Jeffrey Frankel fears the current global health crisis has the potential to trigger a worldwide recession. Even last September – long before the outbreak of the Coronavirus COVID-19 – the UN’s trade and development body, Unctad, saw the risk of a global recession in the first half of 2020 as a distinct possibility, because both advanced and developing countries are already struggling.

Unctad called on policymakers to ward off threat by focusing on job creation, boosting wages and increasing public investment. The UN body urged finance ministries and central banks to end their “obsession with stock prices, quarterly earnings and investor confidence.”

The year 2019 endured the weakest expansion in a decade and at the start of 2020, there was no sign of recession. But the outbreak of the COVID-19 “has changed all of that,” hitting China at a time of much greater economic vulnerability than in 2003, during the SARS outbreak. Back then China’s GDP growth “took a hit, but quickly bounced back,” doing “little damage globally.” Chinese consumers “released pent-up demand and firms rushed to fill back orders and re-stock inventories.”

But the COVID-19 has to date killed more than 2,600 globally. The death toll in China on February 24 had climbed to 2,595 among 77,262 confirmed cases, according to the WHO, bringing the economy to a standstill. Manufacturers are seeing huge losses in sales and struggling to ramp up production, due to critical shortages of staff. Huge swathes of China are still under lockdown, with local workers afraid to leave their homes. Others cannot access the materials needed to make their products.

China's share of global GDP was at 4% in 2003. Today, it stands at 17%. Given its huge importance to the global economy, the ripple effect can be far-reaching and lasting. The disruptions to supply are especially acute. Not only is China the world’s largest exporter, it is also the world’s largest trader of merchandise. Playing a critical role at the centre of global value chains, much of the world’s raw materials travel to China before being turned into a manufactured product. Disruptions there undermine output elsewhere.

Trade data for both Japan and Korea – the world’s 3rd and 12th largest economies – in early 2020 show visible signs of weakness. The author says, “commodity exporters – including Australia, and most of Africa, Latin America, and the Middle East – are likely to be affected the most, as China tends to be their largest customer. But all of China’s major trading partners are vulnerable.” The shortfall of Chinese demand is also likely to hit an already weakening European economy very hard – especially Germany.

As China plays an important role as America’s important and most rapidly growing export market, the effects of COVID-19 could derail the US economy sufficiently to affect the November election, if it continues to spread. A contraction of the global economy can not be ruled out, if economic activity in China remains disrupted, particularly as central banks have little effective monetary ammunition for emergencies. Nevertheless “US investors seem unconcerned about these risks… taking too much comfort from the US Federal Reserve’s three interest-rate cuts last year.”

American companies may find it difficult to access components for their manufactured goods, plunging a recovering manufacturing sector back into the long recession it suffered last year. Factory closures or shutdowns in the heartland states of Ohio and Pennsylvania could cause problems for Trump’s re-election bid, which relied heavily on bringing industrial jobs to these states.

The author says, even if a recession “does not materialize in the near term, Trump’s approach to trade may herald the end of the era when steadily rising international trade….buttressed global peace and prosperity.”

In the face of geopolitical rivalry between the US and China, the two “may continue on the path toward economic decoupling, within the context of a broader process of de-globalization.” Their “phase-one" trade deal is “fragile” and too ambitious in its scope, leaving little hope to resolve the more complex issues, like Beijing’s commitments to change policies on intellectual property, technology transfer and access to financial services. Besides China will hardly budge on bigger issues like state subsidies to make its exports more competitive than its international rivals, which is a thorn in the West's side.