Globalisation appears to have peaked in 2008, and since then we have been in an era some economists have termed as slowbalisation. The COVID-19 pandemic has accelerated slowbalisation driving the world economy to retreat from global economic integration. Policymakers and business leaders are now questioning whether global supply chains have been stretched too far. In an environment where alliances are uncertain and international cooperation is absent, they are also asking whether they should reduce their economic interdependence.
Globalisation comprises many different elements: cross-border flows of trade, investment, data, ideas, and technology, not to mention people, including workers, tourists, and students. Many multinational firms have burnt their fingers as they spread their wings since the emergence of globalization as local rivals in new geographies often ate them alive.
Back in 2004 Siemens AG and Alstom SA were falling over themselves to boast about their contract to supply China with 60 passenger trains and 180 freight locomotives valued at 1 billion euros. A similar contract from Siemens for 300 kilometers-per-hour trains was announced a year later.
As a result of their entry into China they facilitated the birth of CRRC Corp a publicly traded rolling stock manufacturer which today is the largest rolling stock manufacturer in the world eclipsing Alstom and Siemens. In late 2015, Yu Weiping, one of the vice-presidents of the company, stated the company planned to double overseas sales over five years, with North American passenger rail being one target.
As economies reopen, activity will recover, but don’t expect a quick return to a carefree world of unfettered movement and free trade. The pandemic will politicise travel and migration and entrench a bias towards self-reliance. Now, in response to the current health and economic crisis, policymakers appear poised to take deliberate steps to reinforce the movement toward deglobalisation. This inward-looking lurch will enfeeble the recovery, leaving economies vulnerable and spread geopolitical instability.
Going forward trade will no doubt suffer as countries abandon the idea that firms and goods are treated equally regardless of where they come from. Governments and central banks are asking taxpayers to underwrite national firms through their stimulus packages, creating a huge and ongoing incentive to favour them. And the push to bring supply chains back home in the name of resilience is accelerating.
Recently India’s prime minister, told the nation that a new era of economic self-reliance has begun. Japan’s covid-19 stimulus includes subsidies for firms that repatriate factories; European Union officials talk of “strategic autonomy” and are creating a fund to buy stakes in firms. America is urging Intel to build plants at home.
The world economy is at a critical inflection point in history with the risk of overreaction and a slide to protectionism. The absence of a coordinated and cooperative response could accelerate destructive beggar-thy-neighbour policies not seen since the 1930s. Undoing the resulting damage is likely to prove difficult.