This article by Dr.Gerstenfeld was originally published at the Begin-Sadat Center for Strategic Studies, (BESA) and republished here with the author’s consent.
ECONOMIC GLOBALIZATION AFTER THE END OF THE PANDEMIC?
The large increase in the number of people who have contracted Corona in a variety of European countries and the ongoing struggles with the pandemic have apparently pushed mainstream authors’ reflections concerning post-Corona society into the background. Statements about that future seem to come mainly from ideologues, primarily leftists and environmentalists. They more or less repeat what they have been saying for a long time.
The reluctance of mainstream authors to express themselves on the future makes sense on many post-Corona pandemic subjects especially in view of the multiple uncertainties European societies find themselves in. Yet it would be a major mistake to entirely abstain from orderly systematic thinking about what is going to happen in the long run. Many such subjects can be better assessed if one identifies now indicators that can be followed over time. This will enable faster analysis of issues when more clarity emerges. Developing some methodologies to do this is possible.
Yet there are also post-corona subjects on which much already can be said. One of these is the future of economic globalization. Over the past decades this development has taken a huge flight in particular in the Western business world. One major goal of capitalism is to optimize cost for the production of goods. For many years the world was viewed — in particular by multinationals — as almost a single production source. In other words: “It is ok if there is increased unemployment in the Western countries if we can buy cheaper from low cost producers.” International trade increased accordingly. A few years ago it was published that a quarter of the world’s production was exported.1
Economic globalization had its best years in a world with greater confidence in its future. The pandemic came as a rude awakening for many including the economic globalizers. The growth of the virus has stressed many aspects of societies’ fragility. Yet one should not falsely conclude that economic globalization is on its way out. What one can conclude is that its high point is behind us. To put it simply: we will for instance still see cheap textiles from South East Asia in Western markets.
One of the highly problematic aspects during the pandemic was that several essential goods in the battle against the spread of the virus were no longer locally available in Western countries. They had to be imported, sometimes from far away, and could not always be obtained. Worse even, some European nations kept some products to themselves rather than sharing them with other countries as should have been done according to the rules of the common EU market. There have been widespread media reports that Germany, along with other European countries such as France put in place restrictions on the export of certain medical supplies for a period of time.2
It is not well-known that a very essential characteristic for the development of economic globalization has been what might be called “mood” or a “state of mind.” An attitude of “the world is shrinking” or “the world is one entity and in it we can optimize” reflects this state of mind. A major aspect of economic globalization was the closure of local factories in the West which could not compete with cheap Asian labor. In the minds of many, including Western governments, this was a price that had to be paid.
A ‘mood swing’ which has negatively affected economic globalization had already started well before the pandemic broke out. With the arrival of Donald Trump as U.S. president in 2016 a more confrontational US administration policy toward China developed.3 4 Prominent American strategy expert, Anthony Cordesman, who has held a number of government positions summarized it: “Over a period of a little more than a month, the U.S. has gone from a mixture of competition and cooperation with China to direct confrontation. This confrontation has also occurred largely on the civil level – more specifically on ideology, economics, industrial espionage, cyberattacks on civil networks and databases, and disinformation campaigns.” Trump also imposed tariffs.5 When the pandemic broke out Trump blamed China for the global spread of the disease.6
There are also some other political factors, even if their overall weight in the American and, to a lesser extent Western attitude, didn’t play a major role. These include China’s suppression of several of Hong Kong freedoms with a new security law and its harsh policies toward its Uighur population.7 8
Trump also became more confrontational toward Europe.9 That was accompanied by statements accusing most of the European countries of not meeting their financial NATO commitments. It also became clear that the potential of global warming, an issue of relevance to Europe, didn’t bother the US President much.10
Other political issues — less dominant perhaps but not negligible — perturb the harmonious “one globe feel good” attitude. The world has moved toward more fragmentation. UK’s Brexit is one example. Thanks to the President Barack Obama-initiated JCPOA agreement in 2015, Iran has become a far more troublesome and stronger terrorist player in the Middle East. Driven by ambition for a more powerful place for his country in the world, Turkey’s President Tayib Recep Erdogan, has decided to stir up unrest in a variety of places as well.
Russia is giving a different type of headache to the West. The US opposition toward the Russian-German pipeline is yet another important, though not overriding, factor.11 The incoming Biden administration is likely to reduce international confrontation. That, however, will not solve any fundamental problems, but rather cause them to fester.
Uncertainty surrounding the pandemic has enhanced all this. If the virus stays with us for a longer time, its accompanying limitations complicate economic globalization further. A number of disparate factors come into play. One is that the development of globalization is facilitated by easy travel and hindered by limitations of moving around internationally.
The anti-economic globalization mood will be strengthened by the substantially increased unemployment in Western countries. All of this will pan out in various ways in different countries and not only necessarily because of the performance of their governments.
One important issue which has come to light during the pandemic is that there is a need for thorough reflection on which products individual countries will now have to manufacture locally even though it is more expensive than importing. Western countries cannot remain as dependent as they were until now on the import of several cheap but essential drugs, for instance from India.12 India is in turn dependent on China for some critical raw materials.13 This is a simple example but it is likely that national policies on self-manufacture in some other areas will also change once more profound studies are undertaken.
Another important factor is investment. In an overall friendly world there is also a greater inclination for Westerners to invest in countries even if they are far from being democracies.
Far more important: major forces in Germany will continue to invest in its subsidiaries in the Chinese auto industry. The German Volkswagen firm announced that until 2024 it will invest 50 billion Euro in the development and production of new electric cars in China. One of the 33 factories of Volkswagen is in the province Xin Jing, which is populated by Uighurs. Yet Volkswagen declares that it takes its responsibility for human rights very seriously. It can only be concluded that such statements are probably, for the most part, declarative.
There have been claims that German car manufacturers have no alternative to investment in China. This also means that banks which accompany their clients in individual countries will continue to do so. Germany’s largest bank, Deutsche Bank, doesn’t expect that anything will change there.
As far as the car industry goes, major suppliers also have to follow the industry. The leading German tire company, Continental, wants to grow stronger in Asia. It currently only has 12% of its turnover in China. At the same time, the company is diminishing its worldwide employment by 30,000 of which 12,000 workers are in Germany.14
What has been written here about economics does not reflect on other areas such as science, technology, media communications, culture, sports and so on. Globalization in these fields may well proceed further.
With Joe Biden coming in is as US president some attention should be given to the opinions of Jared Bernstein. He is a senior fellow at the Center on Budget and Policy Priorities and was the chief economic adviser to Biden when he was U.S. Vice President from 2009 to 2011. Bernstein is a possible candidate for a senior position with the new administration. He is critical of several important aspects of economic globalization and its impact on the United States.
Bernstein wrote: “The era of free trade eventually led to large trade deficits with countries with comparatively productive factories to ours but with much lower wages, most notably Mexico and China.” He points out that the number of US factory jobs held ‘pretty constant’ about 17 million until around 2000. Over the next decade, 6 million jobs were lost. In addition, the wages of blue-collar manufacturing were hit too and have only grown 5% since the late 1970’s.
Bernstein remarked: “Did the winners from trade — the multinational corporations that relocated production, the finance sector that made the deals, the retailers that profited from ‘the China price’ — compensate the losers? Of course not. They argued that ‘everyday low prices’ were reward enough.”
He concludes: “Both the US and developing countries have significantly benefitted from global trade. But because of the demonstrably false view that free trade is all upside — win-win — considerable economic pain has been meted out, pain that has not been met with anything approaching an adequate policy response.”15
1 www.sciencedirect.com/science/article/pii/S221256711501374X; https://ourworldindata.org/trade-and-globalization
7 www.businessinsider.com/hong-kong-china-killed-democracy-movement-us-uk-inaction-2020-6; www.bbc.com/news/world-asia-china-52765838
14 www.welt.de/wirtschaft/plus217018672/Handel-mit-China-Deutsche-Firmen-vergroessern-ihre-Abhaengigkeit.html; www.welt.de/wirtschaft/plus215708032/Autozulieferer-Das-Sterben-der-deutschen-Autoindustrie-hat-begonnen.html