Five Things We Watched in 2022

By Stephen Garrett, Maxwell Bessler, Lona Girardin, and Joseph Vaughan 

'New Perspectives on Asia' highlights the research of junior CSIS staff and interns on issues that are quietly shaping the world's most dynamic region. 

In December 2021, experts from the CSIS Economics Program offered “Five Things to Watch in 2022.” As the program now looks to 2023, the CSIS Economics Program interns look back to review developments in five areas the team watched this year: 
 

Covid-19 Economics: The world economy failed to fully rebound due to aftershocks of the Covid-19 pandemic and the unexpected Russia-Ukraine war. The IMF expects growth to end up at 3.2%, well below its original prediction of 4.9%.  

The defining economic story of 2022 will likely be inflation. Across the West, prices rose higher than at any time since the early 1980s. Weakened supply chains challenged every economy, but the leading drivers of core inflation split across the Atlantic.  

In the United States, inflation was driven principally by strong demand for durable goods and a resilient labor market. Rising prices, wages, and job growth across the United States contributed to inflation. In Europe, inflation was driven by pandemic supply shocks and then exacerbated by Russia’s war in Ukraine. Energy and food prices soared all year and drove up other prices. As a result, labor markets across Europe struggled to promote wage growth even as jobs returned.  

These different drivers of inflation help explain why disagreement among policymakers emerged across the Atlantic over responses. The U.S. Federal Reserve raised interest rates to their highest point in 15 years in an ongoing attempt to cool demand in the economy. This forced European central banks to follow despite how raising rates limits their governments’ fiscal options to promote wage growth.  

In China, the “Zero-Covid” policy roadblocked a domestic rebound and added to global woes. In March, Beijing announced a 5.5% growth target, but the OECD now says China will reach about 3.3%. Consumption in industry and retail fell short of predictions. Frequent lockdowns hurt consumption and the already weak property sector. Property values fell all year and plummeted in October with the biggest drop since early 2020. This December’s protests and response showed signs of a shift away from the Zero-Covid policy. Still, China and its economy has a long road ahead before recovering from this year’s slowdown. 

In emerging markets, inflation and rising rates strengthened the U.S. dollar against domestic currencies, increasing capital flight and the cost of foreign debt. The central banks of emerging markets raised rates before other markets to defend their own currencies, but this also raised the cost of domestic debt. Struggling with inflation, debt, and growth, those in emerging markets feared crises all year. (MB) 
 

U.S. Strategy in the Indo-Pacific: The formulation of the United States’ strategy for the Indo-Pacific kept the White House’s policy shop busy this year. In February, the White House released its brief Indo-Pacific Strategy, which describes the administration’s intent to shape the region through a “latticework” of coalitions. While the Indo-Pacific Economic Framework (IPEF), which held its first ministerial in September, is the heart of this strategy’s economic agenda, other smaller arrangements—including the Quad’s Critical and Emerging Technology Working Group and Chip Four—continue to take shape. Published in October, the White House’s first National Security Strategy names China as “America’s most consequential geopolitical challenge” and alleges that China seeks an “enhanced sphere of influence” in the Indo-Pacific. 

The Pacific Islands took center stage for U.S. strategy with the unexpected signing of a security pact in April between China and the Solomon Islands setting off alarm bells in Washington. China’s push for a broader economic and security pact with ten Pacific Island nations deadlocked in May against resistance from countries including Fiji, which signaled its uneasiness with China’s advances by joining IPEF. The Biden administration hosted the first-ever U.S.-Pacific Island Country Summit in September and published a Pacific Partnership Strategy to accompany the event.  

The administration prevailed in its bid to host the 2023 Asia Pacific Economic Cooperation Leaders’ Meeting next fall in San Francisco. Meanwhile, the future of China’s application to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) remains uncertain. Following the CPTPP’s sixth ministerial in October, the group’s eleven members issued a joint statement in which they highlighted the progress of the United Kingdom’s application—the first to apply—and reaffirmed generic support for expanding their ranks. While Singapore’s Prime Minister Lee Hsien Loong opined that China could qualify under CPTPP rules, Australia’s trade minister said he saw “no prospect” of China being admitted, and the leaders of Australia and Japan expressed concerns over China’s trade practices. (JV) 

U.S.-China Competition: As anticipated, the year in U.S.-China competition was marked by a blurred distinction between economic security and national security. In May, Secretary of State Antony Blinken laid out the administration’s strategic approach to China, which includes “investing” in domestic technological competitiveness, “aligning” with allies on economic rules of the road, and “competing” with China economically. On the invest front, the United States enacted the CHIPS and Science Act to fund and foster the domestic semiconductor industry. On the align front, the United States and thirteen partner countries launched IPEF negotiations and continued to deepen cooperation with allies and partners. On the compete front, the Biden administration imposed new export controls on China in October, kicking off a new approach to managing technology competition., kicking off a new approach to managing technology competition. The administration also made December additions to the BIS entity list, including Chinese memory chip leader YMTC and 21 companies in China’s AI chip sector. 

Competition was largely a one-way street this year: the Chinese government was preoccupied with maintaining stability ahead of the 20th Party Congress—which ultimately saw Xi Jinping consolidate power and attain a third term as General Secretary of the Chinese Communist Party—and contending with Covid-19. The latter included locking down Shanghai for over two months and managing widespread frustrations with the Zero-Covid policy. U.S.-China tensions peaked this year in July and August surrounding U.S. House Speaker Nancy Pelosi’s visit to Taiwan, the first such visit since 1997. Following Pelosi’s departure from the island, China conducted military exercises unprecedented in their volume and proximity to Taiwan. 

While heightened tensions persist, minor progress was made on two fronts. In September, the U.S. Securities and Exchange Commission and the China Securities Regulatory Commission reached an agreement allowing Public Company Accounting Oversight Board (PCAOB) officials to investigate Chinese auditors and potentially resolve questions around U.S.-listed Chinese companies. The officials visited Hong Kong to undertake the investigation and in December announced that they had received full access, relieving de-listing fears. In November, Joe Biden met with Xi Jinping for over three hours on the G20 sidelines, opening the door for further high-level diplomatic engagement. The meeting marked the first in-person meeting between the two countries’ leaders since Xi met with Donald Trump in June 2019. (SG) 
 

Digital Currencies: On the central bank digital currency (CBDC) front, 2022 was a year of further exploration. In January, the Federal Reserve Board released a report highlighting the potential pros and cons of a U.S. CBDC, a move that could “fundamentally change the U.S. financial system.” The idea has garnered support despite concerns over the destabilization of capital flows, consumer vulnerability, and the development of internationally coordinated policies to ensure interoperability. Thanks to global technological advances and declining cash usage, over 100 countries are exploring the development of CBDCs, a 50 percent increase since May 2020. While most remain in the research stage, 10 countries have fully launched digital currency programs and China’s CBDC pilot is set for 2023.   

On the cryptocurrency front, 2022 was a year of volatility. Beginning in early February, a booming crypto industry grabbed headlines with an advertising blitz at the Super Bowl. However, market volatility accelerated with the May Bitcoin crash, a massive reset that shook the cryptocurrency world, including so-called stablecoins, crypto assets designed to be stable through their connection to fiat currencies. Confidence in cryptocurrencies dipped even further with the November collapse of prominent crypto exchange FTX. The implosion of FTX left behind unstable markets, upset investors, and more calls for regulation. 

U.S. crypto regulation did take a step forward with President Biden signing an executive order to establish an approach to digital assets, including cryptocurrencies and CBDCs, that protects consumers and investors. At its core, the EO seeks to mitigate risks related to digital transactions while taking advantage of the potential that the global market holds for U.S. leadership. (LG/SG) 
 

Orbital infrastructure: This year brought many exciting developments in space news, including the James Webb Space Telescope deployment, the NASA Artemis 1 launch, and further CNSA Tiangong space station construction. A bit closer to all of us here on Earth, significant advancements were made in the realm of low Earth orbit (LEO) infrastructure. SpaceX’s Starlink program continued to grow and now provides satellite internet service to over 700,000 subscribers. In May, China successfully launched three test satellites as it builds out its own constellation of LEO infrastructure (not all of China’s launches this year went well).  

Various challenges to orbital infrastructure development are beginning to emerge: the U.S. GAO released a report criticizing satellite constellations’ environmental impact; Amazon delayed its Project Kuiper satellite launches to 2023; China and Russia raised concerns about Starlink’s potential military capabilities; and a geomagnetic storm destroyed 40 Starlink satellites. Arguably the biggest development in orbital infrastructure this year was Russia’s invasion of Ukraine. Moves by Western nations to isolate Russia diplomatically and economically also impacted cooperation on orbital infrastructure development. Starlink earned press coverage for deploying satellite internet service in Ukraine soon after the invasion, and now Kyiv is diversifying its satellite internet options. SpaceX launched internet satellites for service provider OneWeb after a planned launch from Russia was cancelled in early March. While the United States announced a moratorium on testing anti-satellite missile systems, a call that was echoed by a December United Nations resolution, Russia has continued its controversial testing. Low Earth orbit is set to become more crowded as more infrastructure is deployed, and the issue will likely draw increasing scrutiny from governments, militaries, scientists, and environmental activists alike. (SG) 

Stephen Garrett, Max Bessler, Lona Girardin, and Joseph Vaughan are research interns with the Economics Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. 

'New Perspectives on Asia' is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the authors.