In 2019, world trade was already slowing, with predictions of a looming recession. This trend resulted in an economic catastrophe with the onset of the Covid-19 pandemic. However, even before the virus scare, the developments in the world economic scenario were characterized by attempts to create protectionist regimes that aimed at prioritizing the needs of individual countries over the collective aspirations of the global economic order.
The major upsurge of the de-globalization drive before the pandemic was a result of the repercussions of the financial crisis of 2008. Believers in de-globalization and decoupling base their current hypothesis on the notion that despite the localized origin of the virus that causes Covid-19 (an upscale meat market in China’s Wuhan province), it has created a worldwide impediment to the free flow of physical resources and labor.
In addition to this, the staggering economic dynamics owing to a supply-side shock (contingent on production), demand-side shock (dependent on consumption), and the looming threat of financial crisis have antagonized the market forces.
The centralization of production forces in a very small number of countries because of their comparative advantages and the scale of their economies have led to excessive dependence on them. In 2020, China alone accounted for 16% of the world’s output. Because of this heavy interdependence, even small disruptions in one place can cause systemic risks in the whole system.
The table below shows the drop in imports from China in various countries during the pandemic. This drop in imports in turn implies a reduction in output, as a number of these countries rely on Chinese intermediates for production.
|Country||Percentage change in bilateral exports from China at current prices (February 2020)|
However, despite the pandemic-induced disruptions in the global economy, it cannot be said that globalization as a concept has failed. There is hardly a single nation that is not in some way dependent on others, either for raw materials, labor services or imports of finished goods.
Moreover, it cannot be denied that the international economic networks have elevated a large number of people from poverty, increased average life expectancy, and considerably increased the literacy rate of the world’s adult population, from 50% to 75% in the past four decades.
Thus the Covid-19 crisis serves merely as an avenue to shift the supply-chain bodies from countries such as China to other countries that are equipped with the infrastructure to counter these unprecedented occurrences.
This trend in fact saw an early onset in 2019 amid the bitter trade war between the US and China, with several foreign companies shifting their manufacturing bases out of China to other East and Southeast Asian economies.
A survey by Bank of America even spelled out how a tectonic shift might take place in the global manufacturing scenario. The primary concern that rose in this supposed shift was the “America First” policy and ensuring jobs to the people of the home country. The inward turn of superpowers like the US and the UK evident from their isolationist policies has created a vacuum of power in the international arena.
The lessons from the pandemic might lead to regional coalitions being the essential driving force to enhance trade talks. These regional initiatives may strengthen their economies and be mutually beneficial in the long term.
In the Indian scenario, BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) has received renewed vigor amid the Covid-19 pandemic. Its strategic location and India’s fears over the involvement of China in the almost annulled Bangladesh-China-India-Myanmar (BCIM) Economic Corridor has stimulated this move.
Now, with the member countries finding ways to cope with market confusion over Chinese business linkages, and become self-sufficient, the crisis brings a huge opportunity to reinvigorate BIMSTEC. There is also immense scope for both Bangladesh and India to rise up global and regional value chains by further integrating the economies.
The school of thought that promotes a middle ground between de-globalization and globalization approaches advocates for promoting the digital globalization agenda instead of the physical one. The premise involves the proliferation of remote work opportunities instead of focusing purely on status quo labor-intensive work situations.
This new form of limited globalism in the digital sphere would include a renewed focus on shipping, data, and capital flows driven by newer technological advances in order to ensure a limited but effective regime.
With countries hit by the vulnerability of the present production models, their tendency to move toward more resilience and robustness is inevitable. While this does not mean that de-globalization is the only solution, new checks against the ever-expanding notion of globalization are to be expected.
The author acknowledges Rohith Vishwanath at NLSIU Bangalore for his research inputs on this article.