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The Financial Express

Globalisation after coronavirus

| Updated: October 18, 2020 20:43:25


Globalisation after coronavirus

Globalisation has been pointed out by the cynics as the 'usual suspect' for the rapid spread of coronavirus pandemic. For one, the blame has not been entirely wrong. The virus travelled across countries of the world, using human vector. But that is the nature of a virus like corona and the fault lay more on the lack of caution and preventive measures and delay in taking then by countries when they became aware of the risk of contagion. True, China was slow in admitting the initial outbreak within their borders sometime in December. But even in the month of February, countries like America, UK and members of EU took a rather casual attitude very much like the ostrich in times of storm, regarding the pandemic, thinking that it would go away and would be nothing more than a nine days' wonder. Rather than the intercontinental crossing of the virus, it has been the belated and inadequate response by countries affected by it that is at fault for the virus becoming pandemic. The cautious and conservative policy of WHO is also responsible for not making timely warning.

With the gravity of the situation sinking in among policy makers, politicians and medical practitioners, emergency measures have been put in place, the first among which was ban on travel to and from countries having pandemic outbreak. Along with  stoppage of movement of people, has been cessation of exchange of goods and services among countries that was part of the normal international trade. These two activities being the most visible of the phenomenon of globalisation, views have been expressed that post-covid global intercourse will not be the same as before. This view is not only unrealistic but also myopic and even farfetched. The world has become so much integrated in myriads of way that temporary setbacks to the process of globalisation in the from of  trading of goods and services will not make any serious dent to its architecture that has been built up over centuries.

To take the case of trade in goods and services, as long as there is the law of comparative advantages operating in the economies of countries, it is difficult to see a sharp fall in exports and imports which give the trading partners a win-win result. Not only the prices of goods, differentials in wages also have made many countries to shift production offshore to low cost countries. For quite some time, very few industries have been producing the final product in a country having domestic supply chains. Parts and components of a product, from computer to automobiles, are all coming from different sources, to be assembled in the home country. The setback to this global supply chain due to coronavirus pandemic may have disrupted production of certain goods but that will not be permanent once the pandemic is over. Globalisation will come roaring back, taking advantage of the cheapest available labour and supply chain.

Whatever retrogressive steps in globalisation of offshore manufacturing and trade has become visible now in the wake of the pandemic is mostly because of the political pressure from President Trump and not for practical reasons of disruption in supply chain. President Trump, following his isolationist policy of `America First', has prodded American companies to leave off-shore destinations, particularly China. As a corollary to this, America also has taken steps to expel Chinese companies from America on the ground of theft of intellectual property and breach of national security. The isolationist policy promoted by America under President Trump  has also seen higher tariff imposed on a number of goods made in China, Canada, Mexico, Japan and even countries in EU. In fact, in respect of China, America has `weaponised' foreign trade using tariff barriers to discourage imports. It has not only banned Chinese 5-G telecommunication technology in America but has also put pressure  on other countries to follow suit. The UK, under Prime Minister Johnson, has obliged President Trump by toeing his policy of not using Chinese 5-G hi-tech system. If President trump has his way in persuading major countries to boycott China, Russia, Iran and other countries on which it has slapped sanctions on political grounds, globalisation would receive a major set back indeed. But the majority of countries have not yielded to American pressure and has maintained normal trading relations with these countries though in the aftermath of covid there has been a let up  of trading activities among all countries on health grounds.

Whatever argument America may offer for winding down trading relations with countries that are persona non grata, for it the main reason is obviously politics. Every country uses foreign trade in conformity with its foreign policy but that has a reasonable limit, national interest being given top priority. For sheer self interest countries will go on trading with each other, whittling down tariff barriers bilaterally and wherever feasible, under the aegis of the World Trade Organisation (WTO).

In the immediate aftermath of covid outbreak there has been a drastic decline in the volume of goods and services traded. But this is mostly because of reduced volume of production due to shutdown of factories and economic establishments. If the disruption of trade is prolonged because of persistence of corona pandemic in China, some industries may be relocated elsewhere. But that will be because of health grounds and not change in the equation of comparative advantages. Some American firms like Apple and Nike have been cajoled, even intimidated, by Trump administration to shift their operation from China, and back to American mainland. As incentive tax cuts have been offered to these companies and others along with the threat of disqualifying them from getting government contracts. The UK, eager to forge a new trading relation with America, may reduce trading relations with China and even with EU. Efforts by America under Trump to isolate Russia, Iran, North Korea and Pakistan may continue if Trump is re-elected as President. But in the context of the overall momentum for globalisation this will be mere pinpricks. But special policy of subsidising industries to relocate away from China looks rather ominous. Japan has shifted thirty industries from China after the outbreak of pandemic by paying subsidies to their owners, amounting to 35 billion yen. For next year the target is reported to be about 50 industries for which amount in subsidy has been provided in the budget. If this becomes a permanent policy, globalisation will receive a serious setback in the matter of movement of capital. Since China is not going to be a epidemic hot spot permanently, it remains to be seen whether Japan's relocation of industries away from China will be a permanent policy.

The overwhelming dependence of the hospitality industry like hotels and restaurants and the operation of airlines make it almost impossible for them to reduce intercontinental business with domestic and foreign customers. International tourism, on the other hand, has gained so much momentum and generated such great enthusiasm among tourists that they will not be discouraged by any argument of chauvinism or xenophobia. Next to trading of goods and services among countries, travel by tourists all over the world has not only become popular but is increasing in number year on year. The temporary set back caused by covid pandemic will not dampen the spirit of seeing the world by tourists.

The familiar critique of globalisation in both developed and developing countries is regarding its benefit accruing to a few and leaving the many behind. This argument is likely to be used by these discontented elements of globalisation even more after the covid pandemic. The worsening of economic condition of many, particularly the low income group, will add new traction to the critique of globalisation.  But it will not be difficult to show, as has been the case before, that the resultant inequality or marginalisation of those left behind following globalisation is because of lack of action by governments to tax the beneficiaries of globalisation adequately to compensate the losers. Likewise, the lament of some governments over losing control over the operation of multinational companies (MNC) does not hold water as they have the power to tax them from their hefty earnings and spend the same to ameliorate the economic condition of the `losers of globalisation'. As regards unemployment caused by shifting of industries off-shore and relegation of workers to low income jobs, the real reason for this including technological transformation, have to be explained to those who are adversely affected by these changes. Unemployment and redundancy of labour have taken place throughout the history of industrialisation because of technological change, particularly automation. Globalisation has nothing to do with this and should not be blamed.  This situation (technological progress) will not change after corono virus pandemic is over and as such should not be a cause for winding down the process of globalisation after the pandemic is over.

It is obvious that globalisation has received a temporary set back following lockdown that led to disruptions in supply chain, stoppage of transportation, suspension of production and diversion of efforts by the government and corporate bodies in respect of emergency activities. But even during this extraordinarily difficult times semblance of globalisation has been maintained through international exchange of medicines, medical masks, PPE and volunteer doctors and nurses. Ban on international travel has already been eased to allow people to make emergency journeys and shipments of goods are taking place even if at a reduced level. International bodies like WHO, IMF and World Bank are now very active in formulating policies for assistance to countries that have been affected by the pandemic. Even bilateral cooperation has started to help out badly hurt countries by the pandemic. This kind of international cooperation, which is an important aspect of globalisation, is likely to increase as normalcy returns to developed countries. Even EU is now regretting for having failed to cooperate with each other during covid. Covid-19 has brought home the truth to all people in the world that `we are in it together', for better or worse. Only those with a demented mind can think that because of a global emergency people will turn away from each other, considering them as adversaries. 

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