The End of Globalization?

Globalization End

I’m not one to indulge in predicting radical transformations to the world order. As a rule, change remains slow and while its end can’t always be guessed, its direction is often telegraphed. So, while I’m reluctant to make any grand pronouncements about the future after the lockdowns and life resumes a more normal trajectory (like people no longer working in offices!), I think there is enough evidence today to say that the globalized world is under heavy threat.

The COVID-19 global pandemic has highlighted some strategic weaknesses that must be addressed, and that governments will be unlikely to tolerate into the future. Chief among them is the large dependence on China as a source of medical supplies, including 80% of global face mask supplies and (at least in the US) 30% of personal protective equipment.

We might assume that this is a problem with China, but it isn’t. This is actually a problem with globalization and how dependent it is on a global leadership structure. As supply chains have become global their operation depends on a strong global framework that keeps trade open and coordinates needs across borders. That means that there must also be leadership that can fight (more metaphorically than literally) to keep those chains open in a crisis. That role has been traditionally occupied by the United States, but under Trump’s management the country has taken a big step back from such a global leadership role with other nations making a similar retreat.

As the coronavirus was starting to make inroads in Europe and North America it became impossible to get masks from China, regardless of which factories made them (Medicom, a Canadian manufacturer has three factories in China but none of those masks ever made it back to our borders) as the Chinese government simply requisitioned all masks for their population. Other countries have also taken similar steps, restricting the transportation of some drugs and medical supplies. Finally, in a moment of clarity for Canadians regarding their relationship with the US, Trump invoked a Korean War era law to halt the sale of N95 masks to Canada. That was eventually rescinded, but the message was received loud and clear. Nations have no friends, only interests.

This is true with large international organizations as well. The World Health Organization is facing a lot of scrutiny over its early handling of the pandemic and for its perceived subservience towards China. The WHO, which can only operate in China with the government’s permission, had limited access to people on the ground in Wuhan, accepted the Chinese explanation of no “human to human” transmission, and in respecting the Chinese position on Taiwan can not engage or work with the Taiwanese government to understand how they have very successfully curbed the outbreak. All this has raised eyebrows about how useful this group is. In the past this might prompt more engagement from its largest backers, the United States, and fought for reforms to improve its responses. That’s not the case today, as instead Trump has opted to cease funding to the WHO as both a retaliatory act and a way to shift focus from his own administration.

For sometime globalization has been coming under increasing pressure as a result of the erosion of industrial domestic manufacturing, inequality, and populism. But the pandemic seems to be hastening that process as opposed to repairing it. At a time when a global coordinated effort is desperately needed, no nation is inclined to fill that role. This effect has been described by political scientist Ian Bremmer in his book Every Nation For Itself as a “G-Zero World”, a world with no global leader.

That role has traditionally fallen to the United States, which has seen its own prosperity connected to considerable soft power. But as domestic issues and populism have risen voters of wealthy Western nations have become increasingly inward turning. Some might think that China would fill that role, but China is too nakedly self-interested in its own ambitions, making it difficult for nations to embrace the country’s “help”. Meanwhile, as other nations continue to develop economically they are growing less willing to accept the terms of IMF and World Bank help, and more committed to their own national wants.

Whenever the world begins its return to normal we should expect countries to decouple some of their supply chains from China purely for the public good when it comes to health and medical supplies. But other businesses are taking note that during this crisis they have also been held hostage by China. Apple intends to have its new budget phone assembled in Brazil, and the ongoing trade war with China (now rapidly turning into a cold war) is unlikely to be eased when this is put behind us. Instead we should expect it to accelerate.

Information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Adrian Walker from sources believed to be accurate. The opinions expressed are of the author and do not necessarily represent those of ACPI.

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