Coronavirus pandemic: the end of globalization as we know it?

David Frum wrote in The Atlantic that the coronavirus pandemic can bring enduring barriers to international trade, travel and investment.

“Countries may decide they dare not rely on imported medical equipment, or imported antibiotics and vaccines, or other people’s air carriers. Soon we may revert to the day when each country tried to do as much as possible for itself, regardless of cost and rationality.”

In a Nikkei Asian Review column, James Crabtree also argues that “Coronavirus crisis will send globalization into reverse. The crisis will speed up US-China decoupling and lead to a protectionist wave.”

Well. Is it so?

Confusion and chaos can indeed bring strange new orders for the global economy.

On the other hand, we should not forget that contemporary economies are designed to work with mass-scale production, distribution and selling – features that cannot be provided by national markets and by shortened supply chains.

Unravelling the existing global economic webs would bring huge costs, and domino effects.

However, things like a “decoupling” of the Chinese and the US economies is likely and possible, though not easy or immediate. We were assisting to it, well before the coronavirus emergency, largely for ideological reasons.

The America first ideas of President Trump and his supporters explain it in part.

The question is, how will it unravel? The ties are strong.

It’s not just the manufacturing chains involving cars, or electronics. American retail supply chains – think about Walmart – are facing havoc. As Lauren Thomas writes in CNBC, “while it may seem far off, the disruption is already starting to impact the shipment of goods to retailers for the back-to-school season.” Lauren Thomas is obviously alluding to the problems raised by the coronavirus epidemics – not to any intentional and politically-inspired dismantling of global trade ties.

The process of redesigning supply chains is slow and complicated. It’s not easy for American manufacturers or retailers to transfer their supply chains from China to other Asian or, say, to South American countries.

On the other hand, America cannot manufacture itself most of the goods that are now being imported from China. America’s workforce is not large enough, and wages are much higher. Bringing home a significant part of the industries that have been offshored would increase costs and prices and require dozens of millions of additional industrial workers – which is impossible and unthinkable.

This is just a small sample of the difficulties ahead, which will also encompass the Chinese economy. Decoupling will be painful, even excruciating – for America but also for China.

China has a huge market, that can replace in part the loss of the American one. But any change in this direction would be slow and would require the expansion of the Chinese middle class (it already amounts to 300-400 million people and is a headache in terms of global food security), a huge increase in food imports (unless the Chinese diets became much more vegetarian than they are) and in the long term a significant decrease of the Chinese population (and the correlative robotization of the economy).

Again, these changes, if they were to happen, would create turmoil and go far beyond the immediate effects of the Coronavirus crisis; and would merge with political shocks and issues like the impact of climate change and all the unpredictable interactions that these and other unknowns might bring.

In short: the decoupling or Chimerica (an expression used by the historian Niall Fergusson in the Ascent of Money to express the close relationship between China and the US) would not be easy or quick.

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