Covid-19, A Threat To Globalization

Rashmi Rekha Sarmah-

The Pandemic called Covid-19 set new norms for the society as well as the world as a whole. It did not differentiate nor did it discriminate in making people suffer although a certain class of people had to suffer more due to economic crisis. The economic crisis that has grasped the world since the onset of the Covid-19 pandemic has led to questions about the future of globalization. Social distancing is the new norm set not only in common gatherings of people but also the closeness of the world as a whole. Several Western commentators have been debating whether the pandemic would threaten it. This question is hardly new: Since the middle of the 1990s, or from its very early days, many have had doubts about globalization’s future. The “Great Recession” of 2008 brought fresh doubts about it with some narrowing the problem down to financial globalization.

There have been uncertainties about the future of globalization that have arisen in the wake of the disruptions that the “Great Lockdown” has caused in all major economies, with the possible exception of China. The ongoing disruptions are reminiscent of the “Great Depression” of the 1930s, after which most economies turned protectionist. Given this context, the likely impact of the “Great Lockdown” on global trade volumes is another ominous sign. The World Trade Organization had predicted that global trade volumes could decline by 13-32% in 2020. The WTO’s worst-case scenario of trade volume decline is significantly worse than the impact of the “Great Depression” on trade; between 1929 and 1932, trade volumes declined by almost 25%.

In recent weeks, there have been attempts to view the challenges that the process of globalization faces from several different perspectives. Several commentators have argued that the world economy is going through a phase of “slowbalisation” or even “deglobalization”, but these tendencies are not likely to sound a death knell for globalization. There are others who have pointed out that the global economy is facing multiple challenges, not least from the intense economic rivalry between the US and China, with both countries trying to gain ascendancy. How serious could all these developments be for the future of globalization that the world has known for at least three decades?

There is hardly any doubt that globalization has not evoked much confidence as many of its professed virtues have not been quite evident. The process was expected to create a robust global economy that would, in turn, benefit all participating countries. However, this expectation became distant as the world’s economy struggled to overcome the vestiges of the “Great Recession”. In the five years prior to 2008, the global economy had expanded annually by over 5%, but between 2010-19, the expansion had declined to 3.8%, and in the past five years, it was down to just above 3%.

The more worrying aspect of globalization was that major economies have been showing signs of getting decoupled from the global economy. For all major advanced and emerging economies, their ratios of trade to gross domestic product (GDP), an indicator of openness, have declined. The largest trader, China, showed this tendency prominently. In 2008, China’s trade to GDP ratio was close to 58%, but a decade later it was barely 38%. India too showed a similar tendency: its trade to GDP ratio reached nearly 56% in 2012 but was down to 43% in 2018. Yet another indicator of decoupling is the shrinking of the global value chains (GVCs) or production networks.

The GVCs have typified the era of globalization as production lines were sliced and diced across national boundaries, increasing the interconnectedness between countries. Data provided by the Organization for Economic Cooperation and Development (OECD) shows that between 2005 and 2015, exports of major advanced and emerging economies have relied more on domestic value addition, or in other words, the import content of the exports have been on the wane. For instance, the domestic content in China’s exports was close to 74% in 2005 and had increased to 83% in 2015.

Members of the Association of Southeast Asian Nations (ASEAN), who are among the most engaged in the GVCs, have also slowly but surely increased their reliance on domestic suppliers for fueling their exports. If the decoupling of economies from the global markets was already undermining the process of globalization, the policy responses of several countries to bail their economies out the depths of the present crisis would surely pose greater threats. The US has led the way by adopting the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided $2.2 trillion, or about 10% of the country’s GDP, to stimulate the economy.

Subsequently, several US agencies have announced a slew of programmes, all of which are aimed at reviving domestic businesses. The expressed intent of these agencies is to support these businesses to enable them to compete with China in the global markets. But the factor that could ring alarm bells for globalization is the revival of the Chinese economy, well before other major economies can get back to normalcy. There is thus a distinct possibility that China would be able to consolidate its position in the global economy further. If this possibility indeed becomes real, would the traditional backers of globalization accept the new normal?

Until recently, most policymakers and investors remained complacent about the potential economic impact of the coronavirus crisis. As late as the end of February, most wrongly assumed that it would have only a brief, limited, China-specific impact. Now they realize that it is generating a global shock, which may be sharp—but which most still expect to be short. But what if the economic disruption has an enduring impact? Could the coronavirus pandemic even be the nail in the coffin for the current era of globalization?

The coronavirus crisis has highlighted the downsides of extensive international integration while fanning fears of foreigners and providing legitimacy for national restrictions on global trade and flows of people.

All sorts of businesses have suddenly realized the risks of relying on complex global supply chains that are specific not just to China—but to particular places such as Wuhan, the epicenter of the pandemic. Chinese people—and now Italians, Iranians, Koreans, and others—have become widely seen as vectors of disease; senior Republican politicians in the United States have even labeled the disease the “Chinese coronavirus.”

Meanwhile, governments of all stripes have rushed to impose travel bans, additional visa requirements, and export restrictions. The travel ban on most arrivals from Europe that U.S. President Donald Trump announced on March 11 is particularly broad, but far from unique. All of this is making economies more national and politics more nationalistic.

Much of this disruption may be temporary. But the coronavirus crisis is likely to have a lasting impact, especially when it reinforces other trends that are already undermining globalization. It may deal a blow to fragmented international supply chains, reduce the hypermobility of global business travelers, and provide political fodder for nationalists who favor greater protectionism and immigration controls. The complex China-centered global supply chains on which so many Western companies have come to rely are, particularly at risk.

The cost advantage of producing in China has eroded in recent years as the country has become richer and wages have soared. The risks of doing so were highlighted by President Trump’s imposition of punitive tariffs on imports from China in 2018 and 2019, leading businesses to scramble for alternatives. While the January deal marked a fragile truce in the U.S.-China trade war, the perils of producing in China remain; both Democrats and Republicans increasingly view China as a long-term strategic rival that needs to be contained. And no sooner had the trade war abated than the coronavirus intervened.

The extended shutdown of many Chinese factories has pushed exports down 17 percent in the first two months of the year compared with a year earlier, and it has disrupted the production of European cars, iPhones, and other consumer goods. Inertia is a powerful thing. And there are still many advantages to producing in China, such as scale and efficient logistics. But the coronavirus crisis could mark a tipping point that prompts many businesses to remodel their supply chains and invest in more resilient and often more local patterns of production. One option is to shift and diversify operations across other Asian economies, such as Vietnam or Indonesia. Another is to shorten supply chains, with U.S. companies moving production to Mexico and European ones to Eastern Europe or Turkey. A third is to invest in robots and 3D printing within advanced economies, producing locally closer to consumers.

A second enduring consequence of the coronavirus crisis may be reduced business travel. Technology gurus have long argued that videoconferencing and chat apps would eliminate the need for most business travel and allow many people to work from home more. Yet until the coronavirus crisis, business travel had continued growing, seemingly inexorably. Now, whether because of government bans, business decisions, or individual caution, all but the most essential international travel has been canceled, and those who can work from home are increasingly staying put. Thanks to this forced grounding, businesses may discover that while face-to-face meetings are sometimes necessary, technological alternatives are often just fine—and also much less costly, time-consuming, and detrimental to family life. And at a time of increasing concern about the impact of airplane emissions on the climate, and with many businesses keen to highlight their commitment to environmental awareness and sustainability, there is both an environmental reason and an economic one why business travel may decline. Perhaps most significantly, the coronavirus crisis plays into the hands of nationalists who favor greater immigration controls and protectionism. The speed and scope of the virus’s spread across the globe have spotlighted people’s vulnerability to seemingly distant foreign threats.

The coronavirus has spread to global hubs such as London and New York. It has also leaped directly to provincial cities such as Daegu, nursing homes in the suburbs of Seattle; and even small towns such as Castiglione d’Adda (population: 4,600)—one of the 10 towns in Lombardy first quarantined by the Italian government in February.

The Pandemic has led to the lock and restricted movement of the people worldwide as people are mostly confined to their homes rather than moving around. Traveling around the globe of hanging out has been a threat to health and doing so seems impossible during the ongoing lockdown in countries. Globalization has been restricted to technological communications using digital devices and personal travel will be restricted for some time to come as the strong impact of the pandemic is not to be over any time soon. Native places and homes will be the place for people to be restricted to which will have a great impact on Globalization.

About the author: Rashmi Rekha Sarmah is indulged in content creation in Headline8. She is a post-graduate in Mass Communication with specialization in Advertisement and Public Relations from Cotton University. 

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Written by Rashmi Sarmah

Rashmi Sarmah is working as a journalist for Headline8. A post-graduate in Mass Communication with specialization in Advertisement and Public Relations from Cotton University.
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