Globalization post-coronavirus to get a hit, self-sufficiency paradigm to rule
The massive scale of coronavirus outbreak, accompanied by uncertainty and fear, could lead to new behaviors and beliefs in the 21st-century population that is empowered with the internet.Parag Narang | Updated: 01-04-2020 00:29 IST | Created: 31-03-2020 23:43 IST
Lockdowns at the largest-scale in human history have been imposed by governments around the world to stop the spread of novel coronavirus SARS-COV-2 and we are living through a historic moment as its being made. The repercussions of this outbreak could change many aspects of life and business as almost half of the global population adopts restrictions on movement at an unprecedented scale.
Initially, it was being thought that the outbreak would be a localized problem for Wuhan but then it spread beyond Wuhan in China, and given the global influence of the second-largest economy in the world, it was only a matter of time that the virus gained a grip on dozens of other countries. On December 31, 2019, China alerted the World Health Organization (WHO) of several cases of unusual pneumonia in Wuhan. The cases rose to 44 on January 4 and the virus was still unknown. Less than 4 months later, the cases of COVID-19 pandemic have surged well over 700,000 in over 171 countries.
But even during the initial stages when the virus spread in China, all governments across the world were closely monitoring it, not only because of the potential threat that it could become a global pandemic but also because China's role in the global supply chain is so integral that any disruptions in the country could be disastrous for many nations and the highly-integrated global economy.
The coronavirus impact on globalization
Globalization and the aviation industry have a notably synergistic relationship, both thrive when the corporates do and neither of them gets along well with aspirations of self-reliance and isolation in countries.
The aviation industry is one of the hardest-hit due to the outbreak. Industry capacity in domestic and international markets is expected to decline 65 percent during the quarter ending June 30 compared to a year-ago period, according to IATA.
The novel coronavirus originated from China's Wuhan and spread across the world along with people who were carrying and transmitting it. To control the situation, countries imposed travel curbs and took control of their borders and airspace as part of their first line of action to stop the virus from spreading further.
Many flights to and from China had been suspended since the early stages of the outbreak and the restrictions grew quickly on other countries as well. By late-March, over a dozen countries have suspended all international flights while almost every country has imposed some sort of travel restrictions to stop the spread of coronavirus. Cruise ships have also been under the radar since the initial stages of the outbreak, especially due to their emphasis on communal dining and group activities, making them a notorious incubator for coronavirus.
The infamous Diamond Princess cruise ship remained quarantined for over 2 weeks in Japanese waters and more than 700 passengers from the total 3,711 passengers were infected with COVID-19, making it the site of most coronavirus cases outside China in early February. The episode caused global panic and many countries banned cruise ships from docking on their ports.
But even as countries took control of their land borders, airspace and ports, most of them stopped short of banning trade because they rely on global supply chains for even essential goods like medical equipment. One of the most shocking travel bans was the one imposed on all European nations by the United States, but when President Donald Trump's move was confused to include trade, both he and White House gave multiple clarifications that trade would not be impacted.
This has reignited the debate around the self-sufficiency of countries and the structural risks of globalization, at least when it comes to vital goods. Long before the outbreak snowballed into a pandemic, experts were worried that supply chain disruptions would spill over to other countries and could cause a shortage of even essential goods. For example, China is the world's top producer of pharmaceutical ingredients, crucial in the fight against COVID-19 disease.
But globalization is not limited to trade, its scope extends greatly to people who become a part of the connected world through migration of labor and tourism among other things. The massive scale of this outbreak, accompanied by uncertainty and fear, could lead to new behaviors and beliefs in the 21st-century population that is empowered with the internet, which gives them the unprecedented ability to spread conspiracy theories and disinformation in a world already filled with it.
Theories about the coronavirus being a "biological weapon" of China or being manufactured by the US Central Intelligence Agency (CIA) to reduce Chinese economic influence are already circulating. The impact of such large-scale historic events goes far beyond economic fallout and fuel racism, protectionism and demands of isolation, ultimately raising questions on the self-sufficiency of countries.
Self-sufficiency and globalization
There are various definitions of a self-sufficient country, to some, it means when a country produces its own goods and services and doesn't import from other countries. But perhaps a more real-world and 21st-century definition would be "a country that produces all essential goods and services on its own and is not reliant on any other nation to survive."
To many supporters, being self-sufficient is being independent because such a country can survive and offset the impact of a natural calamity or a public health emergency like this.
Globalization, on the other hand, has made the world more connected and has reshaped the global economy over the last few decades and has opened new doors for the countries that adopted it. It means removing or reducing barriers to the movement of goods, services, and people across borders.
Supporters argue that globalization means increased investment and competition that sparks innovation, creates jobs, makes companies more competitive and lowers prices for consumers. A globalized economy sees the influx of information and culture between countries that may not have anything in common and the market of such a country has access to international products and services.
Ever since globalization boomed after World War 2, the global economy has seen its ups and downs but it has always recovered and the concept of multilateral trade has always thrived. But, as evident during the coronavirus crisis, globalization has also given rise to fragile supply chains of essential goods that could collapse with the imbalance of even one piece.
Globalization has taken several hits over the last few years with most prominent of them being the ever-rising debate on job losses, migration, and depressed wages, along with Brexit and the election of Trump. The United Kingdom voted to leave the largest trade bloc in the world in 2016 and its newly-elected Prime Minister Boris Johnson has vowed to make it happen. Trump, on the other hand, is "improving" the trade landscape of the world's richest country with the rest of the planet.
Future of globalization
In less than 3 months of the virus being identified, China was able to bring the cases of local transmission to zero, which tells us that as severe as it is, the world can get past this outbreak and the first priority of world leaders is to make that happen as soon as possible. A global recession seems unavoidable at the moment and the next priority of countries would be to address the economic fallout of the outbreak. Many countries have already announced stimulus packages to support their economies and many other measures can be expected as the situation unfolds.
Then comes the demands of shunning globalization and adopting measures for self-sufficiency. But to better visualize the debate of the post-coronavirus future, we must understand what drives the beliefs of supporters of globalization.
David Ricardo's theory of comparative advantage came to life with the help of a boom in globalization and is often the driving force behind the beliefs of the supporters of globalization. The theory argues that opening up trade borders could benefit everyone and even if a country is the most competitive in all kinds of production activity, it should only focus on sectors in which it has the greatest competitive advantage so that everyone benefits in cross-border trading. This way, according to the theory, products would be cheaper even if they are imported taking into consideration the opportunity cost of competitive advantage.
The theory has been proven right to some extent over the decades, as globalization boomed, production cost and prices fell, and global aggregate demand increased. Global economic activity has reached unprecedented levels in the last few decades, giving rise to huge corporations. But this has also given rise to monopolies, not of companies but of regions. When the global production of a particular product is largely located in the most efficient region, there is intense competition in the said region but that region itself could, largely, become a monopoly.
China, who was one of the biggest drivers of this structural change, became the global manufacturing hub with the rise in globalization but the coronavirus outbreak has exposed the drawbacks of this concept as disruptions in the East Asian manufacturing hub threatened global supply chains and created panic of shortages of even essential goods.
Because of a shortage of essential medical equipment, US President Trump recently invoked the rarely used Defense Production Act to force automakers to produce ventilators in their factories. Ventilators are not defense equipment and it makes sense for a country like the United States to have the capacity to produce essential medical equipment locally. Such measures and demands in the ensuing months would also be supported by corporate lobbying efforts by local manufacturers and it makes sense for the bigger countries to heed to the demands of self-sufficiency of goods and services vital for survival, not only because of the increasing political pressure but also because it is the need of the hour given the increasing cost of natural disasters.
Dependency on other countries for essential goods could pose a challenge to the very survival of a country and is a serious structural risk to the theory of comparative advantage. When the cost of not being self-sufficient in essential goods and services is factored in, the variable could disrupt the working of this theory.
For smaller countries or those with highly dependent economies, the situation could be different. Any such measures could require subsidies and higher import duties for essential products, such measures could come under the purview of protectionism and disturb the trade relationship between countries. This would mean that even the businesses of smaller countries, that do have a competitive advantage in international markets, suffer because of disturbed trade relationships. The export of commodities forms a major chunk of total exports in countries like Angola, Iraq, Chad, Guinea-Bissau, and Nigeria. Developing countries in Asia are also heavily reliant on exports and these countries just can't afford to disturb the trade balance with richer countries.
In many cases, countries just don't have the ability to become completely self-sufficient in producing essential goods and services due to a lack of natural resources or other economic reasons. Besides even in the case of poor countries that could become self-sufficient, the increased cost of production of goods, that were being imported earlier, would drive up inflation and translate to a disastrous economic impact.
An outbreak of this scale not only prompts changes in governance but also leads to changing behavior of people and lack of willingness to engage with foreigners could also lead to a significant hit on tourism, one of the sectors that benefitted the most from globalization. Dozens of cases of Asian people being attacked and bullied have been reported ever since the outbreak became mainstream and top leaders calling the SARS-COV-2 "Chinese virus" doesn't help. Many people are already comparing it to the aftermath of the 9/11 attack, in which there was an increase in attacks against Middle Eastern, Arab, Muslim, and South Asians based on their ethnicity and racial identity.
Many Asians living in foreign countries have said that they avoid going out because they are scared that they and their children could be subjected to discrimination.
Racial discrimination could become a barrier to the growth of the tourism sector, which contributed a record USD 8.8 trillion and 319 million jobs to the world economy in 2018. Chinese nationals are known to be big spenders and lead in travel spending in the global outbound tourism market. It would be disastrous for tourism-dependent economies like the Maldives, British Virgin Islands, Macao if the trend impacts tourism and other economies could also face significant losses in face of economic hardship already being faced due to lockdowns.
The world is highly-integrated in 2020 with the help of globalization and while some powerful countries would push to become self-sufficient in producing essential goods and services, smaller countries might not have that leverage. One aspect of globalization that this outbreak would change, not immediately but in the years to come, is shifting its focus back from trade regulations to global governance. The smaller countries which aren't capable to become self-sufficient might not even have what it takes to fight off the ongoing crisis, highlighting the importance of multilateral action at the time of an outbreak that knows no borders just like climate change, natural calamities, and cybersecurity.
(Disclaimer: The opinions expressed are the personal views of the author. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)
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