Covid-19 Economics: The unanticipated Russia-Ukraine war and the repercussions of the Covid-19 epidemic prevented the world economy from fully recovering. In contrast to its initial forecast of 4.9%, the IMF now expects growth to ultimately reach 3.2%.
Inflation is most likely to be the economic narrative that defines 2022. Prices in the West increased faster than they had in any other region since the early 1980s. All economies faced challenges from weakened supply networks, but the major factors causing core inflation diverged on either side of the Atlantic.
Strong demand for durable goods and a robust labor market in the United States were the main factors driving inflation. Inflation was a result of rising costs, wages, and job growth across the country. Pandemic supply shocks in Europe were the primary cause of inflation, which was then made worse by Russia’s conflict in Ukraine. All year long, the cost of food and energy rose dramatically, which raised other prices. Because of this, even when jobs started to return, labor markets throughout Europe found it difficult to support wage growth.
The “Zero-Covid” strategy in China hindered a domestic recovery and made the world’s problems worse. Beijing set a growth goal of 5% in March, but the OECD currently predicts that China will only expand by roughly 3.3%. In contrast to expectations, consumption in retail and industry lagged. Lockdowns are disruptive to daily life and weaken the already fragile real estate market.
U.S. Indo-Pacific Strategy: This year, the White House’s policy department was kept busy with the creation of the country’s Indo-Pacific strategy. The White House published its concise Indo-Pacific Strategy in February, which outlines the administration’s plans to reshape the area through a “latticework” of alliances. Although the Indo-Pacific Economic Framework (IPEF), which held its first ministerial in September, is at the center of this strategy’s economic agenda, other smaller agreements, such as the Quad’s Critical and Emerging Technology Working Group and Chip Four, are still taking shape. The first National Security Strategy from the White House, which was released in October, claims that China is “America’s most critical geopolitical issue” and that it wants to have a “increased sphere of influence” in the Indo-Pacific.
The surprise signing of a security agreement in April between China and the Solomon Islands set off alarm bells in Washington, and the Pacific Islands became center stage for U.S. strategy. A wide economic and security agreement between China and eleven Pacific Island countries came to a standstill in May due to opposition from states like Fiji, which expressed its reluctance to China’s aspirations by joining IPEF. In September, the Biden administration conducted the first-ever summit between the United States and Pacific Island nations and released a Pacific Partnership Strategy to go along with it.
Competition between the United States and China: As expected, the year in competition between the United States and China was characterized by a blurred line separating economic security from national security. The administration’s policy to China, as outlined by Secretary of State Antony Blinken in May, involves “investing” in domestic technical competitiveness, “aligning” with allies on economic norms, and “competing” with China economically. The CHIPS and Science Act was passed by the US government in order to invest in and support the domestic semiconductor industry. On the ally front, the US and its thirteen partner nations started IPEF negotiations and deepened their relationship with one another.
On the competitive front, the Biden administration implemented new export restrictions on China in October, launching a new strategy for managing technology rivalry. Additionally, the government added 21 businesses from China’s AI chip industry and the leader in memory chips, YMTC, on the BIS entity list in December.
This year, competition was mostly a one-way highway as the Chinese government focused on preserving stability before the 20th Party Congress, which ultimately saw Xi Jinping solidify his position and win a third term as General Secretary of the Chinese Communist Party. The administration was also engaged with fighting Covid-19. The latter involved handling broad resentment over the Zero-Covid policy and securing Shanghai for more than two months. Tensions between the United States and China reached its pinnacle this year in July and August due to U.S. House Speaker Nancy Pelosi’s visit to Taiwan, which was her first since 1997. China conducted military drills that were unprecedented in scope and near to Taiwan after Pelosi left the island.