03 Sep Will the pandemic force the world into deglobalising?
The global pandemic continues to prove that it is more than just a deadly virus. It affects us all, not only in how we operate but when and where. For, while it is causing distress to healthcare systems in even developed countries, the impact it has on global economics is also acute due to the constraints it has put on businesses through a seismic shift in supply and demand.
Additionally, the COVID outbreak has also intensified and aggravated many other future uncertainties around the globe. Take, for example, the upcoming US presidential election. Before the pandemic, it looked likely that low US unemployment and a thriving economy would see Trump complete another term in the Oval office. However, the pandemic has created a vast amount of unemployment in the States and sent the world’s biggest economy, like all others, into a sharp recession. The impact that the recession can have on the outcome of the presidential election could be a major reversal in the fortunes of Trump. That recession is down to the pandemic.
So how else has the pandemic changed future expectations in such a short period of time? Here, in this blog, we look at the impact the pandemic has had on the idea of deglobalisation in our highly globalised world.
In doing so, we outline what the world was like before the outbreak and how there were many forces at play already that were moving the international community to a more introverted way of operating. We then identify how COVID19 has directly affected globalisation before weighing up whether the pandemic will, in reality, force the world to deglobalise like so many market commentators have been foreseeing for a while now.
How The World Was Moving Towards Deglobalisation Before COVID19
Perhaps the biggest force at play before the pandemic was the highly fractious relationship between China and America. The largest economies of the world had seen their relationship deteriorate so much that they were partaking in a pseudo trade war through tariffs. US tariffs were, pre COVID, the highest that they had been since the early 1990s. The feeling of looking after national interest as opposed to bettering the international community was therefore already rife between these two power houses.
Furthermore, even before the outbreak in Wuhan and the Chinese’s outward handling of the virus and its containment, Trump had been seeking to diminish the US’s reliance on China and its supply chain. China is often called the world’s factory and Trump wanted to see this stop. However, this did not necessarily mean that he wanted to manufacture all goods from China on home soil. The fact of the matter is, he wanted his country to be able to separate its trade from the Chinese – if that meant moving supply chains to Bangladesh or Mexico, so be it. Supporters of globalisation would champion this as a good thing.
Plus, outside of the tensions between the world’s two largest economies, there has been a rise in populism in many countries too. That populism almost always seems to have a nationalist stance. Politicians around the globe manage to take office by extolling the virtues of minimising net migration numbers.
Brexit is perhaps the biggest example of this. Britain narrowly voted to leave the EU back in June 2016. While many voters had individual views on voting to leave, one of the benefits of Brexit that politicians advocated was the minimisation of immigration to the UK.
Finally, advancements in technology could arguably be seen as one of the ways the world has been starting to deglobalise itself – when it was previously one of the reasons that globalisation was able to take hold. For, while international banking systems went electronic and the aviation industry allowed us to travel abroad with ease, now the growing use of robotics and automation in the supply chain means that manufacturers have less reliance on workers. It has meant that outsourcing to other countries with cheaper workforces in less developed economies does not always have to be the answer to keeping manufacturing costs low. Instead, robots can do the job – keeping the production line in house as it were.
How COVID19 Has Affected Globalisation
So how has COVID19 further intensified movement towards a more deglobalised economy? Firstly, it meant the mass closing of borders all around the world. For, while publicising the need for a reduction in migration and the free movement of people had once simply been an ideological notion for politicians to tout from their soap boxes, it all of a sudden became a reality. The world became a far more nationalist and introspective place virtually overnight. Closing borders was there to protect people primarily, but a side effect was that it forced the world to try out living in a less global way almost instantly.
The impact on those aforementioned supply chains was felt acutely by many as a result of closing borders. The world’s reliance on its supply of so many goods from China was also emphasised, as well as its reliance on supply from many developing nations too. It’s conceivable too that this only cemented bad feelings between the US and China, as well as relations between China and other countries around the world. For, given that China was the location of the outbreak, a strong feeling of resentment grew on the fact that supply chains were breaking down because of Chinese inaction to contain the virus. People’s lives were being adversely affected not only because of the outbreak but because of the impact on their livelihoods and ability to live their life freely during government enforced lock downs. A growing distrust of other nations arose quickly , which is arguably a driver behind deglobalisation.
Will the pandemic force the world into deglobalising?
But given that the pandemic will, hopefully in the grand scheme of things, be a passing or momentary force, can it really push the world into deglobalisation? For, while supply chains have been most definitely affected, the worst seems to have passed. Goods and services are now largely getting to where they need to be. So can the pandemic really be to blame for any further deglobalisation?
Many would assert that further, quicker deglobalisation is definitely a reasonable assumption for a number of reasons. Firstly, despite the global fluidity that defined modern times in terms of how both people and money move around the globe, the pandemic saw countries looking inward to look after their own citizens. There was very little done on an international level to work as a team to fight the outbreak. Additionally, the World Trade Organisation has highlighted that it believes that COVID19 could cause global trade to decrease by around 30% as well as see a decline in global infrastructure investment as a result.
Finally, as briefly alluded to earlier, the pandemic also forced people to stay within their own countries. This has meant populations have all had to find effective ways of doing profitable business. It has also forced people to find new ways to socialise. Furthermore, travel anywhere, let alone international travel, all but stopped. The new normal way of living demanded that populations all over the world lived in a less globalised way.
This could spell further bad news for the travel and aviation industry. The huge decline in aviation was obviously acutely felt by airlines in 2020, but there is a huge question mark over whether demand for their services will reach the heights before COVID19. People are either still too scared to travel or, they simply don’t feel the need having become used to the new normal. Our old style global way of living is therefore in some doubt.
However, that is not to say deglobalisation is inevitable. Indeed, Robert Armstrong of the Financial Times wrote that the “Coronavirus is a global crisis, not a crisis of globalisation.”. While a clever play on words, this point is well made. For, just because we can live in a deglobalised way – and have been forced to do so for the majority of 2020 – doesn’t mean we necessarily will.
The Eurozone provides a fantastic argument for this. For, whilst Britain chose to leave it years before the COVID crisis came about, there are still many nations within it that believe working together as the EU is worthwhile. The huge financial aid package that the bloc agreed in July is a good example of this. Macron was even quoted as arguing that the entire European project would be called into question if the package was not robust enough to do any worthwhile good. In essence, the package showed that countries were and are still willing to cooperate with one another for the greater community’s good.
Plus, there are other bigger problems around the globe that will require international cooperation. Climate change is perhaps one of the best illustrations of this. Nations across the world will have to work together to tackle the problem and bring down CO2 emissions – it simply can’t and won’t be done at a national level.
What will the post COVID world look like?
So, on balance, what will the post COVID world look like? There is perhaps no denying that the outbreak emphasised an unhealthy reliance on certain countries for their supply chain. This weakness in many countries may force governments to domesticate parts of those supply chains – encouraged as well by the need for job creation and infrastructure investment to stimulate economies.
But is that enough to fully deglobalise? For, while many economists take a technical, numerical view on deglobalisation and what the future will bring for the global economy, human nature should not be discounted. Just because people have learned to survive in their homes with a much diminished social life – it doesn’t mean that they will. People will inevitably want to travel again when they can and live their lives experiencing other cultures.
And ultimately, we shouldn’t forget that we have enjoyed the longest period of general world peace, partly down to our more globalized ways. It has long been argued that heavily intertwined economies have meant that the prospect of outbreaks of wars on a worldwide scale have been diminished. The want for peace to continue also cannot be ignored as a key force behind continued globalisation.
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