The new coronavirus promises to be a huge stress test for globalization. As critical supply chains break down and nations stockpile medical supplies while rushing to limit travel, the crisis is forcing a major reevaluation of everything, and especially of the interconnected global economy.
Not only has globalization enabled the rapid spread of contagious diseases, but it has fostered a deep interdependence between businesses and nations that makes them more vulnerable to unexpected shocks. Now, companies and nations are discovering just 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 slack (what economists call “slack”) resources in the global economy as a whole. In normal times, companies often see weakness as a measure of idle or even squandered production capacity. But insufficient gaming makes the larger system fragile in times of crisis, eliminating critical security issues.
The lack of fail-safe manufacturing alternatives can cause supply chains to collapse, as has happened in some medical and healthcare sectors following the new coronavirus.
Manufacturers of vital medical supplies have been overwhelmed by a surge in global demand, pitting countries against each other in a competition for resources. The result has been a shift in power dynamics among the world's major economies, with those that are well prepared to fight the new virus either hoarding resources for themselves or helping those that are not – and consequently expanding their influence on the scene. global.
Fragile efficiency
The conventional wisdom about globalization is that it has created a thriving international market, allowing manufacturers to build flexible supply chains by substituting one supplier or component for another as necessary.
Adam Smith's “The Wealth of Nations” became the wealth of the world when corporations took advantage of a globalized division of labor. Specialization produced greater efficiency, which in turn 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 production networks that interweave the world economy. The components of a given product could now be made in dozens of countries. This drive toward specialization sometimes made substitution difficult, especially for unusual skills or products. And as manufacturing became global, countries also became more interdependent, as no one country could control all the goods and components needed for its economy. National economies have been plugged into a vast global network of suppliers.
The coronavirus is exposing the fragility of globalization.
The pandemic of the disease caused by COVID-19 is exposing the fragility of this globalized system. Some economic sectors, particularly those with a high degree of redundancy and where production is spread across multiple countries, could weather the crisis relatively well. Others could be pushed into collapse if the pandemic prevents a single supplier in a single country from producing a critical, widely used component. For example, automakers across Western Europe are worrying about shortages of small electronics because a single manufacturer, MTA Advanced Automotive Solutions, has been forced to suspend production at one of its plants in Italy.
In an earlier era, manufacturers might have stockpiled supplies to protect themselves at a time like this. But in the age of globalization, many companies subscribe to Apple CEO Tim Cook's famous dictum that inventory is "fundamentally evil." Instead of paying to store the parts needed to make a particular product, these companies rely on “just-in-time” supply chains that work on demand in the moment. 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 issues, global laptop production fell 50% in February and smartphone production could fall 12% next quarter. Both products are made with components produced by specialized Asian manufacturers.
Critical waste: the reagent problem
Production bottlenecks such as those in electronics manufacturing are also hampering the fight against the new coronavirus. Critical medical supplies such as reagents, a key component of test kits that laboratories use to detect viral RNA, are running low or sold out 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 Roche laboratories, based in Switzerland.
Both were unable to keep up with the extraordinary increase in demand for their products.
As the new virus spreads, some governments are giving in to their worst instincts. Even before the COVID-19 outbreak began, Chinese manufacturers produced half of the world's medical masks. These manufacturers have increased production in the wake of the crisis, but the Chinese government has effectively purchased the country's entire supply of masks, while also importing large quantities of masks and respirators from abroad. China certainly needed it, but the result of its buying spree was a supply crisis that hampered other countries' responses to the disease.
As the new virus spreads, some governments are giving in to their worst instincts.
European countries did not fare much better. Russia and Türkiye have banned the export of medical masks and respirators. Germany did the same, even though it is a member of the European Union, which is supposed to have a “single market” with unrestricted free trade between its member states. The French government took the simplest step of seizing all available masks. EU officials complained that such actions undermined solidarity and prevented the EU from adopting a common approach to fighting the new virus, but they were simply ignored.
These beggar-thy-neighbor dynamics threaten to intensify as the crisis deepens, choking global supply chains for urgent medical supplies. The problem is grave for the United States, which has been late to adopt a coherent response to the pandemic and is short of many of the supplies it will need. The United States has a national reserve of masks, but it has not been replenished since 2009 and contains only a fraction of the number needed. Not surprisingly, President Donald Trump's trade advisor, Peter Navarro, has used this and other shortfalls to threaten allies and justify further withdrawal from global trade, arguing that the United States must "bring home its manufacturing capabilities and supply chains." supply of essential medicines". Yesterday's decision with which Trump started 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 outright purchasing a new vaccine being developed by a German company for use in the United States. Berlin is now considering whether to make a vaccine counterpart or ban the transition in the United States.
Viral flu
As the Trump administration tries to “use” the coronavirus pandemic to retreat from globalization, China is using the crisis to show its willingness to lead.
As the first country hit by the new coronavirus, China has suffered severely over the past three months. But now it is starting to recover, just as the rest of the world is succumbing to the disease.
This poses a problem for Chinese manufacturers, many of whom are back up and running but facing weak demand from crisis countries. But it also offers China a huge short-term opportunity to influence the behavior of other states.
Despite early mistakes that probably cost the lives of thousands of people, Beijing has learned to fight the new virus and has supplies of equipment. These are precious 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 harrowing decisions about which patients to try to save and which to let die. None of them responded. But China did, offering to sell ventilators, masks, protective suits and swabs.
As Sinological experts have argued Rush Doshi e Julian Gewirtz, Beijing seeks to present itself as the leader in the global fight against the new coronavirus in order to foster goodwill and expand its influence.
Beijing seeks to present itself as the leader in 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 United States may soon find itself on the receiving end of Chinese charity: Alibaba's billionaire co-founder Jack Ma has offered to donate 500.000 test kits and a million masks.
The new geopolitics of globalization
As politicians around the world struggle to manage the new coronavirus and its consequences, they will have to grapple with the fact that globalization and the global economy are not working as they thought.
Globalization requires ever-increasing specialization of work in various countries, a model that creates extraordinary efficiencies but also extraordinary vulnerabilities. Shocks like the coronavirus pandemic reveal these vulnerabilities. Single-source suppliers, or regions of the world that specialize in a particular product, can create unexpected fragility in times of crisis, causing supply chains to collapse.
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 may decide to block exports or seize critical supplies, even if it hurts their allies and neighbors.
Such a retreat 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.
The 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) focuses on the impact of exponential technologies, military robotics and their intersection with global trends, urbanization and long-term geopolitics. She lives in Naples.
