During the 2008–09 financial crisis, the stock market, global trade, and economic growth all fell by greater margins than in the same period of the Great Depression of 1929–33. However, unlike in the 1930s, governments set aside smaller disagreements, coordinating domestic policies to save the global economy. After a rocky year, the economy stabilized and a second great depression was averted. The response, not the scale of the initial shock, mattered most. As Daniel Drezner, an international-politics professor at Tufts University, put it, the system worked.
The coronavirus, which causes the disease now called COVID-19, may be another once-in-a-century event. If some of the gloomier projections of COVID-19 play out, the world will face one of its worst peacetime crises of modern times. Unfortunately, this crisis occurs in a dark political climate, more similar to that of the early ’30s, when many governments pursued nationalist, beggar-thy-neighbor policies such as the Smoot-Hawley Tariff, and international cooperation was very limited. Over the past decade, the world has grown more authoritarian, nationalistic, xenophobic, unilateralist, anti-establishment, and anti-expertise. The current state of politics and geopolitics has exacerbated, not stabilized, the crisis.
Wuhan officials’ failure to acknowledge the scale of the problem early on, and their suppression of medical personnel, meant that valuable time to contain the virus was lost. The international community once saw China’s growing influence in multilateral institutions as a positive development. But now that involvement is having a complicated effect on the World Health Organization (WHO), whose leadership is widely seen as overly deferential to Beijing, a stance that could compromise public trust in the organization.
China is not alone in its initial missteps. President Donald Trump, a self-acknowledged germophobe, sees the outbreak through the prism of the stock market and his own reelection. He has reduced funding for the National Security Council and had already abolished the office within the NSC dedicated to combatting epidemics. He seems to put pressure on his own officials to downplay the risk posed by the virus. Trump, and some of his officials, have actually said the virus could “have a very good ending for us” or “boost jobs” in the American economy. In South Carolina, Trump said that the virus is under control, and that any notion to the contrary is a “new hoax” by Democrats to get rid of him. But there will be no escaping reality. As the virus spreads and more people die, Trump could pivot to his authoritarian impulses, on display before he was president when he called for draconian measures during the 2015 Ebola outbreak.
Other governments are struggling too. Japan failed to deal with the rapid spread of the virus on board the Diamond Princess cruise ship. Cambodia let another ship, the Westerdam, dock and allowed the passengers, at least one of whom was infected, to disembark and travel on. At least seven senior Iranian officials have gotten the virus; one has already died. The virus is now spreading throughout the Gulf with potentially seismic geopolitical consequences. South Korea hesitated before taking more serious steps to isolate and stem the spread of the virus in a secretive cult.
A full-blown pandemic could create a severe economic downturn on par with 2008. Some of the world’s largest economies have ground to a halt. People are limiting their travel. Schools are closing and conferences have been canceled. The Dow Jones fell by more than 13 percent last week and it continues to be volatile. Supply chains have been disrupted and will be difficult to restart. The crisis seems all but certain to reinforce and deepen trends toward decoupling and deglobalization. If the outbreak lasts through the fall, with a lull in the summer, there could be a financial risk if some companies go bankrupt and vulnerable countries face increased borrowing costs.
In addition, information and disinformation flow freely on social media, promoting panic-buying and herd behavior. Civilian hoarding of masks and disruptions to drug supply chains could cause shortages of medical equipment and pharmaceuticals in many countries. Travel disruptions may complicate the effort to get vital supplies to the most vulnerable places.
This moment cries out for a cooperative international response. In 2008, governments generally trusted the experts—for instance, then–Federal Reserve Chairman Ben Bernanke, who had made the 1929 crash his life’s work, led the American response—even when their recommendations were politically unpopular. These responses were decisive and coordinated. Unfortunately, no such response has been forthcoming in recent months. The recent G20 ministerial meeting in Saudi Arabia accomplished little.
The Trump administration has shown no interest in leading an international response, preferring instead to deemphasize the risk. However, this moment demands strong diplomatic action from the United States. The government needs to recognize that this is already a global crisis with economic and security implications, as well as risks to health and human safety. National health organizations are working closely together, but the United States should be convening world leaders, whether in person or by conference, and coming up with a global response.
World leaders and their ablest advisers should be discussing and agreeing on best practices for containing the spread of the virus worldwide, not only within their own borders. This includes understanding the limits of travel bans, which can have an outsize economic impact if overused, and undertaking a massive effort to find a vaccine and ensure it is distributed widely, not just to the wealthiest few.
Leaders understandably need to reassure their citizens on the economy even as they prepare for the worst—hence the recurring rhetoric about the economy remaining strong. However, to limit the depth of the recession that would accompany a pandemic, they should institute an economic initiative, possibly including a stimulus of government investment, to keep the global economy afloat. Wall Street is certainly anticipating such a response. The Fed slashing interest rates is a start.
Stronger states must provide assistance to countries with weaker capacity to deal with the exigencies of the crisis, even if the countries are adversaries. Toward that end, the U.S. and others can look at temporarily lifting certain sanctions on vulnerable countries, such as Iran and North Korea, where necessary to fight the virus. There will be ample opportunity to reimpose the restrictions when the emergency has passed.
COVID-19 is becoming the third major crisis of the post–Cold War period, following the terrorist attacks of September 11, 2001, and the financial collapse of 2008. This crisis may exact a greater toll than the other two and has demonstrated the limits of populism as a method of government. Expertise matters. Institutions matter. There is such a thing as the global community. An enlightened response, even if it’s unpopular, matters. The system must be made to work again.