Is Globalisation coming to an end? Geopolitical tensions and humanitarian crises explain why there is a possibility that it may.
The social, economic and political infrastructure of the global economy itself is cowering as it has become threatened by the issues of trade wars, pandemics and the questionable rationality of humanity. Over the past three decades, the wave of globalisation has encouraged the most sustainable growth that the global economy has ever seen. It has promoted prosperity in developing nations and focused on emerging engine markets such as China. This has redefined the world of business, manufacturing, distribution and innovation. This era of globalisation rose through the 20th century’s heaps of historic and economic rubble, due to the revolution of information technology and the liberalisation of trade and finance. However, as we witness microorganisms control global macroeconomies, will history repeat itself and leave globalisation gasping for air?
It is safe to say that globalisation was in trouble before the pandemic.
The open
system of trade and commerce that had once dominated the world economy had been
damaged by the 2008 financial crisis and is now subject to the ongoing Sino-
American trade war. To understand the severity
of danger that globalisation is in, it is essential to understand the sociopolitics of the Chinese and American Trade War. After China joined the World
Trade Organisation in 2001, which was prompted by the USA, it became the world’s
manufacturing engine and an economic superpower. China’s GDP began to grow
rapidly as it used its high trade deficit to develop its network further.
However, to the surprise of many, China did not become more like a Western
Capitalist economy. This raised questions and concerns, leading the world to
believe that China had given themselves advantages such as subsidies on production,
tax breaks and free land for factories. This meant the trade game was no
longer, a level playing field. However, in 2016, when President Donald Trump
was voted into office, he was very vocal on his issues with Chinas exploitation
of the open trade system. In July of 2018, America imposed a whopping 25%
tariff on $34 billion worth of Chinese goods. In retaliation China has since
nearly doubled its tariffs and America is currently at triple its original average
tariff rate, triggering the destabilising trade war.
How globalisation is affected by humanitarian crises such as COVID-19
We
have endured, in the past 6 months, the shock of a global pandemic which has
brought into question the interdependency of the global economies. The
containment measures that consist mainly of lockdowns has caused factories,
shops and offices to close worldwide. This has had a major effect on demand as
unemployment continues to soar and suppliers are unable to reach customers. It
is predicted that this year world good trades will shrink by 10-30%! The
network of global trade has become sticky and literally life threatening.
The coronavirus outbreak has helped to highlight the anarchy of global governance and how the absence of a ‘state’ may kill off globalisation. China's political influence on the WHO has created much animosity regarding the initial cover up of the coronavirus earlier on in the year. Tedros Ghebreyesus, the Director General of the WHO, is an Ethiopian health politician. Ethiopia is heavily reliant on loans from China. In 2000 to 2018 alone Beijing lent at least $13.7 billion to Ethiopia and has accounted for nearly half of Ethiopia's external debt. This raised concerns for global health, leading countries such as America and Australia to believe the WHO is wrapped around China’s finger. Given this, in mid-May Australia began to demand an investigation into the origins of COVID-19, to which Chia responded by imposing punitive tariffs on Australia’s barley and imposing a ban on some abattoirs beef.
Countries have also begun to criticise other countries’ lockdowns and quarantine measures. And so, it is likely that countries will only open their borders to those who have the similar goals in killing off this virus and have the same health protocols. This will also restrict the travel zones and limitations of each country. With tensions arising between airlines during a steep decline of demand, the future of the airline industry is uncertain. There has been much controversy over governments bailing out flagship airlines with multi-billion-dollar loans, leaving independent airlines – who may have been turning better profits before the pandemic- struggling. Ryanair’s CEO Michael O’Leary has challenged the notion of state aid as inherently unfair and detrimental to pricing power for those carriers still standing on their own feet. Even one of the largest flagships of the world, Emirates, will only see demand recovery by 2023.
The
lack of a global leader during this pandemic has eliminated any chance of
interdependency. Many people are now deterred by the idea of globalisation due
their lives being at stake over trade fights of personal protective equipment. Xenophon's
‘Oeconomicus’ preaches Self-Reliance - is it about time every country's leader
reads it? Narendra Modi seems to believe so as he announced to India that a “new
era of economic self-reliance has begun”.
The
movement of goods and capital has been restricted and now even the movement of
people. The Trump administration has announced its plans to restrict
immigration even further to free up jobs for American citizens. In fears of the
transmission of the virus and the newfound importance of self-reliance - it is
likely that other countries will too curtail immigration. Further on this idea
of self-reliance, the European Union have announced plans to enforce a
‘strategic autonomy’ and has begun to reserve a fund to buy stakes in firms.
Undoubtedly,
Investment is the key to the success of the global economy as it makes up a
significant proportion of aggregate demand. However, given that economies are
operating significantly under the maximum capacity, as of right now, the
movement and flow of capital is diminishing. It is likely that multinational
firms and foreign direct investors will reduce their investment overseas and across
borders by 30%. With the ongoing political tension between China and America, America's
federal pension fund has withdrawn from buying Chinese shares. China’s venture
capital investment in America has also fallen by 60%, two years on today. The
next few years show extremely high government deficits that will be corrected
by taxation on firms and investors. It is understandable why countries are
restricting the movement of capital over borders. Globalisation fears that countries may
develop into self-reliance and remain in that bubble. Which would, of course be
devastating for the world economy.
As the chart shows, the
first wave of globalisation resulted in a period of de-globalisation, while the
second wave ended in a period of stasis. Are we now at the end of the third
wave, and if so, will we see globalisation stall or be rolled back?
Some useful links for further reading:
https://www.capitaleconomics.com/the-end-of-globalisation/
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