More on the impact of the pandemic

Sticking with the subject of the COVID-19 pandemic and the future of our (shaky) liberal, global socio-economic ‘order,’ I saw this article in Foreign Affairs, by Professors Henry Farrell and Abraham Newman of George Washington University, in which they say that “The new coronavirus is shaping up to be an enormous stress test for globalization … [because] … As critical supply chains break down, and nations hoard medical supplies and rush to limit travel, the crisis is forcing a major reevaluation of the interconnected global economy. Not only has globalization allowed for the rapid spread of contagious disease but it has fostered deep interdependence between firms and nations that makes them more vulnerable to unexpected shocks … [and] … Now, firms and nations alike are discovering just how vulnerable they are.” This vulnerability has been, unconsciously I suspect, in President Trump’s mind and, much more consciously, in the minds of some of his key advisors like Robert Lighthizer.

The authors explain that “the lesson of the new coronavirus is not that globalization failed. The lesson is that globalization is fragile, despite or even because of its benefits. For decades, individual firms’ relentless efforts to eliminate redundancy generated unprecedented wealth. But these efforts also reduced the amount of unused resources—what economists refer to as “slack”—in the global economy as a whole. In normal times, firms often see slack as a measure of idle, or even squandered, productive capacity. But too little slack makes the broader system brittle in times of crisis, eliminating critical fail-safes.

The conventional wisdom about globalization,” Professors Farrell and Newman say, “is that it created a thriving international marketplace, allowing manufacturers to build flexible supply chains by substituting one supplier or component for another as needed. Adam Smith’s The Wealth of Nations became the wealth of the world as businesses took advantage of a globalized division of labor. Specialization produced greater efficiency, which in turn led to growth … [but] … globalization also created a complex system of interdependence. Companies embraced global supply chains, giving rise to a tangled web of production networks that wove the world economy together. 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 production went global, countries also became more interdependent, because no country could possibly control all the goods and components its economy needed. National economies were subsumed into a vast global network of suppliers … [and now, the global pandemic] … is exposing the fragility of this globalized system. Some economic sectors—particularly those with a high degree of redundancy and in which production is spread across multiple countries—could weather the crisis relatively well. Others could be pushed close to collapse if the pandemic prevents a single supplier in a single country from producing a critical and widely used component. For example, car manufacturers across western Europe worry 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.

Going back to what I wrote a few days ago, even in the large European Union, the supply chains might be so efficient that they are too brittle to work well in a crisis. The single market didn’t work in the case of medical supplies. Germany, for example, prohibited the export of medical masks and respirators to other Europan states, “even though it is a member of the European Union, which is supposed to have a “single market” with unrestricted free trade among its member states.  The French government took the simpler step of seizing all available masks. EU officials complained that such actions undermined solidarity and prevented the EU from adopting a common approach to combating the new virus, but they were simply ignored.” The rules, even rules as strong as the EU’s laws, look weak when voters are afraid.

Going back to my comments, the day before yesterday, Farrell and Newman say that “Whereas the Trump administration has used the pandemic to pull back on global integration, China is using the crisis to showcase its willingness to lead. As the first country hit by the new coronavirus, China suffered grievously over the last three months. But now it is beginning to recover, just as the rest of the world is succumbing to the disease. That poses a problem for Chinese manufacturers, many of which are now up and running again but facing weak demand from countries in crisis. But it also gives China an enormous short-term opportunity to influence the behavior of other states. Despite early mistakes that likely cost the lives of thousands of people, Beijing has learned how to fight the new virus, and it has stockpiles of equipment. These are valuable assets—and Beijing has deployed them with skill … [and] … 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 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 the China experts Rush Doshi and Julian Gewirtz have argued, Beijing seeks to portray itself as the leader of the global fight against the new coronavirus in order to promote goodwill and expand its influence.

Professors Farrell and Newman conclude that “As policymakers around the world struggle to deal with the new coronavirus and its aftermath, they will have to confront the fact that the global economy doesn’t work as they thought it did. Globalization calls for an ever-increasing specialization of labor across countries, a model that creates extraordinary efficiencies but also extraordinary vulnerabilities. Shocks such as the COVID-19 pandemic reveal these vulnerabilities. Single-source providers, or regions of the world that specialize in one particular product, can create unexpected fragility in moments of crisis, causing supply chains to break down. In the coming months, many more of these vulnerabilities will be exposed … [and] … The result may be a shift in global politics. With the health and safety of their citizens at stake, countries may decide to block exports or seize critical supplies, even if doing so 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 it has ceded at least some of that role to China. This pandemic is reshaping the geopolitics of globalization, but the United States isn’t adapting. Instead, it’s sick and hiding under the covers.

The same applies to Canada, in spades … the only difference is that Justin Trudeau’s Canada has been reduced to, essentially, irrelevance, except, perhaps, that it is part of a robustly capitalistic the North American free trade area which might be big enough and independent enough (of bureaucratic (socialistic) interference) to be self-sufficient.

 

 

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