Covid-19: Globalization—Will the Course Change?

Abstract

The year 2020 will go down in world history as a time of great struggle. The Covid-19 pandemic has put a screeching halt to economic activities and movement of people across the globe. The difficulties associated with detecting and isolating asymptotic carriers, who are otherwise unaware that they are infected, undoubtedly facilitate the spread of virus in manifold. This article focuses on the speculations the pandemic caused on the future of globalization. The current movements, which were triggered by Covid-19, have given legitimate reasons to mistrust globalization. Many countries around the globe began to realize their over-dependence on other countries and struggle to meet their local customer needs now. Many are emphasizing the grave dangers associated with over-dependence on global value chains especially those controlled by China, leading to criticizing globalization. And the national leaders too followed suit to propagate protectionism and self-reliance.

Globalization has given way to recent frustrations and concerns which cannot be quietened by reminding the benefits it brought. And crying for de-globalization is also not going to solve the issues the humanity faces. Isolation is a strategy that works only to stop the spread of a pandemic, but collectivism can help in counter and emerge from it stronger. The 2001 Nobel Peace Prize laureate Kofi Annan had rightly said once that ‘arguing against globalization is like arguing against the laws of gravity’. Collective actions of the countries only can meet global challenges such as climate change, terrorism, nuclear proliferation and cyber-attacks. No single nation on its own can make itself secure and self-reliant. Nobody can predict the next crisis. But the most reliable and efficient insurance by far is to build strong international exchange cooperation to safeguard the humanity.

Introduction

The key point of globalization is that workers produce goods and services for far-away markets over which they do not have any control. The world economy has witnessed two great waves of globalization: first, the Industrial revolution (rail networks, steam engine, telegraph, telephone, division of labour and automation), which led to the free movement of people, goods (raw material and finished goods) and capital across national borders. The second wave was triggered by information and communication technologies in the 1980s and China’s reform policies aimed at making it as the world’s production hub coupled with its cheap labour, which further pushed for unprecedented frictionless flow of people, goods, information and capital across the national boundaries. Over the last 30 years, globalization has been a saviour for both developed and developing nations. It helped a country like China to generate jobs to its burgeoning population, whereas the Western and European consumers enjoyed quality goods at cheaper price, so a higher standard of living. Globalization has contributed for the world GDP to rise from 39% in 1999 to 61% in 2008 (Jaishankar, 2020). The St. Louis Federal Reserve has succinctly put it as ‘benefits from globalization have been so tremendous and are in many forms, such as lowered prices, increased productivity, higher profits and increased product verities for consumers’ (Rosen, 2020). Globalization depends on complex web of supply chains (global value chains [GVCs]) that link manufacturers. These manufacturers generally utilize highly specialized intermediate goods/semi-finished goods (inputs) from distant overseas suppliers.

The current movements which were triggered by the coronavirus pandemic have given legitimate reasons to mistrust globalization. Many countries around the globe began to realize their over-dependence on other countries and struggle to meet their local customer needs now. When the pandemic began to spread in America, the USA realized that about 72% of their pharmaceutical ingredients come from foreign countries. This share goes much higher for the components of antibiotics (Fontaine, 2020). Further, globalization made many developed nations as losers with little to no gains at all. Many are emphasizing the grave dangers associated with over-dependence on GVCs especially those controlled by China, leading to criticizing globalization. And this also made the national leaders to follow suit and propagate protectionism and self-reliance. For example, Prime Minister of India Narendra Modi announced the ‘Atmanirbhar Bharat Abhiyan’ to make India a self-reliant nation. Similarly, the President of European Commission Urusula von der Leyen has asked for shortening of GVCs as the European Union is too reliant on few overseas suppliers. The French President Emmanuel Macron too called for economic sovereignty by bringing home the medical and high tech jobs (Du et al., 2020).

Is This the End of Globalization?

At Changi, rated as the world’s best airport for the eighth consecutive year by Skytrax, passenger traffic dropped from 5.9 million in January to a meagre 25,200 in April, a 99.5 per cent plunge in a span of four months (Faiola, 2020). It is quite obvious that the industries that depend on tourism, travel (aviation) and hotel will witness massive layoffs and job cuts, and many may take a long time before they get back to their 100% capacity utilization.

When the Covid-19 began to spread to other countries from China, the immediate need for PPE kits, ventilators and generics drugs grew exponentially, and, at the same time, the inability of companies that manufacture cars to computers to procure parts from shuttered factories in China triggered every nation to realize that how dependent are they on China and other foreign suppliers. Even when the factories reopened and supply networks began to stabilize, the experience witnessed during the pandemic left the countries and companies dumbstruck and emboldened them to become self-reliant. The pandemic has given rise to protectionist trends, reduced FDIs and world trade in general. Western and European countries that chose to outsource production to get things done at cheaper cost vowed to bring home the jobs it lost through re-shoring.

The process of globalization 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 great recession. In the five years prior to 2008, the global economy had expanded annually by over 5%, but between 2010 and 2019, the expansion had declined to 3.8%, and in the past five years, it was down to just above 3% (Dhar, 2020). The Covid-19 has now come as an additional fuel to the fire.

The pandemic not only has demonstrated how dependent countries like the USA are, but has also shown that unregulated globalization can be harmful. When the pandemic began to affect the components’ manufacturer in China, the rest of the world’s automobile producers were forced to shut their factories, leaving thousands of labours in lurch. This does not stop there, when car manufacturing does not take place, car dealers cannot do business, and financial institutions do not make any money when there are no new car loans. The entire sector can go astray very quickly if a country relies too much on few foreign suppliers (Farrell & Newman, 2020).

The governments began to play defence, seeking to protect their own citizens irrespective of the consequences for others. When the Covid-19 began to ravage China, it prohibited all exports of masks, forcing even the foreign subsidiaries to produce only for China. It led to widespread retaliation from the USA and its allies. Similarly, it has been reported widely that the USA has attempted to buy exclusive rights for vaccine developed by German company CureVac, which has shown early signs of potential. This attempt was thwarted by Germany. The Japanese government too has earmarked two billion US dollars to bring back its companies from China.

Is this the end of globalization? Will this pandemic activate strong de-globalization sentiments? It may be premature to say so now, but the speculations are doing rounds. Here you go with the authors’ perspectives.

Though the global spread of this pandemic has given legitimate reasons to mistrust globalization, it has also underlined the need for greater international and regional cooperation among countries to pool efforts to develop countermeasures and extend assistance to the worst-hit regions. To emerge stronger after the pandemic, countries will need to be open to trading with each other without becoming dependent on each other. GVCs follow the principle of efficiency. Businesses source inputs/raw materials to meet their production needs at the lowest cost possible, no matter where those inputs come from. It is good news for globalization to continue. As far as efficiency remains the goal of business houses, they will continue to procure globally. Globalization was a major force that kept the inflation low. Stopping imports can lead to reduced choice for consumers, increased prices of the goods and diminished job opportunities for many. Every consumer, irrespective of which part of the world they come from, prefers to have products and services of high quality with globally benchmarked standards and priced competitively. They just do not care whether it was manufactured indigenously or imported but the value proposition for the money they part away with.

If de-globalization has gained momentum, globalization has not died. The flow of trade, capital and people appears to be taken different shape and form due to the virtual nature developed by globalization. Several commentators have argued that the world economy is going through a phase of ‘slowbalization’ or even ‘de-globalization’, but these tendencies are not likely to sound a death knell for globalization. The 2001 Nobel Peace Prize laureate Kofi Annan had rightly said once that ‘arguing against globalization is like arguing against the laws of gravity’.

The Road Ahead

We have seen how stalling of our economies has affected the poor and migrant labours in India. Collective actions of the countries only can meet global challenges such as climate change, terrorism, nuclear proliferation and cyber-attacks. No single nation on its own can make itself secure and self-reliant. Isolation is a strategy works only to stop the spread of a pandemic but collectivism can help in counter and emerge from it stronger.

This pandemic will make multinational companies to rethink over their sourcing and supply chain networks. Until now they have been too dependent on few foreign suppliers in favour of lower cost and efficiency. But to conclude that manufacturers will totally forgo overseas procurements as a result of coronavirus-caused supply chain challenges is so silly. This, in fact, would hurt their value propositions so badly. For example, to make a pair of jeans in the USA indigenously would cost about 300 US dollars, while an imported branded jeans is sold for 80 bucks in the USA now (Goldberg, 2020). This lowered price helps the people to spend more and have higher standard of life.

G95, the company based out of Atlanta, USA, manufactures apparel (mainly scarfs and hoodies) with a special filtration technology that keeps germs and viruses away. Their products are highly sought after ones during the pandemic. When their Chinese suppliers were locked down, G95 attempted to produce indigenously in USA. But the effort was quickly thwarted owing to higher cost. The cost of making the company logo alone has skyrocketed to $3.40 from 20 cents that Chinese suppliers charged. G95 was forced to restart the sourcing from China in May when things got back to normal there (Faiola, 2020). A country should export the goods which they can produce at cheaper cost and import the others. The USA has the productivity advantages in technology and consulting, but not in labour-intensive manufacturing works. For example, Apple sources the components for its iPhone from dozen countries and gets them assembled in China. Just 4% of iPhone manufacturing cost goes to China, but the majority of the cost is attributed to design, engineering and marketing which are carried out based out of California. Let us take a look at Boeing, as high as 70% of its revenue comes from overseas clients. Boeing gets 65% of its components produced from various countries through complex supply chain networks. The reality is that it cannot just survive with relying on its domestic market alone. The same is also true for companies like IBM, General Motors and Google.

Because of globalization, people have got exposed to new ideas, objects which they find highly useful and desirable, and they will go after them. Neither the pandemic such as Covid-19 nor the political protectionism can hold them back. The cold wars between and among the states will disappear as societies are driven by efficiency and demand. The regionalization of production and less reliance on China is expected to continue, but globalization is here to stay.

American President Trump and French President Macron have just agreed on a treaty in their dispute over taxing the American tech firms (Microsoft, Google and Facebook) by France to avoid the potential tariff war between the two countries. It is true that many nations have closed down their borders and issued advisory against travelling abroad. But, no country has taken any serious action to undo or reverse their global partnerships, interests and alliances so far.

End Note

Globalization has given way to recent frustrations and concerns which cannot be quietened by reminding the benefits it brought. And crying for de-globalization is also not going to solve the issues the humanity faces. Our focus should be to reform the globalization in a way that works for everyone’s betterment. Serious threats such as pandemic, terrorism, nuclear proliferation and climate change can be fought effectively only at the global level. The sum of unilateral measures taken by individual nations can never substitute the collective efforts of the whole world. This pandemic could have been handled well if only all the nations worked together. The blaming and shunning of China by the USA and its allies made China to withhold critical information which would have been a game changer.

When we think about the globalization, one should not only be looking at the free flow of goods and capital, we should also think about the free flow of ideas and creativity that go on to transform the lives of millions for the better. We need vaccine for which the collaboration of scientists around the world is imperative. We would become more vulnerable by turning our back on globalization. Nobody can predict the next crisis. But the most reliable and efficient insurance by far is to build stronger international exchange cooperation to safeguard the humanity.

Of course, the Covid-19 and the political protectionism agenda will slow down the pace of globalization for some time to come. However, the logic behind globalization has not waned away, the talks of its demise now is just overtly exaggerated one. After the pandemic, going back to business as usual will actually worsen the problem in the future. Globalization’s current failure can be solved neither by national protectionism nor by naive return to old form of globalization. The current crisis has given opportunity to create new globalization that prioritizes people’s safety and prosperity. A well-regulated globalization can be a powerful force for social good. For developed nations, it can bring goods and services at cheaper price and thus a higher standard of living. For those living in developing and middle-income countries, it brings jobs, alleviates poverty and enhances economic and social standing for women. Further, as nations become economically more interdependent, they tend to be less likely to make war on each other; this is one of the reasons why the post–Second World War era has been a peaceful one to a larger extent.