7 PM Editorial |New Normal for Globalization in Times of COVID| 14th June 2020

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New Normal for Globalization in Times of COVID

Context:

COVID 19 pandemic has disrupted global supply chains and flows of capital. Countries across the world have announced measures focusing on domestic industry for self reliance. India too announced Atmanirbhar Bharat Abhiyan to achieve self reliance. CRPF’s decision to serve only domestic products in their canteens is an example. This is being termed as the death knell for globalization.

Globalization is in retreat since the global financial crisis(GFC) of 2008 due to anaemic growth inequality and unemployment. The 2008 crisis led to loss of confidence in the founding ideologies of globalization i.e democracy and capitalism. COVID has hastened this decline.

Let us understand the rise and fall of globalization as well as the new normal of globalization post COVID.

Rise of globalization:

USA’s victory of the cold war post disintegration of USSR had led to ideological victory of capitalism and democracy. This led to Washington consensus which propounded that liberal democracies with free markets is the right way to achieve economic growth and prosperity. Free trade along with free movement of goods and capital were established as values to pursue. This led to interconnection of nations economically which had socio-cultural and political impact, which is called globalization.

This interconnection is based on 3 plancks.

1. Offshoring of manufacturing and low-end services jobs to developing countries
2. Developed countries running large trade deficits by acting as the market for the increased output of developing countries
3. Developing countries financing the trade deficit of the developed countries by accumulating large foreign exchange reserves

Till the GFC of 2008, globalization was seen as irreversible and inevitable phenomena. It withstood the 1997 Asian financial crisis, the 1998 Russian debt default, the dotcom burst and 9/11. But this had changed post GFC crisis.

GFC and decline of globalization:

GFC had resulted in high unemployment, slow growth and huge inequalities. In addition, Chinese economic growth despite being an authoritarian regime has shown evidence that liberal democracy is not necessary for prosperity. This led to populist tendencies of nationalism replacing liberal values of Washington consensus.This manifested as protectionism in advanced economies through tariff barriers, restrictions on movement of people.

Free trade and free markets were the prime reasons for the emergence and wide spread of the GFC crisis. This had shaken the confidence in these values of globalization. Global trade growth fell from 10% before the GFC crisis to 1-2% post criss. WTO – World trade Organization has become ineffective post 2008 with sharp divisions along nationalistic lines. Trade wars emerged disrupting free trade

Hence globalization had been in retreat since 2008 GFC. Current COVID pandemic has further hastened this retreat.

COVID pandemic and new normal of globalization:

COVID 19 pandemic has exposed following limitations of globalization:

1. Unreliability of Global supply chains and dependency for essentials like Medicines, PPE’s, masks, gloves etc. Overdependence on China has alarmed the nations.
2. Weaponization of supply chains and resultant security threat to nations. Chinese stopping beef imports from Australia in retaliation for investigation into the origin of COVID is an example.
3. Profit centricity rather than human centricity resulting in inaccessibility of public goods. High prices of medicines and treatment seen in private hospitals is an example.

Due to such limitations, future economic engagements will change and a new normal will be established. World will be mindful of overdependence on China. They will start disengaging to develop self reliance. This will greatly change the existing global value chains.

There are estimates of a 32% dip of world trade due to COVID.and global GDP is estimated to decline. In such a scenario, WTO will become irrelevant as nations will seek flexibility to deal with domestic economic crises. Import substitution and restriction on movement of people across nations will be pursued to build up economies. WTO rules on subsidies, tariffs will not be adhered to. This will lead to a free-for-all situation with no rules and law of the jungle. Bilateral and multilateral trade pacts will come under strain. European Union is already facing sharp divisions and NAFTA is under stress.

Conclusion:

COVID 19 has led to great churning in economic relations of nations and hence globalization. If pandemic is not controlled, global rules of trade and economic engagement will change. A new normal will be seen with interconnection due to globalization becoming obsolete.

Source: The Hindubusinessline 

Mains Question:

1. Discuss the impact of COVID 19 on globalization? [15 marks, 250 words]