COVID-19 Pandemic and Economic Globalization
Coming out of the blue, COVID-19 pandemic has swept across the globe, disrupting transnational movement of people to a large measure and indirectly affecting transnational movement of goods and capital. If the degree of economic globalization is measured by transnational movement of commodities and other factors of production, COVID-19 pandemic of 2020 has obviously impacted globalization in a serious way. Can the pandemic produce long lasting effects on the process of globalization? Will globalization return to the original track or deviate and even reverse the original trend? To answer the questions above, it is necessary to understand the original trend of globalization and drivers behind it before the outbreak of COVID-19 and the long-term effects of COVID-19 on these original drivers, and it is also necessary to search for whether the outbreak has given rise to new drivers or factors disrupting globalization and the long-term trend of their evolution in the future.
Trend of Drawback on Globalization Already Set in before the Outbreak
Looking back into history, though the general trend of economic globalization has continued to deepen, it has not been smooth sailing. In 100 or so BC, the ancient Silk Road was opened and served transnational trade. After vicissitudes, it has again seen great development and prosperity since General Secretary Xi Jinping made the Belt and Road Initiative (BRI) in 2013. From the 15th century on, technological progress of ocean navigation and the great geographical discovery advanced economic globalization on the basis of colonial trade. However, conflicts of interest between colonial powers and struggles for independence and resistance of colonies became more often than not resistance to this round of globalization, which was thus concluded with the World War I. After the end of the World War I, post war recovery and stability achieved by various countries was short lasting, and trade barriers, competitive currency devaluation, and economic crises resulted in reversal of globalization once more. After the end of the World War II, the world economy was divided into two systems respectively led by the United States and the Soviet Union, and there was a man-made divide between global economic activities, which eventually disappeared at the end of the Cold War, and in turn led to the period of triumphant advance of globalization. However, the process of economic globalization starting with the end of the Cold War was reversed yet again after the global financial crisis of 2008.
After 2008, the drawback of globalization manifests in three aspects. First, the degree of transnational flow of goods and capital is on the decrease. At constant price of US dollars of 2008, the proportion of global trade volume in global GDP fell from 25.9 percent in 2008 to 22.9 percent in 2018, and that of global outward direct investment, from 3.8 percent in 2007 to 1.2 percent in 2018. Second, the process of global tariff reduction has markedly slowed down. With the founding of the World Trade Organization (WTO), the world tariffs on the average dropped significantly. Between 1996 and 2006, global weighted average tariffs between countries fell from 6.2 percent to 3.2 percent, down 3 percentage points in a decade. However, the process of global tariff reduction has markedly slowed down after the financial crisis. Between 2006 and 2016, global weighted average tariffs between countries fell from 3.2 percent to 3.0 percent, down merely 0.2 percentage points in a decade. Third, restrictions on global
trade are on the rise. According to the WTO monitoring data, in 2009, various countries took 73 trade restricting measures, covering only 0.6 percent of global import volume. However, by 2018 the number of effective trade restricting measures had increased to 1463, and their coverage of global import volume has increased to 7.5 percent.
Since 2016, the drawback of globalization has been even more remarkable. Among others, the most striking were the “Brexit” of the United Kingdom (UK) and a series of anti-globalization trade policies of the Trump administration of the United States (US). The “Brexit” of the UK is retrogression of the process of European integration whereas the anti-globalization trade policies of the Trump administration of the US have produced major negative effects for the process of global integration. The Trump administration is openly opposed to globalism and stands for “America First” policy, its disruption of economic globalization manifesting in five aspects, as follows. First, it prevents multilateral mechanisms like the WTO from performing normal functions. The most typical incidence is that it has stopped the WTO from appointing arbitrators to its Appellate Body, resulting in virtue stoppage of the operation of WTO dispute settlement process. Not only is the WTO unable to promote the process of trade liberalization, it also unable to safeguard the world trade order, and especially it is no longer able to arbitrate on US violations of the world trade order. Second, it has renegotiated trade agreements to include protectionist clauses. For instance, the North American Free Trade Agreement (NAFTA) has become the United States–Mexico–Canada Agreement (USMCA), the latter markedly increasing labor and country of origin standards, constraining transnational corporations’ activities in making Mexico their production base, aiming at promoting a returnflow of manufacturing to the US. The US is introducing these standards to its trade agreements with other countries, which will seriously constrain transnational corporations’ activities of global allotment of production. Third, it has applied domestic law to increase tariffs in order to protect domestic industries. For instance, according Section 232 of US Trade Expansion Act of 1962, the US has in the name of national security increased tariffs on steel and aluminum imports and has long been planning for increasing tariffs on car imports, in order to protect US steel, aluminum and car industries. Fourth, it has restricted immigration so as to protect low-income population at home. For instance, the US has revised criteria for visa and immigration to restrict inward flow of population into the country. It has built a partition wall along US-Mexico border to prevent Latin-American population from flowing into the US. Fifth, it has adopted trade and investment restriction measures pinpointing to China. For instance, the US has tightened control on technological exports to China and review on inward investment from China. It has cut off supplies to Chinese high-tech companies such as Huawei and banned the usage of Huawei products. The US has planted in the USMCA a “poison pill” clause to isolate China and has launched a trade war against China. The policies of the Trump administration are not, as it claims to be, to establish a “fair and reciprocal trade order”, but rather to restrict other countries in order to protect American interest. These policies have destroyed the post-Cold War institutional foundation that enabled globalization to make rapid progress.
Pandemic Boosts Retrogression of Globalization
The reason why globalization is reversible is because of the existence of two anti-globalization groups. The first one is the victim group of globalization. When this anti-globalization group or its representative take the leading position of policy making, globalization will be impaired and even pushed back. The second one is the group benefiting from globalization but not being satisfied by the end result of its interest distribution. It always entertains the hope of changing the rules and conditions of the market, which tends to affect the process of globalization and even lead to retrogression of globalization.
From 2008 to the pandemic outbreak, there was a retrogressive tendency of globalization. It was the developed countries that had previously led the process of globalization that then began to be opposed to globalization, countries remaining significantly influential in the making of international economic policy. The retrogressive tendency of globalization before the pandemic was the result of comprehensive functioning of two anti-globalization forces. On the one hand, the outbreak of internal contradictions in US-led developed countries produced an antiglobalization force. After the financial crisis of 2008, issues such as unequal income between people, unbalanced development between communities or regions, and decline of manufacturing industries in the developed countries became increasingly outstanding. The victims of the above issues became the main force opposing globalization. And on the other hand, the fact that some of the Western countries headed by the US attempting to contain China gave rise to another anti-globalization force. Though the US and other Western countries were greatly benefitted from globalization, they believed in a lop-sided way that China was benefitted more from globalization, which was allegedly more in China’s interest, and therefore they adopted preventive and restrictive measures against China in international economic activities. The Trump administration even took China for adversary in strategic competition and attempted to prevent the country from developing rapidly by raising trade barriers and increasing technological embargo and suppression.
The two pre-pandemic anti-globalization forces have not been weakened by the pandemic but rather strengthened by it. As the COVID-19 outbreak is resulting in short-term economic depression and long-term economic slowdown of developed economies, their will for reversed flow of manufacturing be
comes more pressing, and the demand for protection by unemployed groups and low-income groups in those economies turns stronger and more urgent, and besides the anti-globalization force coming out of unequal income and decline of manufacturing can also be enhanced by the pandemic. As Chinese economy turns for the better whereas the US and other developed economies may turn for the worse, the narrowing of the gap in economic might between China and the US may accelerate further. As the strategic pressure on China by the US may intensify, so also may anti-globalization force produced therein.
It is worth noting that the COVID-19 outbreak has produced a new anti-globalization force. The outbreak exposes the fragility of globally allotted supply chain. The break of one link upstream on the chain will lead to the stoppage of production on the industrial chain as a whole. As the pandemic illustrates, once stoppage occurs in a country of significant influence on the global supply chain, it will greatly impact the global production chain. For a country with a high dependence on the global supply chain, once international trade is suspended, its domestic industrial chain will suffer from severe negative effects. For a country that seeks long-term stable development, it may be advisable for the country to contract the supply chain to one country or even less scope in order to escape the fragility of globally allotted supply chain.
As American economist Joseph Stiglitz observes, economics has been driving globalization but politics has shaped it. Before the pandemic, the US had already abused national security to practice trade protectionism. The pandemic further underlines the importance of supply chain stability and national security, which may lead some of the countries to revise economic planning, change market conditions and increase corporate cost for transnational allotment of supply chain in the name of supply chain stability and national security, and even to directly place restrictions on productive activities deemed relating to national security. These actions will result in further retrogression of globalization.
Pandemic Also Produces Drivers of Globalization
As the COVID-19 pandemic strengthens previously existing anti-globalization forces and produces new antiglobalization forces, it also gives rise to and enhances some of the forces that support the advance of globalization. The latter forces are basically in two areas. First, the pandemic gives rise to demand for international cooperation such as international cooperation on public health and global macro policy coordination. Second, the pandemic leads to even greater influence of China in promoting globalization.
The COVID-19 outbreak increases the demand for international cooperation in the area of public health. However, the demand for international cooperation on public health is yet to forge a gigantic force to promote the development of globalization. In some of the countries, such a life-threatening coronavirus is not taken for the most serious threat, nor is resistance to the outbreak and the rescue of life taken for the most prioritized task, but is interfered by other goals. Various countries have varying policies to fight against the outbreak, and the phenomena are rather universal that each of the countries acts on its own free will, reluctant to pay the cost, and unwilling to go by the science-based COVID fighting policy of the World Health Organization (WHO), all of which weaken the foundation for international cooperation. Especially, the US is less than effective in fighting the pandemic, resulting in the fact that not only is it unable to promote international cooperation on fighting the pandemic, it also tries to shirk the responsibility of its failure in fighting the coronavirus to China and the WHO. Such conduct of the US severely damages international cooperation under the circumstances of COVID-19, greatly constraining the efforts to build a more effective mechanism of global cooperation on public health.
The economic recession caused by the pandemic also produces the demand for international macro policy coordination. The extent of recession of global economy and US economy may exceed that of the period of global financial crisis between 2008 and 2009. The financial crisis gave rise to Group of Twenty (G20) Summit as a mechanism of international macro policy coordination, which within a short period of time put the momentum of protectionism on check and forged a new mechanism for promoting international cooperation. The economic recession caused by the pandemic leads to the resurgence of necessity for global macro policy coordination. On March 26, 2020, G20 rotating president Saudi Arabia presided over an extraordinary G20 summit on the COVID-19 pandemic, the results of which illustrated the importance of various member states emphasizing on international policy coordination. The convocation of the summit played the role of stopping protectionism from cropping up which did not last for long. Furthermore, the G20 summit this time around did not bring into place a mechanism to advance policy coordination. Like other multilateral mechanisms like the WTO, G20’s function of global policy coordination has conversely been weakened further.
Meanwhile, the pandemic underscores and enhances China’s role in promoting globalization. The country has become an even more important force for globalization, which mainly manifests in three aspects. First, the concrete results of China’s fight against the outbreak and its speedy economic recovery are far better than that of developed countries like the US and the UK, and therefore China is of greater international persuasion and influence with its policy to prevent and control the pandemic as well as its economic policy. Second, China relatively stable economic growth and ever increasing economic might, especially its ability to continue expanding its domestic market and outward investment, which continue to increase its ability to promote globaliza
tion. Third, a post-COVID China will continue to have the firm will to further open up itself to the outside world and promote globalization. China has had profound experience of the bad results of a policy of seclusion, and therefore will be firm in taking opening up as its basic national policy and as a necessary road to prosperity of the country. In post-COVID era, though China is going to face more severe external environment and greater security challenge, it will not change its posture of further advancing opening up to the outside world. In the Guideline to Accelerate the Improvement of China’s Socialist Market Economy in the New Era that came out in May 2020, the Communist Party of China (CPC) Central Committee and the State Council called for persevering with expanding high-level opening up, building a new high-level open economic structure, and promoting reform and development with opening up.
The increase on China’s comprehensive national strength and influence play the role in globalization in two aspects. On the one hand, the US and other Western countries increase strategic competition and suppression on China against the rise of China’s comprehensive national strength, which will play an impeding role for globalization. And on the other hand, as China itself is a supporter of globalization, the rise of China’s comprehensive national strength is helpful for the development of globalization. In a certain historical period and under certain circumstances, the two aspects of this role will increase simultaneously owing to the rise of China’s comprehensive national strength. As China’s comprehensive national strength and international influence increases further, the country will play a more and more important role in promoting the process of globalization and will gradually become the backbone in pushing forward globalization as a whole.
Post-COVID Trend of Globalization
In post-COVID era, the process of globalization will continue to retrogress within a short period of time, and even worse, the extent and speed of the retrogression will be still greater than before the pandemic. This is mainly because of the fact that the pandemic has strengthened previously existing forces for retrogression of globalization and given rise to new anti-globalization forces. The forces supporting globalization produced by the pandemic has yet to prevent globalization from retrogressing in the short term. The retrogression of globalization will bring harm to various countries the world over, deepen the world economic recession, and bring about negative effects to the long-term world economic development.
It is worth noting that the greatest risk of post-COVID retrogression of globalization will be none other than a divide to separate the world into two systems once more. Such a divide is originated from the “decoupling” and “isolation” policy against China adopted by some of the developed countries headed by the US. Under these circumstances, there will be lasting and fierce collision between the forces supporting globalization represented by China and anti-globalization forces represented by the US, on the balance of force between which will hinge the trend of globalization. In the long-term point of view, the forces supporting globalization will prevail over the anti-globalization forces, and globalization will become the mainstream of world economic development once again.
In the process of promoting globalization, if China is able to more fully exploit the benefit of globalization, to better manage the detriment of globalization, and better distribute the interest of globalization, it will see its efforts to promote globalization win the support of more and more countries, and the sooner the forces promoting globalization will overtake the anti-globalization forces, thus further promoting globalization to move steady and go far.