As Covid-19 spreads, the global economic dashboard is flashing red. On 2 March the Organisation for Economic Co-operation and Development announced that the coronavirus could cut economic growth this year by half, to around 1.5 per cent, compared with its earlier forecast of 2.9 per cent. Within days the organisation’s “base case” for the world economy had become its “best case”, after the Dow Jones, the US’s main stock market index, tumbled by 4.4 per cent in its largest ever one-day points drop. Meanwhile, the Baltic Dry Index, a measure of shipping costs for bulk goods, shows that lease rates for the largest cargo vessels are down by two thirds since early December. Consumer demand is falling, trade flows are slowing and supply chains are being disrupted.
Even before the outbreak, commentators were talking about “deglobalisation”. Global trade had stopped rising and protectionist populism was on the rise, exemplified by Donald Trump’s trade war with China and by Brexit. Some companies had “reshored”, bringing production back from far-flung, low-cost economies. And the new digital economy had proved less free-flowing than expected, with varying rules on data protection, rival technological ecosystems and government intrusions producing a so-called splinternet. All of which felt like a far cry from the idealistic, late-1990s talk of a “flat” or “post-geography” world. And all of which the Covid-19 outbreak – for which there may not be a vaccine until 2021 – now threatens to intensify. “Coronavirus has put globalisation into reverse,” argued a recent Financial Times editorial.
But has it? For one thing, the deglobalisation narrative overstates the degree of globalisation achieved in the first place. Most business still takes place within national borders and the integration of the world over the past three decades has been uneven: goods have crossed borders in drastically increased volumes, but services – which are often more linguistically and cultural rooted – have only globalised in patches. Politics and governance seem particularly stuck in national silos. The chaotic spread of Covid-19 is only illustrating this absence of a sophisticated political dimension to globalisation.
The notion of “deglobalisation” also exaggerates the reversal of recent years. Global economic integration may have stalled but an index published in December by the logistics firm DHL and the Stern Business School concluded: “The world remains more connected than at almost any other point in history… with no signs of a broad reversal of globalisation so far.” Assessing figures for trade, investment and other cross-border activity, it found “no broad retreat from corporate globalisation”.
Rather than declining, globalisation is changing. First, it is becoming less a story of integration through container ships than of integration through societal alignment. While the DHL/Stern study shows goods and capital flows slowing, it also reports that those of information and people (cross-border internet traffic and phone calls, international university students, migration and tourism) are continuing to rise robustly. The app economy is standardising the services component of most developed economies.
Second, shifts in globalisation are prompting not a return to national borders but a retrenchment within regional ones. Intra-regional trade flows, within Europe or eastern Asia, for example, have risen since 2012. Where global trade talks have stalled, bilateral ones – such as those between the EU and South Korea, or within China’s “belt and road” network in Central Asia – have triumphed. And the internet is dividing not into national blocks but regional ones. US technology giants such as Google and Amazon are dominating parts of the world, Chinese giants such as Huawei are commanding others, and Europe is establishing itself as a global standard-setter in technology regulation.
Third, globalisation is slowly becoming subject to the one thing it had long seemed to bypass: politics. Debates that even in the “flat Earth” heyday of globalist boosterism in the 1990s were confined by national boundaries – migration, technology and climate change – are now truly international.
The Covid-19 outbreak seems set to accelerate all three of these shifts. It will encourage firms to repatriate their supply chains, accelerating the reshoring of goods production. But by forcing many employees to work from home and hold meetings remotely it will demonstrate how little place matters and thus pave the way for a golden age in services outsourcing. And while the virus may discourage transglobal trade between distant economies such as China and the US, it will also emphasise the reality of interdependence and the benefits of diverse markets and cheaper production. The quest to become more resilient without sacrificing the benefits of integration could boost investment in the “near abroad” of the world’s big economies: eastern Europe, central and south-east Asia, and Central America.
Finally, Covid-19 will be a common experience, aligning political debates and priorities in different countries and requiring a greater degree of global governance than currently exists. The world is slowly adapting to a genuinely globalised debate on climate change and the policy changes that it necessitates. It may soon have to get used to a similarly globalised debate on pandemic prevention and mitigation.
The result, then, will be not deglobalisation but an acceleration of globalisation’s evolution into something less goods-centric, more regional and more political. Treat with scepticism claims that the economic turmoil caused by Covid-19 will renationalise the world. Rather than hastening globalisation’s demise, the virus may well herald its next chapter.
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This article appears in the 04 Mar 2020 issue of the New Statesman, Inside No 10