Argument

Globalization Will Look Very Different After the Coronavirus Pandemic

New barriers are going up at breathtaking speed. The pandemic will accelerate not the demise of globalization but its transformation.

Demonstrators set up a mock customs checkpoint to protest against potential trade restrictions due to Brexit in Killeen, Northern Ireland, on Feb. 18, 2017.
Demonstrators set up a mock customs checkpoint to protest against potential trade restrictions due to Brexit in Killeen, Northern Ireland, on Feb. 18, 2017. PAUL FAITH/AFP via Getty Images

The COVID-19 pandemic has spawned new barriers at breathtaking speed. Closed borders, travel bans, paralyzed supply chains, and export restrictions have prompted many to ask whether globalization itself might fall victim to the coronavirus. In fact, globalization was already in decline well before the outbreak, having reached its peak before the 2008 global financial crisis and having never recovered since then. The pandemic will certainly highlight the risks inherent in overdependence on global supply chains, prompt a renationalization of production, and put stress on the notion of international interdependence. The likely result is an acceleration of changes that have long been in motion toward a new, different, and more limited form of globalization.

The worldwide interconnectedness of goods, services, capital, people, data, and ideas has produced undeniable benefits. But during this pandemic, the risks of dependency have fully entered the public consciousness. For U.S. consumers, the first visible sign came when virus-shuttered factories in China prompted delays in Apple’s delivery of iPhones, and continued as other firms reported interruptions. When the pandemic spread in the United States, Americans learned that 72 percent of the facilities producing pharmaceutical ingredients for U.S. consumption are located abroad—mostly in the European Union, India and China. The share is reported to be as high as 97 percent for antibiotics. Then liberal, globally engaged countries such as France and Germany not only closed their borders to travelers but barred the export of face masks, even to friendly nations. (They have since lifted the bans, but the shock remains.) When every country suddenly fights for itself, the idea of international interdependence appears worth rethinking, to say the least.

And it will be rethought. Even in its early days, the pandemic has demonstrated the fragility of supply chains, prompted national responses rather than cooperative international ones, and reinforced nationalist arguments for reshoring manufacturing and more limited migration. It has also illustrated that national governments remain the primary actors—the responders of last resort to a pandemic and its economic consequences.

This will not be the end of globalization. Rather, the world is likely to see a different, more limited version of global integration than the one we have known over the past three decades. Its contours are barely perceptible, but visible nonetheless.

The trends that will now be accelerated have been well underway. It’s been a long time since the public debate has been about a world that is flat, capital flows that are frictionless, and trade that is free. Instead, recent political debates have been over border walls, decoupling from China, trade wars, Brexit, populist nationalism, and the assertion of national sovereignty against all-knowing U.S. and Chinese tech corporations.

Key indicators bear out the change. Before the pandemic, global goods trade was still rising, but relative to the total output of the global economy, the share of trade is lower today than it was before the financial crisis. Cross-border financial flows hit their peak in 2007, and progress on further global trade liberalization stalled well before that. Total global foreign direct investment has not returned to its highs more than a decade ago. The U.S. and other governments are placing greater controls on the export of critical technologies, and the internet has become increasingly splintered along national lines.

But globalization is complex, and not every indicator points in the same direction. The intensity of trade in goods is down, but in services it’s up. The flow of data across borders has risen dramatically, even as countries like China and Iran seek to restrict it. International travel and study abroad were at all-time highs before the coronavirus pandemic, and migration was so vast that many called it a crisis. Overall, the net fall from globalization’s peak has therefore been more modest, but nonetheless real.

That’s clear from the political preferences expressed by many populations across the world. Even the most globally oriented politicians today avoid touting the benefits of open borders, trade and money flows, and international engagement.Even the most globally oriented politicians avoid touting the benefits of open borders, trade, and international engagement. Many recent elections have been won by emphasizing the harms of what has come to be derided as “globalism,” and promising protection from the effects of exposure. For the globally oriented, those protections include job retraining, transfer payments, and better safety nets. The nationalists prefer strong borders, tariffs, and restrictions on immigration. Where once the promises of globalization dominated political discourse, the threats have emerged front and center.

It’s not difficult to see why. Globalization is often blamed for financial crises—not only the global one of 2008, but also the 1997 Asian crisis and others in Russia, Turkey, Ecuador, Cyprus and elsewhere. Many believe that globalization has ushered in cutthroat, worldwide competition and expanded inequality both among nations and within them. Fragmented supply chains that require goods to be transported across borders multiple times consume more energy and produce higher greenhouse-gas emissions. Even the risk of diseases quickly spreading across continents is not new; since 2003, the world has seen successive outbreaks of SARS, swine flu, MERS, Ebola, and the Zika virus.

Perhaps the most explosive charge against globalization is that it promotes the interests of a global elite at the expense of majority populations. On a global scale, this is not even close to being true—international economic connectedness has dramatically raised gross domestic product, reduced poverty, raised living standards, improved health, and made information vastly more available than before. Yet many of those benefits are diffuse and taken for granted, while the costs—lost manufacturing jobs, for instance—remain concentrated. And those on the losing end of globalization now have a new political voice: populist parties promising sovereignty, nationalism, and local solutions, as well as a weakening of elite-led, seemingly unaccountable international institutions.

To the idealists among us, a worldwide pandemic would seem precisely the kind of common threat that could usher in a new era of international cooperation. In reality, governments have so far made decisions largely on their own and with little consultation. The G-20 convened an emergency summit of global leaders (by teleconference, of course) that produced a bland statement of abstract pledges but bereft of any specific commitments. The Chinese government bought up the country’s production of face masks rather than see them sold, key European governments temporarily barred their export, and reports circulated of U.S. attempts to purchase a German vaccine manufacturer for exclusive use of its technology. The coronavirus crisis may be global, but the responses have so far been national.

Many see COVID-19 not as a cause around which the world’s governments should rally, but rather as the most dramatic example of an already broken globalized system. “In a global public health emergency, the U.S. is alone,” said Peter Navarro, U.S. President Donald Trump’s economic advisor, to the Financial Times. This is “precisely why it is important for the Trump administration to bring home its manufacturing capabilities and supply chains for essential medicines and thereby simultaneously reduce America’s foreign dependencies,” he said.

Given widespread sentiments such as these, it is easy to imagine governments around the world broadly rethinking international travel, migration, supply-chain risk, export controls, information sharing, and more—in short, key components of globalization itself. The new watchword is likely to be risk reduction rather than cost reduction.

Many of the key drivers of globalization—shipping, data, and capital flows, our understanding of comparative advantage, and economies of scale—will not go away. But driven by a combination of changes in popular sentiment, government policy, and corporate practices, globalization will change.Driven by a combination of changes in popular sentiment, government policy, and corporate practices, globalization will change. The coronavirus pandemic will mark not the end of an era, but its transformation.

First, economies may become less dependent on single points of failure—and less dependent on China. Fragile supply chains are not an indictment of globalization per se, but of the way companies have become dependent on single sources of supply. It is easy to imagine companies, both on their own and at the behest of their governments, diversifying the supply of key inputs and shifting to domestic or regional production. Advances in automation and other labor-saving manufacturing technologies would make this easier; continued trade war with China would force it along.

Second, economic integration will still take place, but it will continue to shift from the global to the regional and bilateral level. Global multilateral trade talks have gone nowhere since the Uruguay Round in 1993. Instead, the European Union concluded separate trade agreements with South Korea and Japan, African countries are talking about a continent-wide trade zone, and a pact similar to the planned Trans-Pacific Partnership has taken effect after Washington withdrew. Even China’s Belt and Road Initiative is creating regional and bilateral connections, not global ones.

Third, political debates in the United States and many other Western countries are likely to remain focused on globalization’s losers and the ways to protect workers from economic damage. The problem is that the preferred remedy—protectionism—makes many problems worse, not better. How to protect workers without undermining globalization’s economic benefits, including a higher standard of living, remains an unsolved question.

The coronavirus pandemic may mark the endpoint of the post-Cold War era. The enchantment with ever-greater international integration is gone. But it would be folly to replace globalization with the same kind of isolationism and protectionism that has impoverished nations before. The nature of globalization’s next phase—and the precise contours of a more selective pattern of cross-border engagement and interdependence after the pandemic—will be the larger question against which many of the most important political debates of the coming years will play out.

Richard Fontaine is the chief executive officer of the Center for a New American Security. He worked on the National Security Council staff and at the State Department during the George W. Bush administration. Twitter: @RHFontaine

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