Washington’s Dangerous New Consensus on China
Don’t Start Another Cold War
Last week, British Prime Minister Boris Johnson warned of an impending “coronavirus vaccine war” that pits the United Kingdom against Europe. Days earlier, the EU had introduced measures that would halt AstraZeneca vaccine shipments to countries such as the United Kingdom that refuse to export vaccines themselves. “Zero” doses will move across the English Channel until supplies increase or the United Kingdom changes its stance on vaccine exports, European Commissioner Thierry Breton has said, adding that there is “nothing to negotiate.”
The EU’s proposed export restrictions represent a sudden about-face for the bloc. Until recently, the European Commission, the EU’s executive arm, was one of the strongest international voices backing the open trading system. It spent years fighting right-wing populists, such as former U.S. President Donald Trump, who were skeptical of trade, and many on the left regarded its trade directorate as one of the command centers of so-called neoliberalism. Now, the commission is advocating a kind of reverse protectionism in which countries don’t stop imports from getting in but instead stop crucial supplies from getting out.
Europe’s sudden retreat from international markets follows a broader global shift brought on by the pandemic. The United Kingdom and the United States were the first to adopt a new and ruthless trade policy: citizens wanted vaccines, and their governments set out to provide them by whatever means necessary. London and Washington relied on confidential contracts with vaccine manufacturers and, in Washington’s case, powers granted by the Defense Production Act to impose de facto bans on vaccine exports. Elsewhere, China and Russia went in a different but equally assertive direction—using vaccines as a tool of international influence.
These decisions have already begun to alter the once seemingly inexorable trajectory of globalization. With vaccine access and national security at stake, wealthy democratic governments have pushed liberal market principles aside in favor of aggressive restrictions aimed at meeting new internal political demands. Their self-interested behavior is fraying alliances and normalizing open state intervention in global markets to a degree not seen in recent memory. In the future, other countries may look to protect themselves in similar ways—defecting from global rules that they believe are rigged against them.
Effective COVID-19 vaccines are a scientific miracle, but one that comes with nasty political side effects. The problem is straightforward: for the next couple of years, there will be far more people willing to bare their arms for jabs than there will be jabs for them to receive. Depending on how the virus evolves, supply may not meet demand until sometime in 2022 or 2023. That is a very long time for people to wait when their lives and their livelihoods are at stake.
The vaccine shortage has already led to ugly behavior. Early efforts to coordinate global production floundered because rich countries wouldn’t commit to any cooperative system that limited their ability to secure vaccines for their citizens. Near the beginning of the pandemic, countries such as the United Kingdom and the United States jumped to the front of the vaccine line, making large advance orders at high prices and pressing for arrangements with pharmaceutical companies that would give them first rights over production and supply. Now, months later, developed countries are finally promising long-term cooperation and aid through the COVID-19 Vaccine Global Access Facility (COVAX), an initiative co-sponsored by the World Health Organization. But these high-minded commitments have gone hand in hand with a ruthless short-term free-for-all.
The EU, by contrast, moved more slowly—largely because of complex internal politics. At the beginning of the pandemic, member states clashed over shortages of personal protective equipment, and the body eventually imposed several temporary export bans. After this disastrous experience, the bloc agreed on a shared vaccine strategy and tasked the European Commission with negotiating with drug companies on behalf of all its members. Many governments, however, remained divided on important issues, including the cost of vaccines. Some were reluctant to pay for high-priced doses produced in wealthy states such as Germany, and many individual national health agencies refused to give up their power over quality control.
Wealthy democratic governments have pushed liberal market principles aside.
The result was an organizational mess in which the European Union ended up with far fewer vaccines to distribute than it anticipated. This was partially the product of bad luck—Brussels made a big bet on the French pharmaceutical giant Sanofi, whose vaccine program fizzled. But political feuds didn’t help, either. The EU hoped that the AstraZeneca vaccine, developed by researchers at Oxford University, would be cheap and effective. Its hopes were more or less realized, but the company announced in February that it would miss its deadline for supplying vaccines to the EU. The European Commission went on to denounce the firm and strongly hinted that AstraZeneca was supplying vaccines meant for Europe to the United Kingdom instead.
These setbacks compounded the EU’s real problem: its decision to remain committed to global markets at the precise moment that London and Washington wriggled free of them. Neither the United Kingdom nor the United States has a formal ban on exports, but both quietly blocked them through contracts. The United States also made use of the Defense Production Act, which allows the government to force private companies to prioritize domestic needs. In contrast, European factories remain exposed to global markets, producing tens of millions of vaccines under contract for the rest of the world. Until the EU took action in late March, European companies were free to sell vaccines around the world while their counterparts in the United Kingdom and the United States were not. Mounting popular pressure, however, is now pushing Europe toward protectionism.
Democratic politicians in Brussels, London, Washington, and elsewhere are responding to a radical shift in political incentives. For decades, they believed that they could safely delegate crucial economic decisions about supply and demand to global markets and international technocrats. Although governments set safety standards for pharmaceuticals and sometimes sought to bargain over prices for their national health-care programs, they left central aspects of supply chain management to the private sector.
But now, amid the pandemic, citizens are holding their leaders directly responsible for failures in this system. Politicians have to obsess over procurement contracts and the intricacies of global vaccine supply chains—tasks they were once able to outsource. If they want to be reappointed or reelected, they need to deliver, which now means overseeing the incredibly complex process of buying vaccines, storing and transporting them, and ensuring that they are injected into people’s arms. Missteps, such as signing advance contracts with vaccine manufacturers that don’t deliver on time, can cost elected officials their jobs.
This new political climate helps explain why democratic leaders are so reluctant to send vaccines abroad. The EU, for instance, hesitated before revealing that it was exporting tens of millions of doses, worried that the news would spark outrage among Europeans desperate for vaccines. For its part, the United States has tens of millions of doses of the AstraZeneca vaccine, which it probably will never need and which its regulators still have not approved. Nevertheless, it took concessions from the Mexican government and a mounting humanitarian crisis at the U.S.-Mexican border for the United States to agree to share some of the doses with its southern neighbor. Washington has still not provided any doses to its European allies, despite their repeated requests.
Autocratic rulers, by contrast, are more insulated from popular demands. They have been far more willing than democracies to use vaccines as a tool of influence. Despite murky data on the efficacy of its Sputnik V vaccine, Russia succeeded in getting Hungary and Slovakia to approve it (provoking a political crisis in Slovakia). China, in turn, has exported its Sinovac vaccine to countries in Africa, Asia, Europe, and Latin America, and Beijing just announced a new visa policy for visitors who have taken it. Although democracies have pushed back, they have been unwilling to offer their own ready-to-use vaccines as an alternative.
Infighting between democratic countries will probably soon subside. Barring an unexpected disaster, the EU should have between 300 million and 350 million vaccine doses by the end of June. This stockpile will weaken the commission’s resolve to extend its export restrictions, which would damage the EU’s economic and political relationships and disrupt supply chains for future vaccines.
Even so, export controls will have long-term consequences. Politicians now understand that vaccine access is crucial to national security and that international supplies are unreliable in times of crisis. That realization will reshape relationships among powerful states. According to Adar Poonawalla, the chief executive of India’s vaccine powerhouse the Serum Institute, “almost every country now wants to set up local manufacturing so that it never has to scramble for vaccine again.” Researchers, moreover, have identified a “vaccine club” of 13 countries that play a central role in production networks. Each of these states will undoubtedly want to build up its production facilities so that other members can’t threaten it. Outsiders with sufficient economic clout, meanwhile, will likely try to join.
Power and self-interest have always lurked beneath the surface of the global economy.
The most important questions, however, concern those who are outside the club and have no chance of becoming members. Fights among powerful states have overshadowed the enormous difficulties that the powerless face in getting any vaccines at all. COVAX was quickly overtaken in the race for vaccines by rich countries that carved out special deals with drug manufacturers, and the organization is now struggling to provide vaccines to the developing world at any scale before 2022. In a positive development, Washington recently announced that it is working together with Australia, India, and Japan to increase vaccine manufacturing (and perhaps counter Chinese influence). Still, the United States has largely balked at giving away doses until it has vaccinated its own citizens. India has also changed its stance and is temporarily blocking the export of Serum Institute vaccines meant for COVAX and the United Kingdom.
Even if the United States relaxes its stance on sharing vaccines, its generosity has clear limits. So, too, does that of the United Kingdom and the EU. Powerful states may squabble over the short-term allocation of vaccines, but they agree on the long-term allocation of political and economic power. In March, a large coalition of developing countries called on the World Trade Organization to waive international intellectual property requirements for vaccines, which would in principle allow them to produce their own supplies. The United Kingdom, the United States, and the European Union all objected, stalling any possible agreement. Western powers are also unlikely to agree to limits on the kinds of brute political and economic force that allow them to hoard or redirect vital supplies for domestic use, even if doing so endangers vaccine production for the developing world.
The EU’s recent swerve toward reverse protectionism has brought a hidden power struggle into the open. This fight goes far beyond the fight over vaccines; it has exposed fundamental problems with globalization that will be difficult to paper over. States now see the global economy as a source of vulnerability as well as growth—a venue in which to limit their own dependencies while exploiting those of their opponents. Geopolitics is slowly muscling free-market relations out of the way. Although autocracies and wealthy democracies may survive and even thrive in this new world, weaker and poorer states must decide how best to protect their interests.
Of course, power and self-interest have always lurked beneath the surface of the global economy. Free trade went together with rules on investor disputes and intellectual property that were rarely to the advantage of less powerful states. But as power and self-interest rise closer to the surface, the existing system’s advantages are receding. Poor states will look to protect themselves in any way they can and may begin to withdraw from global intellectual property rules that prevent them from responding to emergencies by producing their own supplies. Powerful states may acquiesce or turn to coercion to get their way. The so-called vaccine wars that Johnson warned against are in reality short-term squabbles within a small club of powerful states. The question is whether these fights represent the opening salvo in a broader conflagration that spreads across the globalized economy.
The Pandemic Is Exposing Market Vulnerabilities No One Knew Existed