A global outbreak is fuelling the backlash to globalisation

  • >>Peter S Goodman, The New York Times
    Published: 2020-03-07 02:21:37 BdST

Well before a deadly virus began spreading across multiple borders, a world defined by deepening interconnection appeared to be reassessing the merits of globalisation.

The United States, led by the unabashed nationalist Donald Trump, was ordering multinational companies to abandon China and make their goods in US factories. Britain was forsaking the European Union, almost certainly reviving customs checks on both sides of the English Channel, while threatening to disrupt a vital trading relationship.

A surge of refugees fleeing some of the most dangerous places on earth — Syria, Afghanistan, Central America — had produced a backlash against immigration in many developed countries. In Europe, it elevated the stature of extreme right-wing parties that were winning votes with promises to slam the gates shut. Trump was pursuing the construction of a wall running along the border with Mexico, while seeking to bar Muslims from entering the country.

The coronavirus that has seeped out of China, insinuating itself into at least 81 countries while killing more than 3,200 people, has effectively accelerated and intensified the pushback to global connection.

It has sown chaos in the global supply chain that links factories across borders and oceans, enabling plants that produce finished products to draw parts, components and raw materials from around the world. Many companies are now seeking alternative suppliers in countries that appear less vulnerable to disruption.

The epidemic has supplied Europe’s right-wing parties a fresh opportunity to sound the alarm about open borders. It has confined millions of people to their communities and even inside their homes, giving them time to ponder whether globalisation was really such a great idea.

“It reinforces all the fears about open borders,” said Ian Goldin, a professor of globalisation and development at Oxford University and an author of a 2014 book that anticipated a backlash to liberalism via a pandemic, “The Butterfly Defect: How Globalisation Creates Systemic Risks, and What to Do About It.”

“In North America and Europe, there is a recalibration, a wanting to engage on a more selective basis,” he said.

By Goldin’s estimation, the coronavirus is merely the latest force to reveal the deficiencies of globalisation as it has been managed in recent decades — an underregulated, complacent form of interconnection that has left communities vulnerable to a potent array of threats. From the worldwide financial crisis of 2008 to climate change, ordinary people have concluded that authorities cannot be trusted to keep them secure. That has allowed politicians to attack legitimate problems with simplistic solutions, like trade protectionism and armoured borders.

Now the coronavirus scare has aggravated the trend. “I don’t think any wall can be high enough to keep out a pandemic, or climate change, or any of the other big threats that face humanity in the future, so I think it’s counterproductive,” Goldin said.

Globalisation is far from over. The commercial links that produce the goods of the modern age, from computers to automobiles, involve so many people coordinating so many processes that a purely localised form of industry now seems unimaginable on a mass scale. The coronavirus itself does not respect borders, requiring international coordination, a process facilitated by the infrastructure of globalisation.

But as surgical masks become desperately desired items; as schools from Japan to Ireland sit closed; as airlines scrap flights; as trade shows are cancelled; and as stock markets plunge, annihilating trillions of dollars in wealth, the panic seems likely to alter the contours of globalisation.

The most obvious impact is on trade. The epidemic has prompted a reexamination of the world’s central reliance on China as ground zero for manufacturing, a trend that was already underway via the trade war.

In Trump’s depiction, any product made in a foreign country and then sold in the United States amounts to an instance of American workers getting fleeced. In that spirit, the Trump administration imposed tariffs on hundreds of billions of dollars’ worth of goods from China, promising that this would force companies — from clothing brands to gadget-makers — to bring production back to the United States.

The trade war has failed to produce the promised jobs, instead yielding a manufacturing slowdown in the United States. Some multinational companies have moved factory production away from China, shifting work to Vietnam, Bangladesh and Mexico.

Trump administration officials have taken the coronavirus outbreak as the impetus to reinforce their pressure on companies to leave China. “It will help accelerate the return of jobs to North America,” Commerce Secretary Wilbur Ross said in late January.

Last week, Trump’s senior trade adviser, Peter Navarro, who wrote a book called “Death by China,” used the coronavirus as a stark reminder that the United States had allowed too much factory production to leave its shores.

“A lot of it’s in China,” he told Fox News. “We’ve got to get that back.”

Many in the manufacturing world dismiss such talk as politics masquerading as economic policy. No matter what happens, Americans are unlikely to find themselves sitting in large numbers behind sewing machines stitching up clothing or hovering over assembly lines as they fit electronics into circuit boards. But a marginal shift of work from Chinese factories to those in other low-wage nations is likely to accelerate.

“People have understood from the trade war that they cannot rely too much on China,” said Sebastien Breteau, chief executive of Qima, a Hong Kong-based company that inspects factories that make clothing, electronics and other goods for major international brands.

Since the beginning of the year, he said, Qima’s inspections have increased by roughly half in both Vietnam and Bangladesh.

The outbreak has brought into sharp relief that the world’s factories and retail operations have become so dependent on China that a crisis there can swiftly turn into trouble nearly everywhere. Economists broadly assume that shortages of parts will crop up in coming weeks and months, after inventories are exhausted.

FILE -- A Hyundai dealership in Seongnam, South Korea, Feb. 6, 2020. Hyundai, the world’s fifth-largest automaker, halted production at its factories in South Korea last month because of a shortage of parts made in China. (Jean Chung/The New York Times)

FILE -- A Hyundai dealership in Seongnam, South Korea, Feb. 6, 2020. Hyundai, the world’s fifth-largest automaker, halted production at its factories in South Korea last month because of a shortage of parts made in China. (Jean Chung/The New York Times)

Manufacturers in India and Japan rely on China for 60% of their imported electronics components, according to Fitch Ratings. US manufacturers buy roughly half their imported electronics parts from China.

Hyundai, the world’s fifth-largest automaker, halted production at its factories in South Korea last month because of a shortage of parts made in China. Nissan cited parts shortages in ceasing production in Japan. Nintendo faces delays in delivering its popular gaming console, the Switch, to customers in the United States and Europe because a factory that makes the devices in Vietnam has been unable to secure critical parts from China.

In Italy, local authorities quarantined industrial communities south of Milan as the coronavirus spread there late last month, threatening to amplify troubles for the global supply chain. Italy is a major supplier of auto parts, meaning that disruption in its factories is likely to be felt in Germany and the rest of Europe.

But the moral of this story, economists said, is not that globalisation is inherently dangerous: It is that market forces left unsupervised pose perils.

Part of the world’s vulnerability to supply chain disruption stems from the excessive embrace of the so-called just-in-time mode of manufacturing: Rather than keep warehouses stocked with needed parts, ensuring that they are on hand come what may, the modern factory uses the web to order parts as the need arises, while relying on global air and shipping networks to deliver them on a timeline synchronised with production.

Just as the financial crisis demonstrated that banks were lending mind-bending sums of money without leaving enough in reserve to cover bad debts, the coronavirus has underscored how global manufacturing has been running too lean, operating in disregard of risks like earthquakes, epidemics and other disasters.

That state of play is the direct result of the supremacy of shareholder interests in the global economy, with whatever yields short-term profits generally pushing aside prudent considerations about longer-term risks.

“It costs to have a stock,” said Goldin, the Oxford expert. “You have the pressure of the market and quarterly reporting, and analysts are breathing down your neck. You can’t say, ‘Well, we have lower profits but more resilience.’”

In the political realm, the coronavirus has handed those who denounce immigration putative evidence for their warnings.

The impact is especially palpable within the 27 countries of the EU, which has long been governed by a central belief that economies and societies are most dynamic when people and goods are able to move freely across borders. The arrival of millions of migrants in recent years has tested that thinking. Extreme right-wing parties emerged from the political wilderness to achieve mainstream status with promises that they would seal borders.

The Sweden Democrats, a party with roots in the neo-Nazi movement; Alternative for Germany, whose followers have revived the language of Hitler; and France’s National Front have all prospered. In Italy, the League — whose leader, Matteo Salvini, has said immigration is an attempt at the “ethnic cleansing” of Italians — has attacked the country’s government for failing to bolster the borders in the face of the epidemic.

But if some are inclined to use the coronavirus as an opportunity to write globalisation’s obituary, others said that misses the point of an outbreak born in a global manufacturing hub, propelled by modern air travel and spread by the irrepressible human impulse to move around.

“This is just an indication that globalisation is what it is,” said Maria Demertzis, an economist and deputy director at Bruegel, a research institution in Brussels. “People will always want to travel. They will always want to trade. The answer is not to again build walls. You need more cooperation and clear information.”

c.2020 The New York Times Company