COVID-19 IMPACT ON THE ECONOMY
ARIZONA STATE UNIVERSITY
POS 485 - POLITICAL ECONOMY
WEEK 2
3.1.
CORONOMIC: COVID-19 IMPACT ON THE GLOBAL ECONOMY:
On March 2, 2020, I received an email from a scientific article entitled "The Global
Macroeconomic Impacts of Covid-19: Seven Scenarios" written by Warwick Mc Kibbin and
Rosen Fernando. Both are from the Australian National University (ANU), the Brookings
Institution and the Center for Primary Research on Population Ageing (CEPAR). The authors
formulated seven scenarios measuring the global economic impact of COVID-19. They used
the G-Cubed Multicountry Model or epidemiological model in the economic calculations. The
seven scenarios were built on the basis of historical approaches to pandemic events in several
countries and several years ago using economic methods that are too technical to explain in
this article.
The first finding is that COVID-19 has a major effect on the labor market due to the
mortality and morbidity rates of the potential and competitive population. For China as the
epicenter of COVID-19, the impact on the provision of employment reached an average
decrease of 15.86 percent. Then the average COVID-19 contagion effect is shared depending
on each of the 7 country scenarios, namely 3 high categories and three low categories, and 1
moderate category. The analysis uses a Vulnerability Index that uses three components,
namely Mortality Rates due to infection, Morbidity Rates due to non-infection, and increased
morbidity due to the impact of revival on family members. The negative impact of the spread
of COVID-19 on other countries beyond health through the transmission of human movement
through land, air, sea and trade transportation. This phenomenon reminds us of past history
when the "Black Death" pandemic swept Europe starting from October 1347 after 12
Genoese merchant ships anchored in Messina Harbor, Sicily Islands spreading bubonic plague
which resulted in the loss of life of one third of the Sicilian population.
Second, there is an increase in the cost of doing business in all sectors of the economy that
disrupts production networks in all countries. The United States is benchmarked as the largest
economic power in the world. Equity risk premium is measured with reference to the
components of population mortality rate and Country Risk Index (IRN). IRN components
include the Risk Index Governance (IRTK), Financial Risk Index (IRK) and Health Policy
Risk Index (HCR). IRN consists of political, economic and financial sub-components.
Political variables consist of government stability such as conflict prevalence, corruption and
law enforcement. Gross Domestic Product (GDP) per capita, real GDP growth rate and
inflation rate are the economic variables. While the financial component contains a balance
sheet of exchange rate stability and international liquidity between countries. The results show
that, India, China, Indonesia and other oil and gas producing countries, as well as the rest of
the countries have risk volatility above 2 compared to other countries that are below 2 such as
Australia, Brazil, Germany, France, UK.
Third, the impact on production costs, especially on inputs to the trade, land, sea and air
transportation sectors, was enormous. Air transportation seat occupancy rates fell by up to 70
percent despite the slamming prices of domestic and international airlines.
Fourth, the impact on consumption patterns. The decline in consumption patterns of basic
needs that shifted to health consumption patterns as a consequence of changes in income and
prices that were eroded by "profit-taking" behavior in the midst of the suffering of other
residents affected by COVID-19. In addition, the impact of COVID-19 is through the
transmission of income and wealth. People's behavior patterns direct their income to future
savings as a reserve for health anticipation. The American experience shows that during the
H5N1 pandemic, the consumption patterns of Americans in the economy were affected by 3
percent according to the scenario in the G-Cubed model. Economic turmoil in each country
and each sector such as energy, mining, agriculture, durable goods manufacturing industry,
non-durable goods manufacturing industry, and services sector. In the energy sector, the
largest impact occurs in Russia reaching 54 percent, the mining sector in China reaching 50
percent, the agricultural sector in the United States and the rest of the world, the durable
manufacturing industry sector in China and the United States reaching 50 percent each, the
non-durable manufacturing industry sector in the United States 51 percent followed by China
50 percent, and in the services sector, the largest impact on the United States at 53 percent
followed by China at 50 percent.
Fifth, fluctuations in consumption demand. Of the four scenarios, in the first scenario, the
largest decline in consumption demand occurred in the United States by 1.06 times followed
by Japan by 1.01 times. In scenario 2, the largest decline in consumption demand in the
United States reached 2.66 times followed by China at 2.5 times. In the third scenario, the
largest decrease in consumption demand occurred in the United States by 4.76 times, followed
by Japan by 4.52 times and China by 4.50 times. The last scenario is the same as the third
scenario. Sixth, the impact on government spending. Empirical experience shows that during
the pandemic period, both SARS, MERS, H5N1, there was an increase in the health budget,
especially checks at airports and seaports and an increase in investment in health
infrastructure to prevent the spread of the pandemic. Scenario 4 shows that the pandemic
causes a fluctuation in the increase in government spending by 59 percent in the rest of the
world, 54 percent in other oil-producing countries, 52 percent in India, 50 percent in China
and 47 percent in Indonesia.
Seventh, the increase in premium risk for all corporations engaged in all economic sectors
as a consequence of the pandemic outbreak. The existence of private corporations, BUMN,
BUMD that require their employees to Work From Home (WFH), work part-time, shift
changes have consequences for reducing employee salaries which are feared to lead to
termination of employment (PHK) if the corporation can no longer cover its fixed costs such
as employee salaries for building rent, the Manpower Social Service Management Agency
(BPJS TK).
Finally, an economic analysis of the impact of the COVID-19 pandemic or Coronomic
shows an increase in country risk as a consequence of the vulnerability of macroeconomic
conditions. In the short term, both the government and the Central Bank play a major role in
ensuring that the economy disrupted by the pandemic continues to run. The role of the
government in reallocating expenditures that have been wasteful in official travel orders
(SPPD), routine activities without a measure, taking the duties and functions of fellow
Regional Apparatus Organizations (OPD), dominant socialization and assessment rather than
advocacy and advocacy community empowerment, seminars, meetings at the center and other
regions rather than field visits in their own regions, musrenbang and then complacent that the
activities have been realized. The turmoil in the financial system was rightly followed by a
reduction in the BI 7 Days Reverse Repo Rate (BI7DRR) and the issuance of 104 Government
Securities (SBN) by Bank Indonesia to protect the economy from market sentiment and moral
hazard. Self-quarantine on People Under Surveillance (ODP) and Patients Under Surveillance
(PDP) is an effective way to anticipate the arrival of invisible enemies. Clean and Healthy
Living Behavior (PHBS) according to Levine and Mc Kibbin's findings is a cheap and highly
effective way to anticipate the spread of COVID-19 which erodes social and economic values.
Long-term efforts in anticipating the arrival of COVID-19 and its variants are important
for various countries to allocate their state budgets for health insurance systems, especially
health insurance systems in various developing and poor countries where various infectious
diseases originate. Global cooperation is an important point that focuses on public health in a
society that lives on one planet Earth.
3.2.
EXAMINING THE IMPACT OF COVID-19 ON EXTERNAL SIDE PERFORMANCE
IN INDONESIA:
Organization for Economic Cooperation and Development (OECD) estimates that economic
growth will decline due to the impact of COVID-19, which is the worst since 2009. The
OECD estimates that world economic growth will decline from 2.9 percent in 2019 to around
2.4 percent in 2020. This slowdown is a consequence of disrupted supply in the world
manufacturing industry production chain which is dominated by China's manufacturing
industry as the world's number two economy which controls 20 percent of the world
economy. The International Monetary Fund (IMF) estimates that China as the epicenter of
COVID-19 will experience a decline in growth from 6 percent in 2019 to 5.6 percent in 2020.
This is reasonable because as the world's giant factory, China's economy will be disrupted at
least to the extent of end of the first quarter of 2020. Indonesia's external performance can be
measured by trade performance and the rupiah exchange rate.
First, on the international trade side, China's economic turmoil will clearly affect the
economies of other parts of the world including Indonesia. This happens because Indonesia's
main market is China, which is intertwined through a very close trade relationship. As a
result, Chinese demand is sluggish, so exports are expected to fade starting March 2020.
Whereas Indonesia's exports in the Chinese market were attractive until February 2020.
Consequently, Indonesia's economic growth in 2020 will be corrected to 4.2-4.6 percent.
In February 2020, Indonesia's exports reached US$13.94 billion or 2.24 percent compared
to January 2020. Of this amount, US$13.12 billion was non-oil and gas exports or an increase
of 2.38 percent compared to January 2020. Cumulatively, during the January-February 2020
period, Indonesia's exports reached US$27.57 billion. What should be encouraging is that the
destination of Indonesia's non-oil and gas exports is diversified, namely to China amounting
to US $ 1.87 billion, the United States $ 1.63 billion, Japan reached US $ 1.14 billion, whose
proportion as a whole in the three main destination countries for Indonesian exports reached
35.32 percent. Meanwhile, our exports to the European Union (27 countries) reached US$1.1
billion.
On the regional side, West Java, East Java and East Kalimantan are the provinces that will
be hit hard by COVID-19. During January-February 2020, West Java's exports reached
US$4.72 billion or represented 17.32 percent of Indonesia's exports. Then followed by East
Java's exports reaching US$3.30 billion or its proportion reached 11.95 percent and thirdly
East Kalimantan's exports reached US$2.51 billion or the contribution of East Kalimantan's
exports in Indonesia's exports reached 9.9 percent. In terms of the destination of Indonesia's
non-oil and gas exports, 15.47 percent of Indonesia's non-oil and gas exports meet the
Chinese market as the main export destination, followed by the United States market whose
proportion reached 12.58 percent. While the export destinations of the Japanese and Indian
markets were 8.79 percent and 7.72 percent respectively. The proportion of Indonesia's non-
oil and gas export destinations in the ASEAN and European Union markets were respectively
reached 23.01 percent and 8.54 percent.
In contrast, in February 2020, Indonesia's imports reached US$ 11.60 billion, a decrease of
18.79 percent compared to January 2020. Of this amount, both oil and gas imports and non-oil
and gas imports decreased from January 2020 by 12.05 percent and 19.77 percent
respectively. Oil and gas imports reached US$1.75 billion and non-oil and gas imports
reached US$9.85 billion. As with exports, there are three countries that supply imported
goods to Indonesia, namely China, Japan, Singapore. During the January-February 2020
period, China ranked first as a supplier of goods to Indonesia with a value of US$5.92 billion
or a proportion of 26.76 percent. Japan ranked second as Indonesia's importer at US$2.38
billion or 10.77 percent, and imports from Singapore ranked third at US$1.48 billion or a
proportion of 6.67 percent. Non-oil and gas imports from ASEAN reached US$4,713.2, or a
proportion of 21.29 percent, while imports from the European Union reached US$1,965
million or a proportion of 8.88 percent. During January-February 2020, Indonesia's non-oil
and gas imports dominantly came from China reaching US$5.9 billion or a proportion of
26.76 percent of Indonesia's total imports, followed by imports from Japan reaching US$2.38
billion or a proportion of 10.77 percent. Meanwhile, imports from various other continents
such as ASEAN, the European Union and the United States reached US$1.97 billion
respectively, US$4.71 billion, and US$1.16 billion or the proportion respectively reached
21.29 percent, 8.88 percent, and 5.22 percent.
About 75.22 percent of the imports were raw and auxiliary materials, 15.70 percent were
capital goods and 9.08 percent were consumer goods. The high content of imports of raw and
auxiliary materials is a minus factor for Indonesia's trade performance because these imports
are inputs for the manufacturing industry for export purposes. These raw material imports put
pressure on the Indonesian economy as they deplete foreign exchange reserves outside of gold
reserves, giving negative sentiment to the performance of Indonesia's foreign trade side.
Fortunately, in general, in February 2020, Indonesia's trade balance experienced a surplus
of US$2,335.9 million. This was due to by a surplus in the non-oil and gas sector reaching
US$3,267.5 million, on the other hand, the oil and gas balance experienced a deficit of
US$931.6 million. During the January-March 2020 period, Indonesia's trade balance
experienced a surplus of US$1,699.2 million due to the high suplus of the non-oil and gas
sector reaching US$3,801.8 million. Conversely, the oil and gas sector experienced a deficit
of US$2,102.6 million.
Second, the performance of the rupiah exchange rate. Until the first day of the last week of
March, the rupiah fluctuated. In the session on Monday afternoon, March 30, 2020, it was at
the level of IDR 16,338 per US $ 1, - a weakening of 1.04 percent compared to the session on
Friday, March 27, 2020 of IDR 16,170 per US $ 1, - in the transaction range in the range of
IDR 16,155-Rp16,415. Conversely, in the Friday, March 27, 2020 session, the rupiah
strengthened by 0.83 percent compared to the previous day at Rp16,305 per US$1. The peak
of rupiah depreciation occurred on March 23, 2020, when the rupiah depreciated by 3.85
percent compared to the last day of the previous week at the level of Rp15,960 per US$1, in
the transaction range of Rp15,975- Rp16,625. Meanwhile, the JCI on March 23, 2020 closed
at 3,989.52 or weakened 4.90 percent against the previous day's closing of 4,194.94. The
majority of stock exchanges and currencies of major countries in Asia closed down along with
the decline in US Wall Street stocks as a consequence of COVID-19. This shock to stock
prices and currencies was exacerbated by the 47-47 vote on the economic stimulus bill
proposed by Republican senator Mitch McConell amounting to US $ 2.- trillion to overcome
COVID-19. Domestically, ministry/agency budgets will experience The reallocation to
counteract COVID-19 reached Rp62.3 trillion as a result of the extension of the COVID-19
emergency period. The European Central Bank (ECB) issued a relief policy for banks in the
Eurozone to delay their dividend payments until October 2020. The ECB has removed the
ceiling on the purchase of Eurozone sovereign bonds, allowing them to print more money to
fulfill market liquidity. Unfortunately, the market still sees the risk of high fatalities due to
COVID-19 in Italy and Spain causing restrictions on business operations.
In Asia, several countries are rolling out social safety nets due to COVID-19. South Korea
has budgeted Direct Cash Assistance (BLT) of 1 million Won equivalent to Rp13.4 million
per head of household starting April 2020.
This rupiah fluctuation will only last for a moment as a consequence of COVID-19 and is a
logical consequence for Indonesia in implementing the choice of Mundell's imposible trinity
principle. This principle states that a country can only choose two of three policy options and
cannot simultaneously achieve three monetary policy goals, namely monetary policy
independence, exchange rate stability, and integration in world financial markets. The first
and second goals are based on capital flow control, the second and third goals are based on a
monetary union system, and the third and first systems are based on a free floating system.
Since Indonesia, South Korea, the Philippines, and Thailand share the same goals of monetary
policy independence and integration in the global economy, they have allowed their
currencies to volatilize towards a new equilibrium point. In the end, Jeffrey Frankel's (2000)
statement, "No Single Currency Regime is Right for All Countries or at All Times" is true.
3.3.
WARMING GLOBAL, THREAT CRISIS FOOD AND COVID-19:
Climate Change and Global Warming is one of the various a global problem. The increase in
the average temperature on the Earth's surface is a serious threat to the planet and all creatures
in it, so it needs integrated steps in countermeasures and prevention and monitoring. The
occurrence of climate change and global warming occurs due to the depletion of the ozone
layer (O3 ), the protector of the earth's atmosphere, is a consequence of the formation of
several types of greenhouse gases produced by the manufacturing industry, animal husbandry,
burning fossil fuels in motor vehicles, modern factories, as well as power plants and others,
the use of hairspray, air fresheners. Global warming has caused the melting of ice in the
Arctic, which has led to a rise in sea levels, and it is even suspected that is the cause of the
disappearance of several islands in the Thousand Islands as well as a cluster of islands in the
Maldives. As a result of seasonal changes, el-nino, la nina, weather anomalies cause climate
change and chaos which in turn affects the farmer's planting season, the chaos of marine biota
ecosystems, the intensity of disasters, and others. This affects the mindset and activities of
humans. The human mindset changes in anticipation of temperature changes, including the
mindset in sowing food and horticultural crops. Temperature has changed the planting
calendar and even more extreme disrupted the planting calendar and patterns. Of course this
affects the availability, access, and quality of food. Human activities are disrupted to avoid the
spotlight of Ultraviolet rays.
Since 2010, the food crisis has become globalized. The world is experiencing a food crisis
as a consequence of weather anomalies and the control of food assets only in certain
countries. Every day, there are 1.7 billion people in the world who do not receive proper
nutrition, especially those living in Sub-Saharan Africa and India. The threat of malnutrition
is a global trigger for stunting, threatening 139 million children under five worldwide. This is
exacerbated by the dominance of cartels in determining food prices, making the volatility of
world food prices difficult to anticipate by various countries. Thailand, for decades, has held a
quarter of the world's largest rice supply. Meanwhile, Indonesia has been a food importer
since the mid-1980s. Almost all of these food price controls are carried out in Geneva,
Switzerland, a country that has no food culture except for milk producers. The world food
crisis will be difficult for populous countries so it must be anticipated beforehand. Fish can be
the best alternative because of its high protein content.
The COVID-19 pandemic has been globalized since its epicenter originated from Wuhan,
Hubei Province. This pandemic could lead to a food crisis and then a social crisis if the main
core of the problem has not been resolved, namely health solutions. Health is the commander
in chief now because we will be in vain in promoting economic development if the population
is not healthy. Health is the first thing to be prosperous and prosperous. The COVID-19
pandemic has caused Vietnam to ban rice exports in anticipation of the threat of a Food Crisis.
Indonesia could be affected by this policy because we became an importer of rice from
Vietnam, in addition to Thailand.
In the context of Central Sulawesi, we should start addressing COVID-19. We don't know
when the peak will be, whether it will be a steep "V" curve. For us members of the public, in
addition to giving health authorities the opportunity to handle patients, we should work from
home is the right choice. Uncertainty, unpreparedness, and differences of opinion should be
discarded. The stay-at-home option is the democratic choice. Obedience and discipline are the
right words. The worst possibilities that can occur at any time. The main mainstay during the
pandemic is food crops, horticulture and fisheries. Policies in favor of farmers such as
fertilizer and seed subsidies, agricultural insurance and fishermen are still being held. Perhaps
this is the moment to side with farmers and fishermen because in this agrarian country farmers
and fishermen are synonymous with poverty. The proof is that in this area, the Farmer
Exchange Rate (NTP) was above 100 points only in 2014 and only 7 months in 2015. This
NTP measures the value of what farmers sell and the value of what they buy. If the value sold
is greater than what the farmer buys, the farmer will be prosperous. Chance does not knock
twice, opportunity does not come twice. It is time for farmers to move up the caste to become
prosperous, just like the increase in the welfare of cacao farmers during the monetary crisis in
1997. Unfortunately, during 1997, farmers became consumptive.
If not now, then the farmer will only be the title of the song The "hut of suffering" is typical
of small farmers, poorly cultivating a quarter of a hectare of agricultural land. We in Central
Sulawesi should be grateful because agriculture is a mainstay that contributes 25 percent of
the Central Sulawesi economy and 70 percent of the Central Sulawesi population works as
farmers and fishermen. But unfortunately, agricultural products such as rice and fish can also
trigger poverty through the transmission of price increases of these commodities in addition to
cigarettes and pulses. It is necessary to prohibit inter-regional trade in Central Sulawesi before
meeting food needs and reserves so that we are not miserable in food barns. In Lumbung we
save, come the famine we are not confused like the lyrics of Iwan Fals' song.
AMERICAN ECONOMY AND THE BEGINNING OF ECONOMIC HEGEMONY
CHINA
4.1.
WILL THE ECONOMIC HEGEMONY OF AMERICA END?
On December 18, 2020, the Department of Economics and Development Studies FEB-
Untad organized a book review zoominari 'Interpreting China's Economic Hegemony'.
Broadly speaking, this book provides information and an overview that since 2007, the United
States and Europe have been in a major prolonged crisis. Their leaders recognize this gravity
but ignore its origins. The abolition of customs protection, imposed in tandem with the dogma
of absolute primacy and maintained regardless of the deliberately large depreciation of the
Yuan, has resulted in extreme imbalances in international trade. Between 2000 and 2007, in
order to maintain growth regardless of large trade deficits, the United States, the United
Kingdom and Southern Europe were seen refusing to enact adventurous economic policies
that resulted in crises. China has always refused to revalue the Yuan, the trade deficit of
Western countries is not resolved, the crisis continues. Capitalist and totalitarian great powers
combine to make China lead an exploratory strategy to shift the hegemony of the United
States. This strategy manifests itself on all fronts (economic, financial, military, diplomacy,
cultural, etc.). The main instrument is monetary, China is practicing "economic
imperialism". The period of American hegemony is coming to an end after overtaking British
hegemony about 200 years ago.
Over time, the publication of 'Interpreting Economic Hegemony China' in Indonesian
marks ten years since the publication of the French edition of 'Memaknai Hegemoni
Ekonomi China' in January 2011, which appeared just four months before the publication of
American writer Peter Navarro's book 'Death by China' in May 2011. Without the authors
having met each other, Peter Navarro's book and 'Interpreting China's Economic
Hegemony' provide the same analysis and the same conclusions on China's progress.
According to both authors, since 2000, Beijing has built a strategy based on International
Trade, methodical, structured, systematic and exploratory, to gain world hegemony. Both
authors conclude that the instrument of customs protectionism is confronting 'made in China'
is absolutely necessary to prevent Beijing's strategy of destabilizing other parts of the world.
Peter Navarro in the 2016-2020 period became President Trump's most listened-to Trade
Advisor. The trade countermeasures that inspired the Trump Policy were deployed to sensitize
and mobilize all Americans against the Chinese Communist Party's strategy. In 2020, most
recently, between 70-75 percent of Americans considered China to be the United States' main
competitor.
'Interpreting China's Economic Hegemony' underscores that China is pursuing a
strategy of mercantilism, which, historically without a doubt, leads to world hegemony for
China and for the Chinese Communist Party. This strategy has led to the economic decline of
other countries. The Point of View 'Interpreting China's Economic Hegemony' is
simultaneously economic and geopolitical. Both are described on the following four points:
First, Trade Balance plays an important role for every country. Countries whose trade balance
is generally in surplus, but not always, are in the power dynamic of building their industry;
the growth of Gross Domestic Product is the main determinant. Countries that experience
persistent deficits will experience relatively deindustrialization dynamics. These countries
will experience a significant increase in GDP, but weaken because the solution is through
foreign debt that is greater than the generation of domestic savings; the GDP growth is
unhealthy because it is guaranteed by increased debt.
Second, countries that run a surplus against all countries cause problems to other countries.
As you know, international trade is a balancing game. One country's trade surplus causes
another country's deficit. If one or more countries develop a mercantilist strategy to achieve a
large trade surplus, it is a non-cooperative strategy because, mechanically, other countries will
run trade deficits while at the same time deindustrializing and increasing debt levels.
Third, large countries that become "super mercantilists" show evidence of dominance
and hegemony. As you know, in the 17th century, William Petty, in his work "Arithmetical
Policy", explained that a country that successfully implemented a mercantilist strategy
through such a large trade surplus would lead to a position of dominance over other countries.
A country can achieve industrialization spectacularly, on the contrary, other countries
experience deindustrialization and damage the stages of industrialization in non-industrialized
countries; its economic growth can remain high on the contrary, other countries experience
deficits. Furthermore, a "super-mercantilist" country accumulates huge gold reserves and
foreign exchange reserves in a symmetrical manner, while other countries experience growth
in external debt and become subordinated to it and are in the grip of other countries' financial
dominance.
Fourth, in the 21st century, China is thoroughly a "super-mercantilist" country that
inspires hegemony. The mercantilist policy has been implemented by the British Empire in
the 19th century, then by the United States in the 20th century. The ultimate goal of China and
the Communist Party of China (PCC) is to lead hegemony in the early 21st century.
Ten years after the publication of the book 'Interpreting China's Economic Hegemony',
China's dominance is at the level of industry and trade; it tends simultaneously towards
multidimensional domination. Let us examine the increase in China's power over the past ten
years in various fields. Economic Dominance since 2013, the world's number one GDP in
purchasing power parity (PPP) measure and the world's largest market; World Financial
Dominance (the world's number one donor country, far ahead of Japan and Saudi Arabia);
World Technology Dominance (5G technology, in artificial intelligence); Diplomatic Control
(control of various UN organizations, especially the World Trade Organization (WTO) and
the Food Agriculture Organization (FAO) and various countries depend on China; Sharing
Control over military power and weapons such as underground missiles, submarines and
deep-sea control, various military bases in various parts of the world, especially in China's
seas Sharing control of space (back and forth trips to the moon); Sharing control of territory
including the world infrastructure route 'Silk Road' controls transportation routes in various
countries; Sharing maritime dominance (world trade routes, port routes and marine military
bases in the world). In the end, what remains is monetary and military control in the hands
of the United States. Once again, to mark China's successful 'exploitation', the International
Monetary Fund (IMF) included the Yuan in the heart of the Special Drawing Right (SDR)
which subsequently the Yuan became the world's convertible currency. A trade imbalance of
such magnitude, known to the world's population and the basis of a noteworthy geopolitical
shift, is a sign of grave danger. Countries with such large deficits tend to gradually experience
instability, risking to push their political systems gradually into authoritarian, even
totalitarian, as a response to objections in their societies, in their adventures, especially
military. However, the most imminent danger is China's military 'show of force' in the North
Natuna Sea, which has turned several artificial islands into military bases, after the takeover
of Hong Kong, at the expense of international agreements signed by China, as well as the
threat of a military invasion of Taiwan. Most recently, the Governor of the US Federal
Reserve Bank, Powell stated that 'since the USA excluded Russia from the Society of
Worldwide Interbank Financial Telecommunication (SWIFT) system, no country will trust
any organizational system established by the USA'. This erroneous move will strengthen the
Russia-China bloc system in the international transaction system, leading to the end of the
dollar's privilege in payment transactions international. This is the end of American
hegemony.
4.2.
CRITICAL NOTES ON CHINA'S ECONOMIC MIRACLE :
Seek knowledge to China is a proverb from the school days that means to seek knowledge
to any extent. By the fifth century BC, the Tang dynasty had recognized paper money that had
been circulated during the Roman and Persian empires. This Chinese Success Story, is
l'histoire se repete Guangzou's success as the world's oldest trading port city. This success
story is always linked to the Japanese Success Story, in the historical past, contemporary
times and in the context of global-international inter-relationships. Also, in looking at how the
context of the "Chinese Miracle", following the "Japanese Miracle" is linked to the
analysis of the role of Britain in the past and the United States in the present as the Adi Daya
country both in the perspective of the History of Economic Thought and empirical economic
history.
There is a policy for the United States and Europe in dealing with China's economic
progress as a threat, which in the next few years could overtake the United States in the GDP
ranking. According to Professor Didin S. Damanhuri, there is a kind of "Ethnocentrical
bias", which always places the West (especially the United States and Europe) as the "Center"
which must, but in the most important position, both geo-politically and geo-economically
globally. In fact, it has been more than a decade, realized by various intellectual circles
internationally, of the fact that there is a shift in the World Economic Center from the Atlantic
to the Pacific and it is predicted that Asia will become the Center of Economic Development
and World Civilization as stated by one of the influential books written by Kishore
Mahbubani (2011).
The views of Professor Kishore Mahbubani - an intellectual from Singapore's Lee Kuan
Yew School of Public Policy - are highly respected by US and European intellectuals for his
views on the Market Economy in Asia. According to Mahbubani, countries in Asia put the
Market Economy very pragmatically in what he called the March to Modernity and predicted
because of its present state and future trends. According to him, Asia will become the
"Center of Civilization and Development" which is now still centered in Western countries.
However, the success of many Asian countries (Japan, China, South Korea, India,
Malaysia, Thailand, Singapore), its market mechanism without having to abandon religious
values, traditional values and with the role of the state and political democracy is unique and
varied. He cited In China, how its people now not only enjoy much higher prosperity, but also
real freedom or democratization thanks to economic progress. Thus, the Market Economy in
Asia deviates from the midstream of the US and European Market Economies or what
Professor Didin S. Damanhuri calls Heterodox Economics (2010).
Then we know Japan's Market Economy which in a relatively short time (1970-1990s) the
performance of its industrial branches (Electronics, Telecommunications, Automotive) was
able to surpass the industrial branches of the United States and Europe, thanks to the role of
the state with what is called Japan Incorporated. Japan Incorporated is the role of long-term
planning and synergy with other actors (private sector, parliament, research world,
representatives abroad). Meanwhile, in practice, it leaves it entirely to the private sector to
realize its corporate actions in the market mechanism (national and global). According to the
results of studies in Japan, the welfare of its workers is also - along with Sweden - the highest
in the world, where labor unions in Japan are not too strong like in Europe. While the Market
Economy of the United States with a relatively minimal role of the state, which produces
performance as an economic, political and military superpower in the world thanks to
fantastic advances in science and technology, its social performance is fragile. Today there are
about 2 million homeless people (due to the 2008 crisis), a homeless population of about 12
percent, poverty (with a poverty line according to their own measure that is much higher than
developing countries) of about 18 percent. The problem of poverty is more the concern of
social foundations such as the Kennedy Family Foundation, Rockefeller, Ford, and others.
Since the Democratic Obama administration, there is now a law that guarantees the poor
access to free healthcare. At that time, it was tried to be repealed by the Republicans through
the rejection of the budget in 2013-2014 which then led to a policy that shocked the world,
namely the "temporary suspension of government services" (shutdown) by President
Obama.
The Market Economy in Europe is another story, where alongside the role of the state that
guarantees a social security system for the entire population, it also mediates labor and
employers, and encourages a highly efficient and performing Cooperative Movement. That
way, the European economy is generally more equitable and relatively less poor, even though
it is currently suffering from a fiscal and social crisis at the same time as well as COVID-19
which has not ended until now. With the 2008 crisis in the United States that has not yet
recovered properly and also Europe with a fiscal crisis that is far from over. In contrast, Asia
continues to lead the world's growth with various variations in its development model as
briefly described earlier.
However, the important question is not whether China is a good hegemony or not, but how
the region should respond to the possibility of rising hegemony. In the short term, there is an
increase in military spending and arms purchases in the Asian region, not least Indonesia,
which is predicted to increase its military budget. Likewise, the Philippines and other
countries in the Asian Region. This indicates that there will be an arms race in Asia.
Although, it must be understood that the internal balancing option in responding to China is
not a wise option. This is because most Asian countries are developing countries, where
various domestic constraints to realize this strategy include economic and development
interests, as well as political capital to allocate military funds.
At the beginning of his second term, President Obama launched the pivot to Asia. In fact,
four years later, the "strong one" has not arrived. Moreover, the Trump administration will be
faced with the same obstacles and burdens of military mobilization as Obama. However, if it
is true that the US military will be involved in order to help Asian countries respond to
China's increasing hegemony. This does not mean China will stop and keep its distance. One
of the reasons is that the North Natuna Sea (LNU) is more than just an economic enclave, it is
now part of China's national and historical identity discourse.
While the likelihood of an open conflict still seems low, it is certain that both internal and
external balancing options with the help of the United States are options that lead to an
escalation of tensions and nationalistic sentiments of regional countries. A more strategic
option is to take actions that result in de-escalation of existing tensions. These include
revitalizing security cooperation between China and Asian countries on non-traditional issues
such as terrorism and drugs, participating in China's efforts in the One Belt One Road
(OBOR) program, considering bilateral as well as multilateral cooperation with China on the
disputed islands in the LNU. In addition, continue efforts to establish a mutually beneficial
code of conduct in the region.
Indeed, China now appears to be the hegemony aggressively projecting its power in the
region. However, from the perspective of countries in the Asian region, all are allies of the
United States, all conduct regular joint military exercises and most provide a place for US
military bases.
However, we cannot deny the existence of "the miracle of China", where China's GDP
per capita growth reached five times the world's per capita growth. In addition, if the United
Kingdom took 58 years to reach the industrialization stage in the period 1880-1938, the
United States took 47 years to reach it in the period 1839-1886, Japan took 34 years to reach
the industrialization period in the period 1885-1919, South Korea took 11 years to reach the
industrialization period in 1966-1977, then China only needed 8.6 years. Development rests
on the foundation of "crisis less growth", on five things: high international liquidity, solid
banking system, effective financial security system, high and stable savings rate, and large
market and differential capacity. In addition, China pays close attention to the advice in the
Triffin Paradox of continuing to accumulate foreign exchange reserves at home, in contrast
to the experience of the United States, which accumulates foreign exchange reserves abroad,
which can threaten the privilege of the dollar as a world currency.
China's Economic Hegemony is interesting not only because it contains historical
descriptions and economic and geopolitical strategies. One of the lessons that can be drawn
from how we study China's strategy is so that Indonesia does not become a victim of China's
imperial hegemony politics. However, the Chinese miracle gave rise to various concepts of
economic thought such as totalitarian capitalism and market socialism. Phenomena in China
such as economic reform in rural areas, labor exploitation, market capitalism that causes
environmental problems. This emerged as a result of mass industrialization giving rise to
China's new imperialism which led to China becoming an exporter of capital and exporter of
cheap labor, and the centralization of capital in a handful of large groups. There are 215
multinational corporations in the world, 112 of which are from China. China's behavior of
state capitalism is interesting in economic thinking.
Behind this debate, China faces two major problems: urbanization and economic
development of the poor western region. However, at the stage of economic development
after the open door policy, China successfully went through three major periods: the period
1978-1999 was a period of political change, the period 1992-1999 was an expansion of the
socialist market economy characterized by an average economic growth of 10.9 percent, and
the period from 2000 to the present was a period of high, stable and innovative economic
growth despite still facing the COVID-19 pandemic. Of course, all innovation-oriented
countries depend on the factors driving their economic growth: TK, Capital, Science and
Technology. Developed and developing countries are subject to the 7-3-3-7 law, namely 70
percent of the economy of developed countries is driven by science and technology, and 30
percent by labor, capital and raw materials. Conversely, 70 percent of the economy of
developing countries is driven by labor and capital, and 30 percent by science and technology.
Of course, China still has a long way to go to transform into an innovation-based economy.
But signs of the way are already visible through the digitalization of the economy.
4.3.
NEW WORLD GEOECONOMIC DYNAMICS: THE ERA OF CHINESE
ECONOMIC HEGEMONY:
On March 18, 2022 in the evening, I received the e-paper of the magazine The March 19,
2022 edition of The Economist, as usual every Friday night. The headline was "The
Alternative World Order: Friendship Between the Two States Has No Limits", a free
translation of the alternative world order: Friendship between the two countries has no limits.
The war in Ukraine will determine how China views the West and how it is challenged. The
Ukraine war is a moment for China to start setting up a new world order outside the hands of
the UN, World Bank, International Monetary Fund (IMF), World Trade Organization (WTO)
dominated by Western hegemony. China's strategy to erode Western hegemony starts from
the economic entrance, namely through Dumping Rates and controlling shares in these world
economic institutions. The initiation of the establishment of the Asian Infrastructure
Investment Bank (BIIA) is one of China's initiatives towards the hegemony of this middle
kingdom.
History shows that Western-style mercantilism emphasizes protectionism in the form of
import duties in the form of imposing taxes on goods entering a country's territory and
imposing export subsidies. This conventional protectionism is price-oriented. Meanwhile,
Chinese-style mercantilism is through monetary protectionism in the form of weakening the
yuan or dumping the exchange rate. China is very clever because if it follows the British and
American experience, it will be exposed to complaints from other WTO members who lose
money and object to China's dumping. Other WTO members can request a panel to be formed
through the dispute settlement body (DSB) mechanism, which takes more than three years and
drains the energy and funds of the country, which China will definitely lose. Moreover, China
has only been a member of the WTO for over twenty years. Through exchange rate dumping,
it is certain that China is able to penetrate markets in all countries and more importantly the
absence of the 'world monetary police' because the IMF does not act like the WTO, although
the IMF has many experts. In contrast, the WTO has no experts at all except for part-time
experts and organizing international trade law seminars.
Through this loophole, China's aggressiveness is getting stronger in various parts of the
world. Walt-Mart, the world's hypermarket giant, once reported that 50-60 percent of the
products circulating in American Walt-Mart come from China. In Africa, little by little, China
will shift the dominance of the European Union in the oil and gas exploration sector. China
National Petroleum Company (CNPC), PetroChina, Sinopec, China National Offshore Oil
Company (CNOOC) are already active in Africa. They compete with multinational
companies: Total (France), Exxon Mobil Oil (US), British Petroleum (UK), Royal Dutch
Shell (Netherlands), AGIP (Italy). Although some of these Chinese oil and gas exploration
giants are still dominantly operating in Central Asia, Indonesia, Canada and China itself, it is
not impossible that they will also penetrate the American market. Moreover, these Chinese oil
and gas exploration giants can take advantage of the triennial Sino-African summits since
2006 in Beijing and Sharm el Sheik (Egypt) in 2009. In America, history shows that without
political pressure in the name of American nationalism that unites Republicans and
Democrats in Congress, CNOOC could take over Union Oil of California (UNOCAL) over
Chevron Texaco because they bid higher (US$18.5 billion) than Chevron, which only bid
US$17.1 billion in 2005. If this plan is realized, the exploration of Kazakhstan's oil and gas
fields will have changed hands to China.
On the other hand, large-scale cooperation tenders between foreign companies in China,
sometimes flavored with political interests in addition to mass technology transfer obligations.
For example, in the construction of nuclear plants, the competition between AREVA (France)
and Westinghouse (USA) was won by AREVA. Similarly, between Boeing and Airbus, it was
won by Airbus because both winning companies made massive technology transfers. Then,
China would kick AREVA and Airbus out. In another example, the consortium to build a
giant dam and hydropower plant on the Yangtze river (Mitsubishi, Toshiba, Hitachi) was
quickly replaced by a German-Canadian consortium, or a month after the Nippon-American
defense deal. Armed with this experience, China exported nuclear reactors and power plant
machinery to other countries in Southeast Asia.
In anticipation of urbanization, especially towards the coastal region of Shenzen, China has
introduced "huku", a temporary domestic passport authorized by provincial governments for
residents of Chinese provinces. The main purpose is to limit the movement of people between
provinces. However, residents from poor provinces such as Hubei and Guizhou are not losing
their minds. They work and live inside the factory without daring to leave the premises. Of
course, they are considered illegal workers. 14 hours of work per day takes up a lot of their
time. A 2006 study "la face cachée de la Chine (China's hidden face)" mentioned that nearly
150 million workers in China are those who were born as second children and so on who did
not receive any facilities from the government including after they became factory workers in
the form of the right to obtain housing, schools for their children. They are the so-called
"floating population" which in mainland Europe is synonymous with illegal immigrants (Jean-
Marc & Yidir Plautade; 2006).
In fact, China's economic development model is a similar incarnation of the Japanese
model in the past. During the period 1945-1985, Japan built an economy based on low wages,
low interest rates and a weak yen (dirty floating). Similarly, China, through this strategy,
became the world's largest assembling giant. Just imagine, in 2005, in the North American
Free Trade Agreement (NAFTA) region, labor wages in $US in Mexico were 40 times lower
than in the USA. Then China shortened the labor wage to 9 times lower than in Mexico with
14-hour working hours. The difference in labor wages and long working hours of course
makes foreign parties rush to move their factories to China plus the guarantee of business
certainty and without any stealth costs.
Since 1989, China has pursued a mercantilist strategy of dumping the yuan at 8.28 yuan
per US dollar from 1994 to 2005 which prior to that period was 3.40 yuan per dollar. The
yuan appreciated to 6.83 yuan per dollar between July 2005 and July 2008 based on
purchasing power. At the same time, the World Bank estimated that a balanced exchange rate
for the yuan would be 3.40 yuan per US dollar. Based on the exchange rate dumping policy,
labor wages in China to 80 times cheaper than the previous 40 times.
Unfortunately, behind China's success, there is a phenomenon that deserves the attention of
its government. In June 2010, there was a mass suicide at Taiwanese giant Foxconn, which
employs 300,000 Chinese workers. There were also mass strikes by workers at Honda and
Toyota factories in protest of low wages and long working hours. Strikes are a rare sight in
China, where everything is controlled by the government.
In Asia, China has created unfair trade internationally. First, countries in the Mekong
Delta and Indonesia only act as suppliers of raw materials to China's manufacturing industry.
Meanwhile, China floods the countries with cheap, low-quality products. This is exacerbated
by the fact that the Mekong Delta region (Vietnam, Laos, Cambodia) is not yet a member of
the WTO. If there is a trade dispute, then it is certain that the position of this country is weak.
Consequently, of course, all products according to the three-digit Standard International
Trade Classification (SITC), which is grouped into nine types of products according to UN
measures, are controlled by China.
Secondly, China as a creditor will create a 'vicious circle of credit' in the Mekong Delta
region, possibly including Indonesia, which again will create greater dependence on them and
make China's bargaining position even greater to pressure its export destination countries. As
a result, debtor countries are more easily dictated to by China. This has already been proven
in the M60 aircraft scandal that affected China's investment plans in Indonesia in the electric
energy sector. In the end, both the Mekong Delta countries and Indonesia are no different
from colonized nations.
Third, a further consequence is the collapse of small and medium-scale enterprises
including home industries, which results in unemployment and the transformation of these
small and medium enterprises (SMEs) into the informal sector. The reason is that in Asian
countries such as the Mekong Delta region and Indonesia, subsidies for the unemployed do
not exist as in the European Union. As a further consequence, divorce may increase,
especially among families who have lost their jobs due to the aggressiveness of Chinese
products. The corollary is that there is no choice but to work but when employment has been
eroded by the Chinese industrial machine, social problems will arise including crime and
possibly famine.
Fourth, China has and will create smuggling in other countries and increase the black
market because when other countries impose anti-dumping or saveguard measures, importers
in other countries try to bring cheap goods to the domestic market. Moreover, in countries
where security is weak in all dimensions and corruption is rampant, Chinese products will be
able to flourish.
For us, China marks an era of Asian hegemony. However, we should be aware that since
2008, our trade balance with China has always been in deficit. This is a loss for Indonesia.
The policy is to increase the added value of Indonesian products exported to China, not in raw
form. For example, the export of 3,000 tons of semi-husked coconuts from Central Sulawesi
to China is a false pride as well as the beginning of a loss in the exploitation of state
capitalism by the state due to ignorance that does not process the increase in added value one
level above. Exports of semi husked coconut are lower in added value than desiccated coconut
flour.
In the context of the world trade system, the most important policy against Chinese
mercantilism is to propose a trade objection panel at the WTO. The choice of protection on
selected products could be another option rather than the nation's independence being
mortgaged because of China's unfair trade and the absence of nationalism of policy makers.
However, once again, protection that only protects industrial products owned by individuals
in power is tantamount to repeating the history of New Order protectionism in the form of a
rent-seeker society. Unfortunately, without realizing it, policy makers in Indonesia have given
a lot of freedom to Chinese products that have led to de-industrialization in Indonesia. The
actions of these individuals are tantamount to allowing excessive exploitation of the "floating
population" in China at the same time may lead to immiserizing growth in Indonesia.
4.4.
THE UPS AND DOWNS OF THE TRADE WAR AMERICA-CHINA:
Trade wars are the dynamics of two poles: the pole of economic integration through the
spirit of free trade and the pole of protectionism based on the spirit of national economic
sovereignty. Trade wars are at the protectionism pole. Trade wars are a frequent phenomenon
in the global economy despite the existence of the World Trade Organization (WTO) that acts
to oversee the process towards free trade. The experience of the U.S.-Japan trade war during
the era of President Ronald Reagen in the mid-1980s saw both countries lose.
President Trump's Trumponomic or economic policy ideas have indicated that he will steer
the US economy towards the pole of protectionism. The indication is the deterioration of US-
China trade relations leading to a trade war. The US administration imposed import tariffs of
US$50-US$60 billion on a number of Chinese products that were about to enter the US
customs territory. Further, import duties were imposed of 15 percent on steel and 10 percent
on aluminum. The US also restricted investment and complained to the WTO for unfair trade
in bilateral trade. China responded to the US policy by raising import tariffs to 25 percent on
US imported products as well as complaining to the US at the WTO.
China's trade practices are potentially unfair as it has been accused of stealing intellectual
property rights by hacking into computer networks that cost the US hundreds of billions of
dollars. Multinational companies wishing to operate in China must partner with local Chinese
companies that require technology transfer for their local partners to copy and then
unilaterally terminate the partnership if the local Chinese company has obtained the
technology. In addition, Chinese investment in the US is directed at strategic industrial
sectors. Trumponomic enforces the classic infant industry argument or fragile industry
rationale for protecting the US manufacturing industry through the imposition of steel and
aluminum tariffs to reduce its trade deficit to US$100 billion.
Trump's policy is, in fact, splashing water on its own face as US agricultural products are
heavily dependent on the Chinese market and China's retaliation is a boycott of US products.
Signs of this direction are already visible. The market reacted negatively to Trumponomic
causing the US stock market to contract. For China, the Trumponomic policy is driving the
economic downturn as Chinese exports are lower, depressing China's GDP growth to contract.
Manufacturers of electronics, clothing and household products in general will suffer.
Trumponomic hinders China's "Made in China 2025" policy, which directs the roadmap of
China's manufacturing industry towards innovative science and technology-based industries.
There are seven industries affected, namely information technology, robotics, aircraft,
shipbuilding and marine industries, railways, renewable fuels and medicines.
For the global economy, this trade war will cause a slowdown world economy. In addition
to imposing import tariffs on China, the US also imposes import tariffs on its trading partners
such as the European Union, Argentina, Australia, Brazil, Canada, Mexico and South Korea.
This US policy is set to be reciprocated by its trading partner countries. The trade war
triggered by the US can be divided into four stages. First, the US imposes new high import
tariffs on imported products from its trading partners. Second, the trading partner countries
will react with similar measures on US products to the US trading partner countries. Third,
the global economy will enter the era of trade wars. Fourth, there will be a real trade war
involving many countries and affecting the global economy. The volume of world trade will
slow down and this is something that is not expected to happen because it will affect all
countries, including the US. The global supply chain will be disrupted, resulting in
multinational companies must recalculate production lines, distribution lines and costs. Under
these conditions, every country, producer, consumer must be prepared to be at a new
equilibrium point, namely economic sluggishness.
Efforts to ease tensions in the trade war have not gone unnoticed. Compromise
negotiations continue because they realize the detrimental impact not only for the US and
China, but for all countries. Policies to reduce tariffs on car imports and protect foreign
intellectual property in China were pursued by the Chinese Government. China chose to relax
the trade war so that the escalation would cooldown.
In the context of Indonesian trade, the threat of Trumponomic protectionism if palm oil is
subject to tariffs in the US market. Conversely, Indonesia can reduce imports of soybeans,
corn and wheat from the US in addition to reducing purchases of US-made aircraft. As for
China, Indonesia's trade balance has always been in deficit. Indonesia is the only ASEAN
member whose trade balance deficit with China reached US$13.39 billion in 2017.
Indonesia's exports to China only reached US$21.32 billion. On the contrary, what should be
worried is that Indonesia is flooded with Chinese products that can cause de-industrialization
in Indonesia so that it can destroy Indonesian MSMEs.
Trade wars can be beneficial for Indonesia if it can capitalize on the opportunities
available. Market penetration for Indonesian products replaces US products that are subject to
import duties. Unfortunately, Vietnam, Thailand and Cambodia are taking advantage of this
opportunity. Alternative new markets and trade diplomacy can be conducted to replace
traditional markets that have been our export destinations such as South Asia, Eastern Europe,
East Africa, the Middle East and South America can be potential market destinations for
Indonesia. Regional economic cooperation between trading blocs such as the South Asian
Regional Economic Cooperation (SAARC), Mercado Commun del Sur (Latin America), Gulf
Cooperation Council (6 countries in the Arabian Gulf region), East African Common Market.
