Will Covid-19 Put An End To Globalization?

Article – Nathan Gray

With countries internal societies in potential long term crisis, what is the virus doing to the age of globalization in general? Is it going to slow the flow of people, trade and capital or will it kill off this neo-liberal concept altogether?

Given that globalization has already received some major setbacks resulting from the 2007/8 Stock Market crash, the Brexit fall-out between the UK and European Union, failure of the Trans Pacific Trade Agreement and the ongoing tit-for-tat in the US and Chinese trade wars, this domineering market system that had underlined human progress for decades now is being delivered a devastating uppercut with the ongoing spread of the Coronavirus. The Economist states that as lockdowns and border closures ensued as the first wave terrorized the planet from March 2020, “the number of passengers at Heathrow dropped by 97% year-on-year; Mexican car exports fell by 90% in April; and 21% of transpacific container-sailings in May had been cancelled.”[1] In April, global flights dropped to levels unheard of since the 1970s as airline companies such as Virgin Australia, Colombia’s Avianca, Chile’s LATAM and Britain’s Flybe all declared bankruptcy. And it wasn’t just flights that were affected as land border crossings between the USA, Canada and Mexico dropped to their lowest numbers ever in April as well as a 48% decrease in migration across 35 key transit points across West and Central Africa.[2] Analysts project a record drop of global tourism by 80% on last year, compared with only 4% during the Global Recession of 2009 and .4% due to SARS in 2002.[3] By May, every country in the world had imposed some sort of entry restrictions, ushering in a novel age of global distancing.[4] Even as nations embark on the slow and uncertain process of reopening their economies and potentially some borders, it is idealistic to believe that countries will no longer look predominantly inward, thereby politicizing travel, upending immigration and impeding the free and unfettered movement of trade. With countries protective approaches leaning towards and entrenching a bias towards national self reliance, (where regionalization of trade deals such as North American Free Trade Agreement [NAFTA] have helped to keep the transfer of goods closer to home in the case of the USA, Mexico and Canada) – the overall impact of greater localization will most certainly delay economic recovery and potentially lead to geopolitical vulnerability and volatility.

Looking back to the 1990s, this golden age of integration had drawn the world closer than ever before in a unified geopolitical embrace. Upon China’s entry into the World Trade Organization in 2001, the emerging juggernaut of autocratic capitalism effectively became the world’s factory as western companies in particular swarmed to her shores in the hunt of lower production costs and a huge and emerging domestic market to tap into. China, which had been closed to the world for so long was rapidly opening up to foreign tourism, the business exchange of imports and exports was becoming infinitely more fluid, as well as the free flow of capital and to a certain extent the exchange of information. However after the stock exchange went into turmoil in 2008, in particular the financially momentous Lehman Brothers collapse, many banks and multi-national firms pulled back from their financial foray into the Middle Kingdom. As a result, relative to GDP, trade and foreign investment stagnated, compounded since 2016 with President Trump’s trade wars against China for its severe infringements upon US intellectual property and a form of business chauvinism and contempt for alliances that turned many international business people off. (Multi-nationals were already starting to earn 4 times less in profits from 2015-2020 than in the early 2000s even prior to the pandemic, especially as Chinese companies specifically modeled their ventures on the blue chip companies that had entered China and were able to charge out their talent at significantly reduced rates.)[5] President Trump’s domestic political agenda to look after his blue collar voting base by reopening closed factories in the USA and raising tariffs for those that were competing against these interests far outweighed building closer ties to the economic powerhouse of the East (and countries like Mexico which had many US car making factories situated within their borders.) By the time the virus hit Wuhan in 2019, America’s tariff rate on imports had surged to its highest levels since 1993. Both had also begun to decouple their technological industries, a feature that was also occurring with the increasingly fractious Chinese and Indian relationship on either side of the Himalayas.[6]

As the virus spread into the global turning point that is 2020 – terminating retail commerce and a whole myriad of other services, not to mention closing down offices and factories, the planet’s supply and demand ratio declined altogether as suppliers were unable to adequately access their customer bases. Currently at a 5% loss in global GDP it is estimated that the trade of world goods this year could shrink by between 10-30%.[7] The damage to trade, albeit decapitating, has not affected every industry as food supply lines have predominantly managed to keep moving, as shown by the astronomical rise of kiwi fruit and honey sales from New Zealand (on top of steady dairy trade) to the global market.[8] Although many factories have been hindered due to an inability to source key parts and accessories from their independent makers all over the world, companies like Apple insist that they can still make their I-phones.[9] In fact, much of China’s and Germany’s economies have been buoyed by the enormous uptake in the sale of medical equipment during the first wave of the virus as the world rapidly played catch up and sought to secure whatever protective equipment it could get its hands on. (Some countries however held tightly onto their PPE medical supplies to ensure a stronger public health response rather than exporting it overseas for enormous profits as countries looked inwards to protect their own during the virus’ brutal first wave.)

If these global supply chains are not to be put into quarantine for good, and globalization is to survive and possibly thrive into the future it will need to be changed dramatically to reflect a more fairer and balanced outlay of national interests, rather than the domination of the most powerful countries which has contributed to so much inequality globally. (For example the recent NZ – UK Free Trade Talks give a good deal for New Zealand being able to sell $100 million of its produce for significantly less in return, yet the UK values the longstanding relationship forged from the earlier colonial days and New Zealand’s ability to forge ahead with unique trade deals despite the challenges under the Covidian era.)[10] There also has to be a strong move to prevent the expansion of this bipolar world where the competing interests of the USA and China, in particular, make it impossible for smaller trading nations like New Zealand to choose sides and still thrive or even survive economically. Even if Trump loses the next election it is unsure whether even a fully democratic led government would be able to turn the tide on this growing animosity between the superpowers of the world.

Set amongst the very clear trade downsides sits the underlying anarchy of global governance institutions which are being exposed not just through ongoing criticism of entities like the World Health Organization responses to the pandemic by the United States, but the ineffectiveness of global entities like the United Nations altogether which has seen significant corruption and squandering of resources provided by member countries that are beginning to question such investments.[11] This has been seen by the ongoing hijacking of Security Council decision making due to the veto power of the permanent members which prevents very little from happening due to the vested self-interests of countries like Russia, the USA and China.[12] Furthermore the Eurocentric nature of these institutions in no way reflects the current geopolitical population and power centres now dispersed throughout the planet, especially the involvement of rising economic juggernauts in Asia, Africa, South America and the Pacific. It makes it much more difficult to secure buy-in for a rules based international system if these ‘left out nations’ have little or no say at the decision making table.

China has clearly propped up the World Health Organization with the injection of $2 billion to keep forwarding its efforts given the Trump Administration has declared it will cease funding altogether, but given that China has been threatening Australia with punitive tariffs for requesting an investigation into the origins of the pandemic and its fudging of fatality and case statistics, its overall secrecy and bullying don’t amount it to taking up the global leadership reigns left sagging by the United States whose seemingly insurmountable partisan divide and actions of its current Administration have left its international reputation in tatters.

Furthermore with countries like France and the UK arguing over quarantine rules, a feature that will clearly become more salient as countries start to open up their national bubbles to other ‘select nations’, (e.g. the New Zealand trans-Tasman bubble with Australia or with the Covid-19 free Pacific Islands Nations and Hawaii), the underlying politics of inclusion and rejection will seek to potentially erode international unity overall. For example, the postponement and possible cancelling of the Olympics in Tokyo, (which is historically a globally unifying international athletics meet), not to mention a whole reign of popular international sporting codes such as rugby, cricket, swimming, basketball, hockey, netball and soccer that can no longer play international competitions so easily.[13] Add to this the undeniable added stress of taking on a foreign government’s ever changing quarantining rules and ultimately trying to stay safe throughout a potential resurgence of the pandemic which in many cases is totally changing each event’s or businesses’ playing rules and the ways that the public can engage with the sport or specific industry at large.[14] Therefore with events like the Super Rugby competition now no longer including Australia, Argentina, Japan and South Africa and simply forced to remain domestically within New Zealand’s borders – and international tests having to take on a whole new element of financial uncertainty and physical health risk, one imagines that unless enormous money, sporting prestige, and viewing popularity is at stake, many global events simply will not go ahead until there is a trustworthy cure or vaccine.[15] Some sporting leagues however will find undreamed of boosts due to the pandemic, as is the case with New Zealand Basketball that signed an unheard of lucrative TV deal with ESPN as it was the only place in the world to be playing basketball with crowds and thus of interest to the American Network.

Thus it can be said, by looking at the above sporting examples, that around the world there is a lot more hassle to make globalization work due to the travel and health risk stresses involved so it will only go ahead if deemed exceptionally worthwhile.[16] These challenges have clearly expanded into deeper issues with people movement, especially with the Trump Administration curtailing immigration by putting the Green card and work visa process on hold altogether despite many of these essential workers having propped up the food supply with their harvesting skills, not to mention key roles in rest homes, and other low paid, high risk work that permanent residents and citizens are not often willing to do.[17] This is also the case in New Zealand with only 5% of stranded immigrants likely to get back into New Zealand according to Labour Quarantine Minister Megan Woods, even though many of these workers have homes, valid work visas and very settled lives in New Zealand. There is also no welfare payments available for those immigrant workers stranded in New Zealand, and with an inability to find work, especially if their working visas allowed them to work only at a specific company that has now gone under, it makes their livelihood untenable and thus reliant on food packages.

These sorts of issues are simply the icing on the cake, as the movement of goods, capital and people continue to be way more restricted than that of the internet information highways, although even journalism has growing challenges getting access to viral hotspots around the world to cover stories. This has particularly been apparent with the inabilities of journalists to access correct mortality statistics due to Covid-19 as discussed in an earlier chapter despite there being greater readership and online engagement than ever before.[18] As some governments take a similar approach to China, closing shop to the outside world so journalists can’t get access to the truth of the actual situation going on in their countries, this will make wanting to travel or do business even less enticing due to the uncertainty and overall unpredictability of their domestic situations.

Travel itself will likely be severely restricted further into the future with powerhouse airlines such as Emirates stating that it is unlikely to recover till 2022 given 90% of the world has their borders closed to flights as of June 2020.[19] Cheap flights are also becoming a thing of the past with the need for strict social-distancing on flights significantly raising overall ticket prices. The impact of this new travel reality may lead to the end of mass cheap air-transit airlines like Easy Jet, Air Asia, Virgin Atlantic, Jetstar and Ryanair meaning that only the affluent can afford to travel internationally which further limits cultural interactions of all classes around the world. As these global movement restrictions compound further into the trade sectors it seems clear that countries will look even further inwards to ensure their long-lasting resilience during these uncertain times. For example, India’s Prime Minister Narendra Modi stated on May 12th, 2020 that the country would enter a new era of self reliance, whilst Japan’s Covid-19 stimulus package provided subsidies for firms to repatriate factories.[20] Parts of the UK have long been separating itself from the European Union, and the viral crisis has led the EU itself to officially recommend ‘strategic autonomy’ where necessary – especially in the creation of a specific fund to buy stakes in firms.[21] Such approaches are much like the USA which is encouraging the building of factories and plants back home to bring the supply chains back within their borders and ensure long term sustainability and resilience for its domestic economy. However repatriating globalized jobs can often be a lot harder than politician’s portray as Carlton Solle found out the hard way. G95, his company that runs out of Atlanta and makes scarfs fitted with a special filtration technology ideal for pandemics should have been making a financial killing. However when his Chinese suppliers were locked down, he attempted to move production to Michigan but the effort led to soaring costs, poor quality and further production delays.[22]

This potential reversal of trade also mirrors the movements towards the flow of capital. The Economist states that Chinese venture-capital investment has already dropped to $400 million in the first quarter of 2020, 60% below its level 2 years prior, and multinational firms are likely to cut cross-border investment by a third throughout the year.[23] The US has also just instructed its main federal pension fund to stop buying Chinese shares and according to the Economist countries representing 59% of world GDP have tightened their rules of foreign investment.[24]

The growing instability of trading systems and border and national controls are likely to negatively impact poorer countries most severely who are projected to expect an almost 20% drop in remittances according to the World Bank – the largest decline on record. As a share of GDP the lack of remittances in these impoverished nations are set to fall to their lowest levels since 1999, and they will also have less access to aid as the richer economies focus inwards to prop themselves up financially and socially. On top of this it will also be much harder for them to catch up technologically. With economies of scale lessened and the concentration of risk heightened due to the domestication of commodities and trade it is likely that for wealthy countries life will ultimately become more expensive and less socially (and geographically) mobile. Furthermore, with the massive loss of jobs and enormous number of people overleveraged financially under the neoliberal system they have inherited there is likely to be significant negative social mobilization with millions of the middle class likely to plunge towards poverty. This can already be seen by the lines of Mercedes Benz’s and other luxury cars lining up for hours to wait for food relief packages in America.

The erasure of globalization is also likely to have profound effects on the development of new technologies, in particular the creation and dispersal of a much needed vaccine or cures for the virus. However, the UK is working with EU on vaccine diplomacy which has already raised 7 billion pounds, and has suspended debt repayments for poor nations who cannot afford them at this time which provides some positive signs of cooperative connectivity resulting from the enormous impacts of the Coronavirus pandemic.

[1] Economist, May 14, 2020. “Has the virus killed globalization?”

[2] Washington Post, June 9, 2020, Anthony Faiola. ‘The virus that shut down the world.’ The annual pilgrimage to Mecca in Saudi Arabia was also limited to 10,000 people after attracting over 2.5 million in 2019.

[3] Washington Post, June 9, 2020, Anthony Faiola. ‘The virus that shut down the world.’ Changi Airport in Singapore, one of the world’s great travel hubs saw traffic plunge in January 2020 from 5.9 million passengers to a miniscule 25,200 in April – a 99.5% drop. The number of airlines utilizing the airport also dropped from 91 to 35.

[4] Washington Post, June 9, 2020, Anthony Faiola. ‘The virus that shut down the world.’

[5] This was particularly the case for Chinese law and accountancy firms.

[6] Economist, May 14, 2020. “Has the virus killed globalization?”

[7] According to the Economist in the first ten days of May, 2020 exports from South Korea, normally renowned as a trade powerhouse, fell by 46% year-on-year, potentially the worst decline since records began in 1967.

[8] New Zealand’s exports have actually grown 1% since the beginning of the Covidian era.

[9] Economist, May 14, 2020. “Has the virus killed globalization?”

[10] e.g. New Zealand Trade Minister Parkers ability to lock in planes to bring in produce even though there were no people able to enter the country.

[11] Take for example the enormous corruption underpinning green projects funding awarded by the UNDP in Eastern Europe and Russia yet not completed and the money simply going missing according to whistle blower John O’Brien who has been working for the UNDP for over 20 years.

[12] The veto power enabling Russia to stop the UN from intervening militarily in the Syrian crisis which has led to the mass slaughter of its residents, Russia siding with the oppressive Assad regime.

[13] Even the America’s Cup sailing regatta which requires participants to enter closed borders weeks or even months in advance of the actual competitions to prepare for the event, (despite the ongoing uncertainty whether the event will actually takes place due to a possible resurgence of the pathogen).

[14] This has been most recently shown by the Auckland Warriors rugby league team having to enter Australia for a month prior to the restarting of the trans-Tasman competition, (and remaining in their own training camp bubble during the 2 week mandatory quarantine period), but unable to return to New Zealand to see their families throughout the course of the competition (who are restricted from visiting due to quarantines on both sides of the Tasman.) Several players left the team because of the inability to have family members come over to Australia.

[15] The America’s Cup sailing teams are potentially contributing $200 million to the New Zealand economy while having to house significantly sized teams for months in Auckland prior to the event, and were thus allowed to enter so long as they were willing to pay for their quarantine process.

[16] For example, the Avatar Film Production team was allowed to re-enter New Zealand to finish shooting their sequels as it had already involved significant numbers of the New Zealand film-making work force.

[17] International students in the USA are also being potentially deported from the country if their host university only offers online courses due to a xenophobic Trump Administration education / immigration policy.

[18] Most smaller and local media outlets such as Bauer’s magazines which saw the demise of iconic identity forging magazines such as the Listener have floundered altogether due to the global domination over advertising revenue by the bigger media and tech outfits such as Rupert Murdoch’s Newscorp (which covers up to 75% of the globe), and other multinational entities such as AP, Bloomberg, Guardian, Disney, Warner Bros, BBC, Google and Facebook to name but a few. New Zealand’s ‘Stuff’ media outlet has become more localized severing ties from Fairfax in Australia altogether for $1 rather than be closed down at the loss of 900 staff including 400 journalists. This tactic localizes the profits and work opportunities as well as enabling the company to build greater overall journalism trust by covering local stories from their own perspective, not that of the parent company from another country whose editorial ideology might be in conflict.

[19] Economist, May 14, 2020. “Has the virus killed globalization?” Airbus has also cut production by a third as the majority of planes remain grounded.

[20] Economist, May 14, 2020. “Has the virus killed globalization?”

[21] Economist, May 14, 2020. “Has the virus killed globalization?”

[22] Washington Post, June 9, 2020, Anthony Faiola. ‘The virus that shut down the world.’ The cost of producing the company logo shot up from 20 cents in China to $3.40 in the United States and with his profit margins taking a substantial hit, he returned to sourcing his product from China once its production facilities reopened in May.

[23] Economist, May 14, 2020. “Has the virus killed globalization?”

[24] Economist, May 14, 2020. “Has the virus killed globalization?” As governments attempt to pay off enormous stimulus debts via taxing firms and investors, this may even lead to further restrictions on international investment to keep the flow of capital in-house.

Content Sourced from scoop.co.nz
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