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Economy

Trends in a Post-Pandemic World

Jun 19 , 2020
  • Tao Wenzhao

    Researcher, Chinese Academy of Social Sciences

The global landscape changed dramatically after the Cold War. A freer flow of capital, goods and people created unprecedented wealth and aided the growth of emerging economies as the world market became more integrated.

Yet globalization is a double-edged sword. The novel coronavirus pandemic seems to have suddenly upended the accepted process, amplified the negative effects and caused people to rethink.

While the pandemic gave rise to the deglobalization movement, it won’t end integration. However, globalization in the wake of the COVID-19 pandemic will be significantly different from its present form.

Following are some notable changes that we expect to see:

First, on efficiency and fairness, adjustments will tilt toward the latter. Overemphasis on efficiency can lead to polarization in society and reduce fairness. At the same time, undue emphasis on fairness may deprive society of drivers for progress and lead to stagnation. In recent decades, virtually every country has concentrated more on efficiency. As a result, problems of fairness have grown increasingly prominent, endangering social stability.

The contrast between “winners” and “losers” in globalization is particularly conspicuous in the United States. Wealth has been concentrated disproportionately into the hands of technological and business elites —literally those in Silicon Valley and on Wall Street. While the general public has seen little direct benefit from globalization, those in the intermediate and lower strata of the middle class have seen their standing lowered. The so-called Rust Belt, on the other hand, has witnessed massive blue-collar job losses.

The Occupy Wall Street movement took place in 2011, in protest of polarization and the wealth gap in American society. Since the COVID-19 outbreak, a universal trend is to create policies that better reflect fairness in society and to narrow the wealth gap. That’s because only fairer growth is sustainable.

Markets need effective guidance to deliver fair outcomes. Government can realize second-time distribution via economic and tax policies, offering better protection for the interests of society’s underdogs and allocating more attention and money to public welfare, pensions and medical services.

Second, between interests and security, adjustments will tilt more toward security. Capital chases profit, and goes wherever profits are higher. Goods need markets, and go wherever prices are better, which is natural.

During past decades of globalization, however, to pursue maximum efficiency and a better cost-output ratio, industrial and supply chains of many products have been stretched very long. From design to final assembly of an iPhone, for instance, 43 countries and regions are involved.

In the early stages of the pandemic in China, factory closures dealt a blow to international industrial chains. Another blow came with the pandemic, when China resumed production and supply and other countries struggled — especially those in Europe and America that were deeply involved in globalization.

Since the U.S. has relied increasingly on outsourcing in recent years, its needs for pandemic containment have depended mostly on overseas supplies, especially those from China.

Some Americans believe industries that are directly related to the safety of human lives should not be outsourced too much. The Federal Emergency Management Agency has already consulted some businesses, asking them to change their production lines to pandemic containment materials and medical products. It may be more costly for the U.S. to produce these goods itself, but lives are more important than prices. Such adjustments are understandable, and are different from what some claim is an example of China-U.S. decoupling. 

Third, there will be regionalized adjustments in industrial chains. In close relationship with the aforementioned issues, besides safety, the pandemic has also revealed the fragility of national security. Once such a major contagious disease or other big event results in broken supply chains, national security will be in danger.

At present, because of supply chain troubles, production of the U.S. F-35 fighter jet cannot proceed normally. Companies in many countries are already considering how to shorten their industrial chains.

This writer believes three industry-chain centers may present themselves in the post-pandemic era: North America (U.S., Mexico, Canada); Europe; and East Asia (China, Japan, South Korea). Generally speaking, 70 percent of core components and semifinished products in the value chains will be supplied by the local center. The U.S.-Mexico-Canada trade agreement reached during the Trump presidency has already laid the foundation for the North American industry chain center. European countries have already been deeply integrated.

The economies of major trading countries — China, Japan and South Korea — are profoundly interdependent, and negotiations for a trilateral free-trade agreement have been underway. The pandemic may prompt the three to reach an agreement ahead of schedule.

The industry chain centers we’re talking about here are relative, and not mutually isolated, and so there will also be considerable mutual complementarity and inter-dependence.

Fourth, between a country’s transference of territorial sovereignty and the preservation of economic sovereignty, emphasis will increasingly tilt toward preservation. In the process of globalization, all sovereign states have transferred part of their sovereignty rights, and naturally benefited from those transferred by others. The UN, international organizations and international treaties have all imposed restrictions on countries’ sovereignty.

More and more, increasingly powerful non-state actors, such as transnational corporations, have also put constraints on state power, becoming factors not to be neglected in international politics.

The formulation of world industry chains is the outcome of corporate and market behavior, where businesses are the real heroes. The Obama administration had wanted to initiate “insourcing,” while the Trump government ordered American transnationals to move back to the U.S. after launching his trade war against China. Few have responded positively. Such are examples of corporate restrictions on government powers. In the post-pandemic era, some countries and international organizations may raise more questions about the preservation of countries’ economic sovereignty rights and advocate revision of the rules of globalization. Globalization may thus enter its 2.0 stage.

To sum up, in the post-COVID-19 era, globalization will continue. While the trend won’t change, some rules and practices may be adjusted. We should be open to such adjustments but continue to oppose economic nationalism and trade protectionism. A proper balance needs to be found between the two.

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