Is the Covid-19 pandemic, the death knell for Globalization?

During the last two decades of the previous century and the first two of the current century, the world has witnessed, an amazing spectacle of unhindered trans-continental harmony in movement of goods, services, capital, ideas, technology and people from one end to the other.  It is irrefutable that the whole world has reaped a mountain of benefits from this era of globalization. Developed countries explored new areas to shift labour intensive manufacturing jobs, which resulted in enormous cost savings and consequently more healthier bottom lines.

 Under developed and developing countries world over gained huge benefits of this surge in jobs and opportunities and managed to transform their countries to emerging economies. The new found middle class emerged in these beneficiaries and huge hitherto unheard-of numbers were hauled out of poverty. The undisputed champion to benefit from globalization has been China which has become the defacto manufacturing shop floor for the world. China’s share of global output has grown from 4 % in 2003 to almost 16% in 2020. Over the last four decades China has made immense strides in hauling its people from poverty into relative prosperity. Standards of living have improved leaps and bounds.

However, over the last couple of years there have been voices of dissent. Few and far between to begin with, but definitely growing, both in numbers and intensity in recent times. The refugee crisis led to many European countries differing on border control. Brexit, strained relations among member countries of EU. The election of President Trump, gave rise to a new wave of nationalism and regionalism as did the election of Prime minister Modi and several other leaders in South Asia. The world it seemed was having a rethink about globalisation, as the divide between the haves and the have nots widened world over. The digital divide seemed to be more pronounced than ever before.

 Moreover, as wage and labour costs in China increased, China was seeking to reposition itself as a manufacturer of high tech products and this led to accusations of intellectual property right violations and technology theft. With humongous economic growth over the last decade, China has become more assertive and has started to flex its muscles in the South China Sea. This has led to acrimonious encounters with the US  and a protracted trade war.

This brings us to what is undeniably the largest catastrophe in recent times, The COVID 19 pandemic. As the pandemic reportedly,started in a wet market in Wuhan , capital of Hubei province and spread like wild fire world over , it caught most countries and their governments totally unaware. With more than half the world under lock down, the west is coming to grip with a disaster nothing like anything seen in a century and totally ill equipped to handle it. As the body count rises on a daily basis and no concrete solution in sight, finger pointing has started, as governments world over shift to self saving mode and try to deflect blame. That it is election year in the US only worsens the situation.

 Moreover, the fact that most drugs had to come from Asia and PPE’s, face masks  and Ventilators from China caused severe embarrassment to these governments and has led to groundswell in public opinion against globalization in general, Most of the manufacturing units and automobile companies in the west had   their production severely hampered due to serious disruption to supply chains as most of these subassemblies and products were manufactured in China. Transportation of these goods have also been suboptimal.

How this groundswell of public opinion actually pans out, will depend to a large extent, on how long it takes before this Covid 19 pandemic is overcome and what is the extent of the damage it causes to the world both in terms of casualties and to the economy. However, it can be safely assumed, that Globalisation as we know it now, will definitely cease in the Post Covid 19 era. The famous quote “If China sneezes, the world catches a cold “has unfortunately come true. 

As people struggle to cope with the virus, tempers are rising world over. Faced with a pandemic, Italy was totally left to fend for itself as its plea for aid was totally ignored by member EU countries who banned export of drugs in a desperate attempt to limit damage in their own countries. The perception of erosion of national and regional identity, which is being exploited by political parties with protectionist agendas has led many such political affiliations to power in many countries.  

The west is already clamouring for protectionist measures especially for sensitive industries. Multinationals will look at re shoring seriously. Supply chains will undergo a very systematic and thorough audit, post Covid 19, to ensure that existing vulnerabilities are overcome. Alternative suppliers preferably closer to home, if not at home itself, will be developed even at the expense of additional cost. Automation technology will be adopted aggressively as a means to counter cheaper labour cost that China / South Asia has to offer. Robotics, 3 D printing will see enormous development. Adoption of such technologies may be accelerated in the very near future. Regional Supply hubs may be created to offer economies of scale, 

Promoters of Just in time have suffered a severe credibility blow as delays due to Covid 19, disrupted production lines world over. Inventory Stock holding levels will be re-ascertained after comparing stock holding costs against a production line stoppage cost. Multiple suppliers will become the order of the day.

With some sort of travel restriction likely to be in place for the foreseeable future, free travel across continents is likely to be hampered. Consequently, handling production lines far away from home is likely to pose more challenges. With elevated trust deficit between countries in the West and China, production location decisions are not likely to be made only with costs in mind. The more protracted the war on Covid 19 pandemic is and the more the number of casualties, the more the groundswell of opinion against China. This could force populist politicians and governments to change course significantly, if not dramatically.

The world economy as we know it today is definitely up for a major overhaul post Covid -19. It will definitely change the world of globalisation significantly.

Will it be the death knell of Globalisation?

Only time will tell!