One of the significant consequences of COVID-19 on the world economy and how trade happened before the COVID-19 pandemic will be the forced move towards ‘deglobalization.’ This will significantly diminish interdependence and integration of nation-states.
Douglas Irwin, a John French Professor of Economics at Dartmouth College, wrote in his article on deglobalization that “the fourth era of globalization appears to have peaked in 2008, and since then we have been in an era of ‘slowbalisation.'” Trade growth has been fragile in recent years.
World trade volume fell in 2019, even though the world economy grew reasonably steadily. Only two more prolonged periods of deglobalization occurred at the global levels- one in the 1930s during the Great Depression. The other in the 2010s, when a period of the world trade slowdown set in after the Lehmann Brothers crash.
And now, the post COVID era might just become the third age of economic depression.
A reduction of the level of international integration of economies and the world economy at large can lead to the following consequences:
Loss of interaction between economies,
Loss of revenue for the largest economies because of falling exports, and
Low growth for the least developed nations who solely rely on foreign countries for essential goods.
The Modern Approach
The COVID-19 pandemic has made it clear that while countries around the world have enjoyed the economic and social benefits of globalization, at the same time, they want to protect themselves from future viral attacks from foreign nations and the financial disasters that follow.
Policymakers have realized that global supply chains are vulnerable to disruption in crisis times. That dependence on foreign countries for essential goods such as pharmaceuticals could prove to be fatal.
Further, the pandemic has led policymakers to question whether global supply chains have been stretched too far. A study conducted by Feedback Consulting, a Bengaluru-based B2B market research firm, found out that 69% of the respondents (business leaders) feel that the pandemic effect on volatile global trade will act as a fuel for localization and will be more prominent now than ever.
With the loss of international confidence in China, it is clear that more countries than ever before would like to rely less on imports from Beijing. While experts argue that this change will not mark the end of globalization, but it can still be partially reversed.
The major challenge will be manufacturing quality goods at low prices, which China has specialized for decades. Suppose countries wish to tackle the changing times and policies. In that case, while we may cut off physical imports and exports from China, the transfer of knowledge and technological expertise needs to meet global standards.
As Shashi Tharoor mentioned in The Week, it seems increasingly likely that “Covid-19 will inaugurate an era of deglobalization”. “The signs are mounting that the world may embrace isolationism and protectionism in a far more enthusiastic way than before the outbreak, including in India”, he wrote.
With changing times and the slogan of Aatmnirbhar Bharat now echoing more than ever before in India, the post-COVID-19 era will be much different from before.