Will coronavirus reverse globalisation?

Could Covid-19 permanently change how the global economy works?

Globalisation has been one of the buzzwords of the past 25 years.

It may seem a rather strange concept, since any economic historian will tell you that people have been trading across vast distances for centuries, if not millennia.

You only have to look at the medieval spice trade, or the East India Company, to know that. But globalisation is really about the scale and speed of international business, which has exploded in the past few decades to unprecedented levels.

Easier travel, the world wide web, the end of the Cold War, trade deals, and new, rapidly developing economies, have all combined to create a system that is much more dependent now on what is happening on the other side of the world than it ever was.

Which is why the spread of coronavirus, or Covid-19 to be specific, has had such an immediate economic effect.

Professor Beata Javorcik, chief economist at the European Bank for Reconstruction and Development, says that the pace of change in the global economy over just the past 17 years has been profound.

"When we look back at 2003, at the Sars epidemic, China accounted for 4% of global output," she says. "Now China accounts for four times as much, 16%. So that means that whatever is happening in China affects the world to a much larger extent."

Globalisation helps to explain while nearly every major car plant in the UK has shut down - they are dependent on sales and components from around the world. When both collapsed, they just stopped making cars.

China's wealth and health therefore matter to us all far more than they used to, but this is not just a matter of scale - there is also a deeper problem with globalisation.

Ian Goldin, professor of globalisation and development at Oxford University, and author of "The Butterfly Defect, How Globalization Creates Systemic Risks, And What To Do About It", says that "risks have been allowed to fester, they are the underbelly of globalisation".

That, he says, can be seen not only in this crisis, but also in the credit crunch and banking crisis of 2008, and the vulnerability of the internet to cyber-attacks. The new global economic system brings huge benefits, but also huge risks.

Will 3D printing make it possible to manufacture things closer to where they will be used?

While it has helped raise incomes, rapidly develop economies and lift millions out of poverty; that has come at the increased risk of contagion, be it financial or medical.

So what does this latest crisis mean for globalisation?

For Prof Richard Portes, professor of economics at London Business School, it seems obvious that things will have to change, because firms and people have now realised what risks they had been taking.

"Look at trade," he explains. "Once supply chains were disrupted [by coronavirus], people started looking for alternative suppliers at home, even if they were more expensive.

"If people find domestic suppliers, they will stick with them… because of those perceived risks."

 

Global Trade

Professor Javorcik agrees, and believes a combination of factors will mean Western manufacturing industry will start bringing work back home, or re-shoring it as it is called.

"I think that the trade war [mainly between the US and China], combined with the Coronavirus epidemic, will lead companies to actually take re-shoring seriously," she says.

"They will re-shore activities that can be automated, because re-shoring brings certainty. You do not have to worry about your national trade policy, and it also gives you an opportunity to diversify your supplier base."

However, this is not all good news for Western economies, which may now believe they have become too dependent on globalisation. Instead this cuts both ways.

A great deal of globalisation is not about moving manufactured goods around the world, but moving people, ideas and information; something that we in the UK and other Western economies are very good at.

As David Henig, director of the UK Trade Policy Project at the European Centre for International Political Economy, points out: "The service sector must have fallen off a cliff, and just look [in particular] at tourism and universities.

"There must be real concern about the number of new entries to Western universities this autumn. This is a huge export industry… many universities are dependent on Chinese students, for example."

The idea that globalisation is just about moving manufacturing or supply chains to cheaper Asian countries is too simple. It has also led to massive increases in foreign students willing to pay to study at our colleges and universities, and a huge influx of wealthy tourists who want to spend money here, to name just two service sector businesses.

Slowing or even reversing globalisation would hit those industries very hard indeed. But even so, Prof Goldin thinks that this pandemic marks a sea change and that "2019 was the year of peak supply chain fragmentation".

Although, some factors such as 3D printing, automation, the demand for customisation, and quick delivery, as well as protectionism were already being felt; it seems that Covid-19 can only accelerate that process.

The real concern is, however, not whether these changes happen, but how far they go, and how they will be managed?

Prof Goldin has a simple and clear way of explaining the options - will the result be more like what happened after World War One, or after World War Two?

We could, like after 1918, get weak or weaker international organisations, the rise of nationalism, protectionism and economic depression. Or, as followed 1945, more cooperation and internationalism, like Bretton Woods, the Marshall Plan, the UN and the General Agreement on Tariffs and Trade.

Prof Goldin remains cheerful, but worries about who is going to take the lead. "We can be optimistic, but we are not seeing leadership out of the White House certainly," he says. "China can't step up to the plate, and Great Britain cannot lead in Europe."

This is a worry shared by Prof Portes, who points out that: "The London G20 Summit of 2009 agreed a $1tn (£800bn) package of international cooperation, even Germany joined in. But now there is no leadership in the G20, and the USA is absent from the international scene."

Will globalisation be reversed? Probably not, it is too important an economic development for that to happen, but it could well be slowed down.

The bigger question is, however, have we learnt the lessons of this crisis? Will we learn to spot, control and regulate the risks that seem to be an integral part of globalisation? Because the cooperation and leadership necessary to make that happen seem to be in short supply. BBC

 
 

Other News

.
ASEAN pushes forward with 5G connectivty cooperation
ASEAN pushes forward with 5G connectivty cooperation
BUSINESSicon  17/10/2020 

As ASEAN chair this year, Vietnam is playing a crucial role in further cementing joint activities within the bloc via boosting the application of high technologies to adapt to Industry 4.0, which is sweeping throughout the region.

Real estate stocks await cash flow
Real estate stocks await cash flow
BUSINESSicon  17/10/2020 

Domestic and foreign capital flow is expected to bolster real estate shares after the COVID-19 pandemic as many investors are paying attention to the industry.

Online exports require professionalism
Online exports require professionalism
BUSINESSicon  17/10/2020 

Using online platforms to boost exports is the fastest way to bring Vietnamese goods to the world, said business leaders and industry experts.

Many hoteliers intend to divest capital due to heavy losses
Many hoteliers intend to divest capital due to heavy losses
BUSINESSicon  16/10/2020 

Over the past eight months, hotel room tariffs have plunged and hotel room occupancy rates have remained low, forcing several hoteliers to divest capital with many financially weak hotels in the local market being put up for sale.

Meeting expectations of the corporate bond market
Meeting expectations of the corporate bond market
BUSINESSicon  16/10/2020 

A new government decree tightens conditions on the issuance of corporate bonds. However, before the decree came into effect, enterprises flooded the market with new issuances.

M&A activities signal promising fortunes
M&A activities signal promising fortunes
BUSINESSicon  17/10/2020 

Although merger and acquisition levels dropped in 2020 across Vietnam, the prospect for such activities remain bright for next year as overseas investors look to local businesses in order to improve market access.

Thai billionaire, European brewer lose money in Sabeco investment deal
Thai billionaire, European brewer lose money in Sabeco investment deal
BUSINESSicon  16/10/2020 

The Sabeco price has seen a strong recovery in the last half a year, but is still at a low price. Both Thai billionaire and the big brewer Heineken have lost money because of the drop in Sabeco share price.

Investors lose billions of VND as land prices keep rising
Investors lose billions of VND as land prices keep rising
FEATUREicon  17/10/2020 

A lot of real estate traders have missed opportunities to make huge profits because they decided to postpone purchasing plans, hoping that prices would decrease further.

Salary increases in 2020 lowest in 10 years: survey
Salary increases in 2020 lowest in 10 years: survey
BUSINESSicon  16/10/2020 

Salaries increased by 6.5% this year at multinational companies (MNCs) and 5.2% at Vietnamese companies, and are forecast to increase by 7 per cent and 7.7% next year, according to the Talentnet – Mercer Total Remuneration Survey.

The right structural adjustments help Vietnam achieve long-term growth aspirations
The right structural adjustments help Vietnam achieve long-term growth aspirations
BUSINESSicon  17/10/2020 

No nation has escaped the threat of COVID-19 to lives and livelihoods, with many countries seeing cases resurge recently. 

State firms more resilient than foreign, Vietnamese private companies: survey
State firms more resilient than foreign, Vietnamese private companies: survey
BUSINESSicon  15/10/2020 

Business resilience is highly correlated with level of digitisation, the Business Pandemic Resilience Diagnostic conducted by Grant Thornton...

Pandemic a test of fire for Vietnamese enterprises
Pandemic a test of fire for Vietnamese enterprises
BUSINESSicon  15/10/2020 

The COVID-19 pandemic has been a test for Vietnamese businesses as many have been and will be struggling to recover for the foreseeable future. 

Five expy projects unlikely to attract private investors
Five expy projects unlikely to attract private investors
BUSINESSicon  15/10/2020 

Although the National Assembly Standing Committee has given its approval to switch three of the eight subprojects of the North-South Expressway from the public-private partnership (PPP) format into wholly State-invested, 

Only 5% FDI projects in Vietnam use high technologies
Only 5% FDI projects in Vietnam use high technologies
BUSINESSicon  15/10/2020 

Vietnam is home to 32,539 valid foreign direct investment (FDI) projects with registered capital of a combined US$381 billion, of which US$233 billion has been fully disbursed.

The Vietnamese brain will decide
The Vietnamese brain will decide
FEATUREicon  16/10/2020 

"Vietnamese have nothing but brains to develop the country in the future." 

Stable outlook expected for Vietnamese dong
Stable outlook expected for Vietnamese dong
BUSINESSicon  16/10/2020 

While Vietnam is at risk of being listed as currency manipulator by the US, such a risk appears low, as the US will likely continue to reduce its dependence on Chinese exports by reorganizing its supply chain with other partners.

Vietnam banking sector to suffer in 2020 before rebounding in 2021
Vietnam banking sector to suffer in 2020 before rebounding in 2021
BUSINESSicon  15/10/2020 

Fitch Solutions expected credit growth to weaken to 7% in 2020 from 13.7% in 2019, but the growth is predicted to pick up to 12% one year later.

Realising revised growth ambitions
Realising revised growth ambitions
BUSINESSicon  15/10/2020 

Vietnam’s fourthquarter economic outlook is brighter on the back of a rise in domestic consumption and public investment.

Businesses line up for further support
Businesses line up for further support
BUSINESSicon  15/10/2020 

Continued facing with massive woes, the business community in Vietnam is in dire need of the government’s assistance for investors and enterprises to struggle through the global health crisis and grabbing new business

Infrastructure development at the centre of PPP decree direction
Infrastructure development at the centre of PPP decree direction
BUSINESSicon  16/10/2020 

Further clarifying the legal framework for infrastructure development via wider participation of private investors is expected to help the country attract more funding into the industry.

 
 
 
Leave your comment on an article

OR QUICK LOGIN