When media outlets like The Economist and Financial Times start publishing eulogies for globalization, you know something has changed on the world stage. Economist journalists bluntly ask, “Has covid-19 killed globalization?”[1] They note, “Even before the pandemic, globalization was in trouble. The open system of trade that had dominated the world economy for decades had been damaged by the financial crash and the Sino-American trade war. Now it is reeling from its third body-blow in a dozen years as lockdowns have sealed borders and disrupted commerce.” Alan Beattie (@alanbeattie), from the Financial Times, asks the same question. He writes, “The death of globalization and world-encompassing supply chains has been foretold so often that it is hard to imagine it might actually be happening. … Could Covid-19 be the blow that finally shatters them? Global goods trade is in freefall. The World Trade Organization forecasts this will contract between 13 per cent and 32 per cent this year.”[2] Globalization is generally defined as the relatively free flow of people, trade, information, and capital around the world. Economist journalists note, “The world has had several epochs of integration, but the trading system that emerged in the 1990s went further than ever before. China became the world’s factory and borders opened to people, goods, capital and information.” By most accounts, those flows are slowing to a trickle.

What we lose if globalization dies

Another Financial Times‘ journalist, Martin Wolf (@martinwolf_), reports the rivalry between Great Britain and Germany ended the first era of globalization when it erupted into warfare.[3] He writes, “It took the entry of new great powers on to the global scene, the US above all, to restore stability and global peace, however imperfectly. As Maurice Obstfeld, former chief economist of the IMF, shows, … it took 60 years before economic integration returned to 1913 levels relative to global output. Globalization then went far further, prior to the global financial crisis of 2008. In the process, it also brought about a large reduction in global inequality and mass poverty.” The Economist notes, “The golden age of globalization, in 1990-2010, was something to behold. Commerce soared as the cost of shifting goods in ships and planes fell, phone calls got cheaper, tariffs were cut and the financial system liberalized. International activity went gangbusters, as firms set up around the world, investors roamed and consumers shopped in supermarkets with enough choice to impress Phileas Fogg.”[4] The rise of a global middle class was historically and economically important. When people in the middle class thrive, so do economies. When middle classes shrink, so do economies. The death of globalization means the global middle class could shrink dramatically along with long-term prospects for the global economy. Economist journalists conclude:

“The underlying anarchy of global governance is being exposed. France and Britain have squabbled over quarantine rules, China is threatening Australia with punitive tariffs for demanding an investigation into the virus’s origins and the White House remains on the warpath about trade. Despite some instances of cooperation during the pandemic, such as the Federal Reserve’s loans to other central banks, America has been reluctant to act as the world’s leader. Chaos and division at home have damaged its prestige. China’s secrecy and bullying have confirmed that it is unwilling — and unfit — to pick up the mantle. Around the world, public opinion is shifting away from globalization. People have been disturbed to find that their health depends on a brawl to import protective equipment and on the migrant workers who work in care homes and harvest crops. This is just the start. Although the flow of information is largely free outside China, the movement of people, goods and capital is not.“[5]

If the world stops cooperating, serious challenges, like climate change and the next pandemic, will never be confronted in a meaningful way. Inevitably, that will result in economic hardship and a deterioration in the quality of life around the globe.

Threats to globalization

“Assuming the pandemic lifts and lockdowns end,” Beattie writes, “the medium-term threat to long and complex supply chains comes from two sets of decisions. One is by companies concluding they have overexposed themselves to shocks. The other is governments trying to force businesses to diversify supply internationally or to bring their production home.” Michael O’Sullivan, formerly an investment banker and economist at Princeton University, believes globalization is already dead. He states, “Globalization is already behind us. We should say goodbye to it and set our minds on the emerging multipolar world. This will be dominated by at least three large regions: America, the European Union and a China-centric Asia. They will increasingly take very different approaches to economic policy, liberty, warfare, technology and society. Mid-sized countries like Russia, Britain, Australia and Japan will struggle to find their place in the world, while new coalitions will emerge.”[6] Economist journalists are not quite so sure globalization is dead; instead, they see “slowbalization.” They write, “Globalization has slowed from light speed to a snail’s pace in the past decade for several reasons. The cost of moving goods has stopped falling. Multinational firms have found that global sprawl burns money and that local rivals often eat them alive. Activity is shifting towards services, which are harder to sell across borders: scissors can be exported in 20ft-containers, hair stylists cannot.”[7]

Pinelopi Koujianou Goldberg (@PennyG_Yale), the Elihu Professor of Economics at Yale University, asserts, “The Covid-19 crisis has emboldened advocates of protectionism and deglobalization.”[8] She argues against deglobalization. “Ultimately,” she writes, “how we manage risk and build resilience is not a question of ‘global’ versus ‘domestic.’ Diversification — geographic or otherwise — is a canonical principle of risk management. By operating multiple plants in multiple locations, businesses can minimize the risk of systemic disruption when any one location is knocked offline (such as by a natural disaster). Similarly, businesses can mitigate the risks associated with political upheavals by spreading operations across countries. Distributing production globally not only maximizes efficiency; it is also good risk management.”

Concluding thoughts

In Part Two of this article, I will discuss why “reglobalization” or regionalization will change how globalization looks in the years ahead. As the Economist notes, “Don’t be fooled that a trading system with an unstable web of national controls will be more humane or safer. Poorer countries will find it harder to catch up and, in the rich world, life will be more expensive and less free. The way to make supply chains more resilient is not to domesticate them, which concentrates risk and forfeits economies of scale, but to diversify them.” Nevertheless, the magazine notes, “Logic is no longer fashionable.” As a result, it laments, “Wave goodbye to the greatest era of globalization — and worry about what is going to take its place.”

Footnotes
[1] Staff, “Has covid-19 killed globalisation?” The Economist, 14 May 2020.
[2] Alan Beattie, “Will coronavirus pandemic finally kill off global supply chains?” Financial Times, 28 May 2020.
[3] Martin Wolf, “China-US rivalry and threats to globalisation recall ominous past,” Financial Times, 26 May 2020.
[4] Staff, “The steam has gone out of globalisation,” The Economist, 24 January 2019.
[5] “Has covid-19 killed globalisation?” op. cit.
[6] Staff, “Globalisation is dead and we need to invent a new world order,” The Economist, 28 June 2019.
[7] “The steam has gone out of globalisation,” op. cit.
[8] Pinelopi Koujianou Goldberg, “The new empty argument against trade,” The Financial Express, 13 May 2020.