Novel Threats is a series of brief conversations with fellows and affiliates of the Reiss Center on Law and Security exploring the intersection of the coronavirus pandemic and key national security challenges.
Wally Adeyemo on Coronavirus, the Global Economy and Geopolitics
July 22, 2020
Wally Adeyemo is a Non-Resident Senior Fellow at the Reiss Center on Law and Security at NYU School of Law. He is the President of the Obama Foundation. Adeyemo previously was the Deputy National Security Advisor for International Economics and Deputy Director of the National Economic Council, serving as President Obama’s senior international economic advisor. He also served as the President’s representative to the G7 and G20. Adeyemo held several senior positions at the Treasury Department, and also served as the first Chief of Staff at the Consumer Financial Protection Bureau (CFPB). He is a Senior Advisor (Non-Resident) at the Center for Strategic and International Studies.
What impact will the pandemic have on trade, and supply chains in particular? What national security threats should we be mindful of as we think about the future of trade—for example, our ability to gain access to materials essential to our national defense?
The coronavirus has already caused disruptions to complex supply chains for everything from personal protective equipment to fresh fruit, largely as a consequence of efforts by countries and companies around the world to suppress the virus. Stay at home orders and border controls are disrupting the shipment of intermediate goods and supply chains. Protectionism is also on the rise, as countries, such as India, have imposed export restrictions on medical supplies and other consumer goods. The World Trade Organization estimates that global trade will decrease by at least 13 percent in 2020.
The uncertainty created by the coronavirus will only increase calls to move supply chains closer to the end consumer of their products, known as “supply chain localization.” There are of course legitimate national security reasons as well as economic benefits to this approach, but the United States will never be able to meet all of our supply chain needs domestically. For example, the majority of rare earth materials—which play an essential role in many commercial and military products like lithium batteries and GPS equipment—are found outside the United States, and China is home to the largest deposits.
“The uncertainty created by the coronavirus will only increase calls to move supply chains closer to the end consumer of their products…There are of course legitimate national security reasons as well as economic benefits to this approach, but the United States will never be able to meet all of our supply chain needs domestically.”
In addition to securing important parts of our supply chain, ensuring that American firms can sell goods and services to global consumers is critical to growing the U.S. economy. Creating more opportunities for American firms will require us to forge trade ties that give us greater access to the Asian middle class. In ten years, the Asian middle class market will be worth $36 trillion, in comparison to the North American and European middle class markets which will be worth $18 trillion. As we work to expand trade, we must also ensure the gains from global trade are more broadly shared by promoting the rights of our workers, protecting global public goods like the environment and promoting fair competition.
How will the pandemic affect the role of the United States in the global economy?
The U.S. economy will remain crippled until we are able to contain the coronavirus. While there are some signs that the U.S. economy has strengthened modestly, as unemployment has fallen from a high of 14.7 percent and markets continue to grind higher, the economic outlook is likely to worsen if the spread of the coronavirus remains uncontrolled within our own borders. The converse is also true—countries that have largely managed to bring the virus to heel are already seeing their economic recovery trend upward.
Survey data shows that China’s economy is already gaining momentum, as the economy expanded by 3.2 percent in the second quarter. While Beijing’s early failures to address the coronavirus are well documented, by all indications, China’s strategy of containing the coronavirus before opening up the economy is succeeding. This stability at home has provided China with an opportunity to use a moment when the world’s attention is elsewhere to further assert control over Hong Kong, as well as renew territorial disputes with countries like India. Chinese officials likely perceive the costs associated with violating international rules, norms and standards as modest in light of the global community’s preoccupation with addressing the pandemic. The one country with the capacity to significantly alter Beijing’s calculus, the United States, is almost entirely focused inward. America’s inability to contain the coronavirus is providing China with increased freedom to reshape the Asia-Pacific.
Despite our challenges, the U.S. labor market remains far more flexible and our companies are more innovative. This is why I remain confident that if the United States takes appropriate steps to contain the virus, we will be better positioned to rebuild our economy than our allies or adversaries. The key is that we focus on investing in the future rather than the past. In many ways, the coronavirus is simply accelerating well-entrenched trends like the growth of automation and e-commerce. For example, over the course of eight weeks during the coronavirus crisis in the United States, e-commerce grew from 16 percent to 27 percent of retail sales. Designing our economic policy response to the coronavirus in a way that takes account of these long-term trends is the only way we can meaningfully address inequality as well as promote our competitiveness. Traditionally, policy efforts to tackle inequality and competitiveness have been in tension. Going forward, sustainable economic growth depends on policymakers finding ways to address both challenges in parallel. A great example is investing in our dilapidated infrastructure, which traditionally creates well-paying jobs and improves our competitiveness.
Coming out of the pandemic, what international economic threat do you believe will pose the greatest risk to our national security?
I worry most about economic crises in strategically important emerging and developing economies. Many countries in Latin America and Africa came into the COVID-19 crisis facing significant economic threats, including a decline in global trade, and economic conditions have significantly deteriorated over the course of 2020. As economies sharply contract and governments become weakened by the weight of a crisis, history tells us that the impact often spills outside of borders with negative regional and global consequences that are hard to predict.
The International Financial Institutions (IFIs), which include the International Monetary Fund (IMF), World Bank and regional development banks, have already stepped in to help fill the economic hole created by the coronavirus in many developing countries. For example, the IMF is making more than $1 trillion in resources available to address the economic challenges that countries are facing, which is less than half of the amount Congress has approved to address the needs of the U.S economy. The World Bank has already provided emergency support to 100 developing countries, and it is likely that many of these countries will need additional assistance. As the pandemic is likely to impact large swaths of the developing world for several years, the IFIs’ capacity to provide assistance will be stretched.
“Our failure to address inequality and systemic racism in the United States makes it far harder for the U.S. to call on other countries to provide for the poorest and protect the rights of marginalized communities. The only way to preserve a global rules-based system that reflects American values is by addressing economic inequality at home and abroad.”
It is in our national security interest to work with likeminded countries to provide the IFIs with additional resources. If the United States is unwilling to properly resource the IFIs, struggling countries are left to either collapse, creating an opening for non-state actors hostile to the United States, or turn to China for short-term financial support in exchange for long-term strategic advantage. We are seeing this play out in Lebanon today as China seeks to use economic inducements to secure a strategically important relationship in the Middle East.
You helped launch the Consumer Financial Protection Bureau. We already know the brunt of this crisis will likely be borne by lower-income Americans. As someone who has worked on economic issues from both a domestic and international standpoint, what are the national security implications of these disparities? How can we limit the damage?
The fact that the COVID-19 crisis and so many others are disproportionately borne by the poor and people of color speaks to a fundamental challenge that economic policymakers in the United States have faced long before the coronavirus. Systemic racism is a headwind to growth, and the unrealized potential of millions of Americans negatively impacts our global competitiveness.
Today, more than a quarter of American households with children experience food insecurity. There is no reason a child in America should go to bed hungry. The reality is that the United States has the capacity to end poverty and create pathways to opportunity. While we should never seek to guarantee equality of outcomes, we need to create an equality of opportunity for people regardless of race or socioeconomic status. This will require us to strengthen our social safety net, invest more in education, re-imagine job training and adopt additional policies that will ultimately make the United States more competitive.
Our failure to address inequality and systemic racism in the United States makes it far harder for the U.S. to call on other countries to provide for the poorest and protect the rights of marginalized communities. The only way to preserve a global rules-based system that reflects American values is by addressing economic inequality at home and abroad.
Novel Threats: National Security and the Coronavirus Pandemic
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