Haiyan Wang

Vice President, Bank of America, Adjunct Professor of Strategy, INSEAD and Cofounder, China India Institute; ranked #25 most influential management thinker by Thinkers50

since before the pandemic GLOBALIZATION HAS BEEN UNDER ATTACK hit. In recent years, we have seen a rapid rise of nationalism and isolationism in all continents. Why? Hasn’t globalization brought enormous benefits? It has. Life expectancy has risen across rich and poor countries, and worldwide, more than a billion people have been lifted out of poverty. Emerging markets that were previously poor and isolated have become growth engines.

At the same time, inequality within society has deepened and is particularly stark in the United States, where nearly 40 per cent of all personal net wealth is in the hands of the top one per cent. And for the poor, COVID- 19 has only added ice to the frost. Over 30 million Americans filed initial unemployment claims in the six-week period beginning in mid-march. COVID- 19 will widen several divides: the digital divide, the income divide, the wealth divide and the social divide. And we already know that such divides feed nationalism.

If Trump wins a second term, we will see the U.S. become more inward looking. In the mind of Trump and his advisors, patriots and globalists are at two opposite ends of the spectrum. Geopolitically, the great power rivalry will likely intensify. U.S. international relations had hit the lowest point before the pandemic crisis, and COVID- 19 could make them even more toxic.

The irony is that a global disaster like COVID- 19 demands global solutions — but right now there is a vacuum of global leadership for international cooperation. The U.S. is not willing and China is not yet welcomed to play such a role. We see more finger-pointing, more suspicion of foreigners and immigrants, less trust and more conspiracy theories. As soon as the COVID- 19 curve flattens, we’re likely to see trade wars resume.

Hyper-globalization in terms of merchandise trade is becoming yesterday’s story. According to the World Trade Organization the volume of global merchandise trade could fall between 13 and 32 per cent this year alone. Looking beyond trade tensions, there are other long-term forces at play that began well before we entered the crisis. One is the end of the commodity boom, because China has slowed down and shifted to a less commodity-intensive model. Second, rising wages and other costs have reduced the cost advantages of producing in emerging markets. Third, faster responses to market trends and the need for ever-faster shipping speed also drive shorter supply chains.

COVID- 19 accelerates each of these factors.

Another key dimension for measuring globalization is in terms of foreign direct investment (FDI). In contrast to merchandise trade, total FDI stock has continued to rise. Companies are not returning to home turf for several reasons. One, faster growth and a bigger pie in emerging markets are still very attractive and they want to take a bite. Second, rising trade barriers have prompted a shift from ‘local for global’ to ‘local for local’. And third, more companies are shifting their allocation supply chains from a China-centric strategy to a ‘China-plus-two’ strategy, in order to buffer the shock from relying on one country.