The Financial Express

Deglobalisation in time of new normal?  

Evaly and Fianancial Express Evaly and Fianancial Express
Deglobalisation in time of new normal?   

Now that many people across the globe tend to deny globalisation its efficacy in the covid-induced circumstances of global trade and economy, is it at all appropriate to be too impatient to say globalisation was a hype? Many are highlighting the dangers of relying on global value chains - and in particular, those linked to China - leading to the talk of 'de-globalisation'.

Curiously, these dangers are being flagged by none other than powerful economies. Not to mention the USA whose Presisent, soon after assuming office, had demonstrated his utter dislike for the WTO oriented multilateralism in trade that for decades did bear fruits-- though disproportionately for rich and poor countries. Now, sadly, others are echoing similar reactions. The European Commission president, Ursula von der Leyen, for example, has called for the "shortening" of global supply chains because the EU is too dependent on a few foreign suppliers. Similarly, the French president, Emmanuel Macron, has argued for strengthening of French and European "economic sovereignty" by investing at home in the high tech and medical sectors. All they seem to be averse to is the varying ways, they think, their economies are being affected by global value chain (GVC).

It is well over two decades global value chain (GVC) has earned the distinctive attribute of being the most influential factor in mapping pathways for countries -- rich or poor alike -- to not only grow but more than anything, survive in the thickly connected globalised world. In fact, given the multilateral framework of global trade and commerce enunciated by the WTO, it became increasingly imperative for countries to get their businesses and manufacturing integrated into the global chain.

COVID 19 has shattered this chain.  It is clear that the outbreak of the pandemic is disrupting manufacturing and global value chains, with serious consequences for businesses, consumers and the global economy. From a value-chain perspective, the disruptions associated with past crises such as the 2003 outbreak of SARS or the 2011 Fukushima nuclear disaster may not be instructive for today. For many analysts, this comparison makes no sense because the relative importance of China in the worldwide economic ecosystem has increased tremendously in the past 18 years: China has more than doubled its share of trade with the rest of the world between the SARS epidemic and today, and many more industries are now heavily dependent on China. In addition, today's value chains are more global and more complex than they were in 2003 or 2011. According to "Business Impact of the Coronavirus," a Dun & Bradstreet report published earlier this month, 938 of the Fortune 1000 companies have a tier 1 or tier 2 supplier that has been affected by the virus.

Reports on how the Covid-19 outbreak is affecting supply chains and disrupting manufacturing operations around the world are increasing daily. But the worst, many fear, is yet to come. The most vulnerable companies are those that rely heavily or solely on factories in China for parts and materials.

Decades of deep economic integration have restructured international trade and investment. In modern global value chains, production processes are often spread across dozens of firms operating in multiple countries. The average automobile, for instance, contains about 30,000 parts, and one recent analysis found Toyota relied on 2,192 distinct firms (both direct and indirect suppliers) in its production process.

 These global value chains have improved economic efficiency, but also introduced new, and unpredictable vulnerabilities: When any link in the chain breaks, upstream and downstream suppliers and consumers are impacted too. Today many global supply chain networks are becoming so complicated that they are best thought of as complex systems-systems where the cross-cutting relationships between individual units are so dense and convoluted that it is impossible to understand how the system as a whole is going to react.

Analysts also say that production shutdown is going to reveal previously unknown choke points in global economic networks. As the political scientists Henry Farrell and Abraham Newman have recently argued, globalisation has not produced 'a flat, decentralised world economy, but rather a hierarchical, imbalanced network, with critical hubs exerting outsized influence. These hubs can become the choke points of globalisation-vital junctures that, when closed off, can severely disrupt economic activity.' That is to say that corona virus has exposed the hidden and almost incurable vulnerabilities of the existing GVC practices.

Is this what is going to cost extremely dearly countries like Bangladesh which being essentially linked to GVC for manufacturing for exports? As for Bangladesh, it is not the readymade garment industry alone that is already hard-hit by supply chain disruptions, other key industrial sectors like pharmaceuticals, leather, ceramics etc., which are reliant on import of a host of ingredients can hardly be expected to be spared from the disruptions. Suggesting ways and means will no doubt vary for countries, and seeking out suggestion so soon is also not the right thing to do. Remodeling GVC practices will indeed be a crucial task ahead, but this is not to endorse 'deglobalisation' as a solution. 


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