The new coronavirus promises to be a huge stress test for globalization. As critical supply chains break and nations accumulate medical supplies and hurry to limit travel, the crisis it is forcing a major revaluation everything, and especially the interconnected global economy.
Not only has globalization allowed the rapid spread of contagious diseases, but has fostered a deep interdependence between businesses and nations that makes them more vulnerable to unexpected shocks. Now, companies and nations are finding out how vulnerable they are.
But the lesson of the new coronavirus is not that globalization has failed. The lesson is that globalization is fragile, despite or even because of its benefits.
For decades, individual companies' relentless efforts to eliminate redundancy have generated unprecedented wealth. But these efforts have also reduced the amount of idle resources (what economists call "weak") in the global economy as a whole. In normal times, companies often view weakness as a measure of inactive or even squandering production capacity. But insufficient clearance makes the larger system fragile in times of crisis, eliminating security challenges.
Lack of error-free production alternatives can cause supply chain collapses, as has happened in some medical and healthcare sectors following the new coronavirus.
Manufacturers of vital medical supplies have been overwhelmed by an increase in global demand, pitting countries against each other in a competition for resources. The result has been a shift in power dynamics between major world economies, with those who are well prepared to fight the new virus either accumulating resources for themselves or helping those who are not - and consequently expanding their influence on the scene. global.
Fragile efficiency
The conventional vulgarity on globalization is that it has created a thriving international market, allowing manufacturers to build flexible supply chains by replacing one supplier or component with another, if necessary.
Adam Smith's "The Wealth of Nations" became the world's wealth when companies took advantage of a globalized division of labor. Specialization has resulted in greater efficiency, which in turn has led to growth.
But globalization has also created a complex system of interdependence. Companies have embraced global supply chains, resulting in an intricate web of manufacturing networks that intertwined the world economy. The components of a particular product could now be made in dozens of countries. This drive for specialization sometimes made substitution difficult, especially for unusual abilities or products. And as production went global, countries also became more interdependent, as no country could control all the goods and components needed for its economy. National economies have been embedded in a vast global network of suppliers.
Coronavirus is exposing the fragility of globalization.
The disease pandemic caused by COVID-19 is exposing the fragility of this globalized system. Some economic sectors, especially those with a high degree of redundancy and where production is spread across multiple countries, could cope with the crisis relatively well. Others could be pushed to collapse if the pandemic prevents a single supplier in a single country from producing a critical and widely used component. For example, automobile manufacturers across Western Europe worry about the shortage of small electronic devices because a single manufacturer, MTA Advanced Automotive Solutions, was forced to suspend production at one of its factories in Italy.
In an earlier era, manufacturers could have stockpiled supplies to protect themselves at a time like this. But in the era of globalization, many companies subscribe to Apple CEO Tim Cook's famous saying that inventory is "fundamentally evil." Instead of paying to stock the parts needed to manufacture a particular product, these companies rely on “just-in-time” supply chains that work on demand right now. But in the midst of a global pandemic like the coronavirus, just-in-time globalization can easily become “too late”.
Partly due to supply chain problems, global laptop production declined 50% in February and smartphone production could decline 12% in the next quarter. Both products are made with components produced by specialized Asian manufacturers.
Critical waste: the problem of reagents
Production bottlenecks such as electronic production bottlenecks also hinder the fight against the new coronavirus. Critical medical supplies such as reagents, a key component of the test kits that laboratories use to detect viral RNA, are low or out of stock in many countries.
Two companies dominate the production of the necessary reagents: the Dutch company Qiagen (recently purchased by the American giant Thermo Fisher Scientific) and the Roche laboratories, based in Switzerland.
Both have been unable to keep up with the extraordinary increase in demand for their products.
As the new virus spreads, some governments are succumbing to their worst instincts. Even before the COVID-19 outbreak began, Chinese manufacturers were producing half of the world's medical masks. These manufacturers have increased production following the crisis, but the Chinese government has effectively bought the country's entire supply of face masks, while also importing large quantities of face masks and respirators from overseas. China certainly needed it, but the result of its buying spree was a supply crisis that hindered other countries' response to the disease.
As the new virus spreads, some governments are succumbing to their worst instincts.
European countries have not performed much better. Russia and Turkey have banned the export of medical masks and respirators. Germany has done the same, even though it is a member of the European Union, which should have a "single market" with free trade without restrictions between its member states. The French government took the simplest step to confiscate all available masks. EU officials complained that such actions undermined solidarity and prevented the EU from taking a common approach to fighting the new virus, but were simply ignored.
These beggar-your-neighbor dynamics threaten you to escalate as the crisis deepens, stifling global supply chains for urgent medical supplies. The problem is serious for the United States, which has been late to adopt a coherent pandemic response and is running out of many of the supplies it will need. The United States has a national mask reserve, but has not been replenished since 2009 and contains only a fraction of the number it would serve. Unsurprisingly, President Donald Trump's trade adviser Peter Navarro used this and other shortcomings to threaten allies and justify a further withdrawal from global trade, arguing that the United States must "bring home its own manufacturing capabilities and chains of supply of essential medicines ". Yesterday's decision by which Trump started an internal production of masks and respirators follows the same tenor.
As a result, Germany is reportedly concerned that the Trump administration will make the aggressive move of completely buying a new vaccine under development from a German company for use in the United States. Berlin is now considering whether to make a counterpart on the vaccine or to ban the transition to the United States.
Viral influence
As the Trump administration tries to "use" the coronavirus pandemic to withdraw from globalization, China is using the crisis to show its willingness to lead.
As the first country affected by the new coronavirus, China has suffered severely for the past three months. But now it is beginning to recover, just as the rest of the world is succumbing to disease.
This poses a problem for Chinese producers, many of which are once again active and functioning, but have to cope with the weak demand from countries in crisis. But it also offers China a huge short-term opportunity to influence the behavior of other states.
Despite the first mistakes that probably cost thousands of lives, Beijing has learned to fight the new virus and has supplies of equipment. These are valuable assets and Beijing has deployed them skillfully.
In early March, Italy called on other EU countries to provide emergency medical equipment as critical shortages forced its doctors to make heartbreaking decisions about which patients to save and which to die. None of them replied. But China has done so by offering to sell fans, masks, protective suits and tampons.
As the expert sinologists have argued Rush Doshi e Julian GewirtzBeijing seeks to present itself as the leader in the global fight against the new coronavirus in order to promote goodwill and expand its influence.
Beijing tries to present itself as the leader of the global fight against the new coronavirus.
This is embarrassing for the Trump administration, which has been slow to respond to the new virus. Far from serving as a global provider of public goods, the United States has few resources it can offer to other states. To add insult to injury, the US may soon find itself receiving Chinese charity: Alibaba co-founder billionaire Jack Ma has offered to donate 500.000 test kits and a million masks.
The new geopolitics of globalization
While politicians around the world are struggling to manage the new coronavirus and its consequences, they will have to face the fact that globalization and the global economy are not working as they thought.
Globalization requires an ever increasing specialization of work in the various countries, a model that creates extraordinary efficiencies but also extraordinary vulnerabilities. Shock like the coronavirus pandemic reveals these vulnerabilities. Single-source suppliers or regions of the world specializing in a particular product can create unexpected fragility in times of crisis, causing the collapse of supply chains.
In the coming months, many more of these vulnerabilities will be exposed.
The result could be a shift in global politics. With the health and safety of their citizens in danger, countries can decide to block exports or seize critical supplies, even if it hurts their allies and neighbors.
Such a withdrawal from globalization would make generosity an even more powerful tool of influence for states that can afford it.
So far, the United States has not been a leader in the global response to the new coronavirus and has ceded at least part of that role to China.
Coronavirus is reshaping the geopolitics of globalization, but the United States is not adapting. The patient hides under the covers.
Bianca Stan - Graduated in Law, writer with several books published in Romania and journalist for the group “Anticipatia” (Bucharest), she focuses on the impact of exponential technologies, military robotics and their intersection with global trends, urbanization and long-term geopolitics. He lives in Naples.
