While the spread of digital transformation and the new economy was already underway before COVID-19, the pandemic has lowered the psychological and institutional barriers hindering the full adoption of digital technologies, thereby accelerating the digitalization of the world political economy order.

While Kim Sang-bae's article analyzes the fierce competition between the US and China in key sectors of the digital economy and their tug-of-war to control platforms and data, Bae Young-ja's article (Chapter 4) examines the changes occurring in the development and status of developing countries from the perspective of Global Value Chains (GVCs) and the issues being raised. Developing countries generally have lower levels of digital infrastructure and technological innovation compared to developed countries, possess relatively insufficient capacity for digital transformation, and have limited resources other than labor. In this situation, digital transformation is likely to widen the gap between developing and developed countries, and the relatively simple and repetitive labor that developing countries have performed within value chains is easily replaceable by machines, thus increasing the possibility of their status diminishing rather than strengthening. On the other hand, there are aspects where the digital transformation of developed countries can also provide opportunities for growth for developing countries. Indeed, some regions in developing countries are benefiting from increased trade with developed countries by participating more actively in global value chains. Bae Young-ja's article points out that while the distributive effects of digital transformation after COVID-19 are not simply divided into a 'developed vs. developing countries' dichotomy but are more complex, most developing countries lack the necessary institutions and resources to effectively manage internal disparities, leading to a widening gap.

3. COVID-19 Shock and Governance

The shock of COVID-19 raises fundamental questions about national governance: what role should the state play in times of crisis, and which states have the capacity to protect the lives and safety of their citizens? In particular, the failures experienced by Western Europe and the United States in the face of infectious disease outbreaks have led to skepticism about liberal democratic systems, while the crisis response capabilities demonstrated by East Asian countries with non-liberal traditions, especially China under an authoritarian political system, have even led to arguments for the utility of authoritarianism. Jeong Ju-yeon's article (Chapter 5) examines the utility of the concept of a 'strong state' by verifying the national capabilities of countries that have relatively succeeded in epidemic prevention, such as China, Taiwan, and South Korea. This article analyzes China's response to COVID-19 in detail, showing that China's authoritarian government played a significant role in the initial spread of COVID-19 by ignoring signs of the crisis and concealing the occurrence of infectious diseases. Furthermore, the systemic vulnerabilities starkly exposed by the 'mature' liberal democratic systems of the West serve to remind us of the role of community and the state, which have been relatively overlooked by liberal democracies that have developed based on markets and individuals, and that trust in fellow citizens and commitment to the community are also important for the growth of democracy.

The ideological debate of 'authoritarianism vs. liberal democracy' leads to US-China competition. Lee Wang-hui's article (Chapter 6) shows that this governance debate has significant implications for the strategic competition between the United States and China. While China, which proactively implemented strong state-led measures, succeeded in epidemic prevention, the US, where the government sought to minimize infringement on individual freedoms and societal autonomy, failed to minimize damage. The US criticized China's state intervention as authoritarian, but China retorted that the US lacks the national capacity to mobilize resources necessary for epidemic prevention and treatment. As the crisis is still ongoing, it is too early to evaluate which country's governance is superior. However, if China overcomes the crisis faster than the US, China's model of governance, which emphasizes national capacity, may be evaluated as a more efficient alternative than the US model of governance, which prioritizes democracy.

Lee Jeong-hwan's article (Chapter 7) analyzes the state-society relationship as a variable in COVID-19 response. The mainstream discussion currently emphasizes the need to strengthen the role of the state, which has been weakened, as a problem in responding to COVID-19. Specifically, arguments emphasizing the lack of legal authority for state intervention in society coexist with arguments emphasizing reduced fiscal support from the state to society. The author argues that in the case of Japan, neither the reduction nor the restraint of state capacity can fully explain its response to COVID-19. This article demonstrates that the nature of the state-society relationship, which developed within Japan's post-war system, led to delays in crisis response. It emphasizes the patron-client relationship between the Japanese government and the medical community, which is a background factor in the medical sector's lack of active engagement in COVID-19 response. This argument implies that strengthening Japan's crisis response system requires not only enhancing state capacity but also reorganizing the societal sector. However, the author points out the dilemma that such societal reorganization shakes the patron-client state-society relationship, which has been the foundation of social stability in post-war Japan, and that while crisis presents an opportunity for societal reorganization, it is also an occasion for vested interests to protect and expand their own benefits.

Lee Yong-wook's article (Chapter 8) analyzes the US response to the economic shock caused by COVID-19 by closely examining the US Federal Reserve's COVID-19 response policies, particularly unconventional monetary policies, and the political and economic context in which these policies emerged and persisted. A phenomenon newly emerging in the post-COVID era is the central bank's 'new normal,' which signifies a shift from a neoliberal central bank prioritizing price stability to a new paradigm balancing employment and price stability. Although the legitimacy of neoliberalism has weakened since the 2008 global financial crisis, a new economic paradigm that fully replaces neoliberalism has not yet emerged. The author considers post-Keynesian economics and Modern Monetary Theory as potential competing paradigms, but judges that the scope, scale, and direction of change in the role, function, and core principles of central banks in the post-COVID era remain fluid.

Finally, Cho Hong-sik's article (Chapter 9) analyzes the shock and consequences of the COVID-19 crisis for European governance. It is no exaggeration to say that Europe was already facing existential crises such as the Euro, refugees, and Brexit at the beginning of the 2020s, so the COVID-19 crisis can be said to have delivered a fatal blow to Europe through isolation and lockdowns. European integration has promoted free movement of citizens as its greatest achievement, and in this regard, the COVID-19 crisis seemed to be dismantling the hard-won edifice of integration. However, this article shows that Europe has succeeded in transforming itself through the COVID-19 crisis in two aspects. First, the European Union has emerged as a new actor in health policy by taking on the role of vaccine supply. Second, it has succeeded in launching fiscal policies at the European level to overcome the economic impact of the crisis. The author emphasizes that while it is impossible to predict the future based on the experience of just over a year and a half since the crisis began, it is certain in the short term that the European Union has successfully seized the opportunity presented by the COVID-19 crisis to strengthen integration.

The common research above suggests that the deeper the crisis, the greater the opportunity. Just as the 'crisis of 20 years' in the past led to a comprehensive reconstruction of the post-war world order, the COVID-19 crisis has placed immense stress on existing international and domestic governance systems, weakening governing capacity, bringing about changes in ruling coalitions, and generating new policy discourses. The US-China strategic competition, which shapes the world order, has expanded into a contest of values and norms, i.e., a competition of knowledge, entering a phase of mutual delegitimization. The critique of neoliberal globalization, which began in earnest with the 2008 financial crisis, has, through the COVID-19 crisis, opened up a broad arena for the discourse of reglobalization, seeking a plurality of competing discourses and complex models with different combinations. Domestically, a re-examination of the roles of individual freedom, community, and the state is actively underway.

History tells us that crises have provided breakthroughs for creation, reform, and innovation. It is time to engage in civilizational review of the changes occurring globally at this critical juncture and intellectual efforts towards a new order of coexistence.■

■ Author: Yeol Sohn_ Director of EAI, Professor at the Graduate School of International Studies, Yonsei University. Ph.D. in Political Science from the University of Chicago. His research areas include Japanese foreign policy, international political economy, East Asian international politics, and public diplomacy. Recent publications include Japan and Asia's Contested Order (2019, with T. J. Pempel), Understanding Public Diplomacy in East Asia (2016, with Jan Melissen), “South Korea under US-China Rivalry: the Dynamics of the Economic-Security Nexus in the Trade Policymaking,” (The Pacific Review 2019) (32): 6), Choices for Korea After the Crisis: Global Financial Crisis, Order Transformation, and Korea's Economic Diplomacy (2020), and The Global Appeal of BTS (2020, co-edited).

■ Managed and Edited by: Haeun Yoon_ EAI Research Fellow

Contact: 02 2277 1683 (ext. 208) | hyoon@eai.or.kr