The COVID-19 pandemic has spawned new barricades at an incredible speed. Closed borders travel bans, paralysed supply chains, and export and import restrictions have prompted many to inquire whether globalisation itself might fall victim to the COVID-19 pandemic. Globalisation was already in waning well before the outbreak of the pandemic, having reached its peak before the 2008 global financial crisis and has never recovered much significantly since then. The COVID-19 pandemic will certainly highlight the risks intrinsic in over-reliance on global supply chains, prompt a renationalisation of production, and put stress on the notion of international interdependence. The likely result is an acceleration of changes that have long been in motion toward a new, different, and more limited form of globalisation.
The worldwide interconnectedness of goods, services, capital, people, data and ideas have produced undeniable benefits. But during this COVID-19 pandemic, the risks of dependency have fully entered the public consciousness. For U.S. consumers, for instance, the first visible sign came when virus-shuttered factories in China prompted delays in Apple’s delivery of iPhones, and continued as other firms reported interruptions. When the COVID-19 pandemic spread in the United States, Americans realized that about 72% of the facilities producing pharmaceutical ingredients for U.S. consumption are located abroad; mostly in the European Union, India, and China. The share is reported to be as high as about 97% for antibiotics. Then liberal, globally engaged countries such as France and Germany not only closed their borders to travellers but barred the export of face masks, even to friendly nations. They have since lifted the bans, but the shock remains. When every country suddenly fights for itself, the idea of international interdependence appears worth rethinking, to say the least.
And it will be rethought. Even in its early days, the COVID-19 pandemic has demonstrated the fragility of supply chains, prompted national responses rather than cooperative international ones, and reinforced nationalist arguments for reshoring manufacturing and more limited migration. It has also illustrated that national governments remain the primary actors; the responders of last resort to a pandemic and its economic consequences.
This will not be the end of globalisation. Rather, the world is likely to see a different, more limited version of global integration than the one nations of the world have known over the past three decades. Its contours are barely perceptible, but visible nonetheless.
The trends that will now be accelerated have been well underway. It’s been a long time since the public debate has been about a flat world, frictionless capital flows, and free trade. Instead, recent political arguments have been over border walls, decoupling from China, trade wars, Brexit, populist nationalism, and the assertion of national sovereignty against the all-knowing United States and Chinese technological corporations.
Key indicators bear out the change. Before the COVID-19 pandemic, global trade was still rising, but relative to the total output of the global economy, the share of trade is lower today than it was before the financial crisis. Cross-border financial flows hit their peak in 2007, and progress on further global trade liberalisation stalled well before that. Total global foreign direct investment has not returned to its highs more than a decade ago. The U.S. and other governments are placing greater controls on the export of critical technologies, and the internet has become increasingly splintered along national lines.
But globalization is complex, and not every indicator points in the same direction. The intensity of trade in goods is down, but in services, it’s up. The flow of data across borders has risen dramatically, even as countries like China and Iran seek to restrict it. International travel and study abroad were at all-time highs before the COVID-19 pandemic, and migration was so vast that many called it a crisis. Overall, the net fall from globalisation’s peak has therefore been more modest, but real.
That is clear from the political preferences expressed by many populations across the world. Even the most globally oriented politicians today avoid touting the benefits of open borders, trade and money flow, and international engagement. Many recent elections have been won by emphasising the harms of what has come to be derided as globalism, and promising protection from the effects of exposure. For the globally oriented, those protections include job retraining, transfer payments, and better safety nets. The nationalists prefer strong borders, tariffs, and restrictions on immigration. Where once the promises of globalisation dominated political discourse, the threats have emerged front and centre.
It’s not difficult to see why. Globalisation is often blamed for financial crises; not only the global one of 2008 but also the 1997 Asian crisis and others in Russia, Turkey, Ecuador, Cyprus, and elsewhere. Many think that globalisation has ushered in a cutthroat, worldwide competition and expanded inequality both among nations and within them. Fragmented supply chains that require goods to be transported across borders multiple times consume more energy and produce higher greenhouse-gas emissions. Even the risk of diseases quickly spreading across continents is not new; since 2003, the world has seen successive outbreaks of SARS, swine flu, MERS, Ebola, and the Zika virus.
Perhaps the most explosive charge against globalisation is that it promotes the interests of a global elite at the expense of majority populations. On a global scale, this is not even close to being true; international economic connectedness has dramatically raised gross domestic product, reduced poverty, raised living standards, improved health, and made information vastly more available than before. Yet many of those benefits are diffuse and taken for granted, while the costs (i.e., lost manufacturing jobs, for instance) remain concentrated. And those on the losing end of globalization now have a new political voice: populist parties promising sovereignty, nationalism, and local solutions, as well as a weakening of elite-led, seemingly unaccountable international institutions.
To the idealists among us, a worldwide pandemic like COVID-19 and others would seem precisely the kind of common threat that could usher in a new era of international cooperation.
In reality, governments have so far made decisions largely on their own and with little consultation. The G-20 convened an emergency summit of global leaders (by teleconference, of course) that produced a bland statement of abstract pledges but bereft of any specific commitments. The Chinese government bought up the country’s production of face masks rather than see them sold, key European governments temporarily barred their export, and reports circulated of U.S. attempts to purchase a German vaccine manufacturer for the exclusive use of its technology. The COVID-19 crisis may be global, but the responses have so far been national.
Many see COVID-19 pandemic not as a cause around which the world’s governments should rally, but rather as the most dramatic example of an already broken globalized system. Given widespread sentiments such as these, it is easy to imagine governments around the world broadly rethinking international travel, migration, supply-chain risk, import and export controls, information sharing, and more. The new watchword is likely to be risk reduction rather than cost reduction.
Many of the key drivers of globalization such as shipping, data, and capital flows, our understanding of comparative advantage, and economies of scale will not go away. But driven by a combination of changes in popular sentiment, government policy, and corporate practices, globalization will change. The COVID-19 pandemic will mark not the end of an era, but its transformation.
First, economies may become less dependent on single points of failure, and less dependent on China. Fragile supply chains are not an indictment of globalization per se, but of the way, companies have become dependent on single sources of supply. It is easy to imagine companies, both on their own and at the behest of their governments, diversifying the supply of key inputs and shifting to domestic or regional production. Advances in automation and other labour-saving manufacturing technologies would make this easier; continued trade war with China would force it along.
Second, economic integration will still take place, but it will continue to shift from the global to the regional and bilateral levels. Global multilateral trade talks have gone nowhere since the Uruguay Round in 1993. Instead, the European Union concluded separate trade agreements with South Korea and Japan, African countries are talking about a continent-wide trade zone, and a pact similar to the planned Trans-Pacific Partnership has taken effect after Washington withdrew. Even China’s Belt and Road Initiative is creating regional and bilateral connections, not global ones.
Third, political debates in the United States and many other Western countries are likely to remain focused on globalisation’s losers and the ways to protect workers from economic damage. The problem is that the preferred remedy (i.e., protectionism) makes many problems worse, not better. How to protect workers without undermining globalisation’s economic benefits, including a higher standard of living, remains an unsolved question.
The COVID-19 pandemic may mark the endpoint of the post-Cold War era. The enchantment with ever-greater international integration is gone. But it would be folly to replace globalisation with the same kind of isolationism and protectionism that has impoverished nations before. The nature of globalization’s next phase, and the precise contours of a more selective pattern of cross-border engagement and interdependence after the pandemic, will be the larger question against which many of the most important political debates of the coming years will play out.