The world of trade will change for ever. Globalization is dead. Supply chains will become shorter, and less complex. The nation state is back. Except for China, which is in big trouble.
That’s a crude summary of a lot of articles predicting the world after coronavirus. It rests on the idea that most countries will want to ensure that never again will they go short on key supplies in a major crisis. That this will in turn lead to wanting to take more control over supply lines and domestic industrial policy. In particular China makes too much and is an unreliable partner, which is a vulnerability.
For many of course this narrative is close to one they already had, that globalization is a bad thing, often combined with a view that China was winning the trade game. That’s been a predominant view in policy circles around President Trump, but is also common around the EU, and the majority of Brexit voters were probably motivated by anti-globalization concerns whatever those supporting “Global Britain” might say.
There are though many problems with the narrative of coronavirus as leading to the strengthening of the nation state and weakening of globalization, possibly even more than before. Most fundamentally, and inconveniently for those making the case, global trade is actually continuing to function at a time of global crisis. With some serious concerns admittedly, containers in the wrong place, less international transport options, some perishable goods having to be destroyed after the market disappeared, notably flowers. But in most countries we are still getting what we want and need.
Consumers in developed countries take for granted that they can obtain a wide range of food and drink products at reasonable prices. This is provided by global supply chains using sophisticated logistics. So far in the crisis as countries have gone into lockdown this choice has been maintained. Global trade has demonstrated resilience even when individual countries have been struggling. Trade works. Single country supply chains may well have been less resilient.
If globalization is to end consumers will have to be prepared to accept less choice and higher prices. It is hard to see why they will in general accept this. Even in the case of Brexit where this is a reasonably likely outcome as the UK puts up trade barriers to the EU they were often told the opposite, because sovereignty can only go so far. Those who argue against such global trade from a different angle, the battle against climate change, have similarly struggled to overcome majority consumer preference. The same also applies to supply chains, it is hard to see car companies for example wanting to add what they consider to be unnecessary costs to their supply chains.
The shortage of crucial medical supplies and the importance of China as a supplier presents a slightly different case, but not one leading us to a different conclusion. Virtually all countries have been short of some equipment to fight coronavirus, and have been seeking to increase domestic production or buy internationally. Others have sought to restrict exports. Many will have had at least some spare stocks of personal protective equipment, but the cost of holding stocks of every possible piece of equipment needed in a pandemic would surely be prohibitive, and it may not even be feasible. What we see now is the market responding as we would expect, with production dramatically increasing. While there will definitely be good reason to review preparations global trade has been helping.
Those moving into production of new items have in some cases met difficulty in meeting regulatory requirements. It is understandable that safety critical equipment is subject to rigorous testing, but this also increases the cost of production, and most likely reduces the number of suppliers able to compete. Such a concentration may become a problem, but raises the question of the extent to which governments are willing to actively intervene in the economy to prevent globally dominant players, how they would be able to do so, and whether this would be successful. This is probably a conversation worth having but is rather different to stating the end of globalization. When having it we need to take account of the realistic concern that we will see greater protection for inefficient ‘national champions’.
In the context of statements of the end of globalization we should also discuss the impacts of coronavirus on the services trade, and particularly the suggestion that the crisis has revealed that much international travel is unnecessary. Unfortunately all indications are that video conferencing does not come close to replacing important face to face meetings (although it may replace many humdrum ones which probably weren’t actually needed). Meanwhile in a very different field, that of university students travelling to other countries, are we seriously expected to believe that ambitious students from various countries won’t want to have the experience of attending what are considered to be superior courses outside their home countries. We are back to consumer preference, which has been a driving factor.
Trade negotiations are a particular instance showing the limitations of the end of globalization theory, the UK and EU have been unable to continue trade talks as before without travel, and the EU has been unable to properly liaise with member states. Indeed, while global trade will continue, global trade institutions like the WTO are likely to find progress or indeed survival even more difficult as major powers show no sign of seeking greater collaboration even at a time of crisis.
To say globalization won’t change as a result of coronavirus is of course as big a generalisation as to say it definitely will. It is likely that governments and businesses will be asked more about resilience, that more meetings may happen virtually, that some students will think of studying closer to home. Millions of smaller decisions will be made which together will have a macro impact. But that’s a far cry from declaring the end of globalization.