Covid19 has brought disruption to the globalized and interconnected world. The challenges of Covid19 have led to a dark period both in terms of human suffering but also the damage is done to our political and social fabric. But before the pandemic globalization was already in retreat. Now that trend looks set to accelerate. It is a diminished world in many ways that we’re looking. It’s a world of globalization from smartphones to toys. Today’s globalized trading system has grown to rely on long and complex supply chains, but the pandemic has played havoc with them.
Clothing is one industry that has been hit hard worth 2.5 trillion dollars globally; it employs over 43 million people in Asia alone. One of the most footloose sectors when it comes to supply chain has always been the garment industry that’s because it has a high level of human involvement and so the labour cost of a product is much higher than you might find in an automobile for example. For that reason we’ve always seen companies chase the lowest cost, that means manufacturing happens in Asia, and the global nature of the industry makes it especially vulnerable to disruptions. Take a typical pair of trousers sold on a high street in western Europe the label says made in Bangladesh or made in Pakistan, but many of the parts come from other Countries such as Chinese factories making buttons and zips. Shut down, lockdown or halt to cross border trade during the pandemic means the items didn’t reach their next port factories in Pakistan, Bangladesh and Sri Lanka couldn’t finish the trousers and cancelled orders to cotton suppliers in India.
The advent of the pandemic this year was the third significant disruption to globalization. Within the last 12 years, globalization has sped up. This year the International Monetary Fund (IMF) forecasts that global GDP could fall by 4.9 per cent that is 50 times more than in 2009
However, lockdown hit demand in the west as customers weren’t shopping on high Streets in America. Clothing sales fell by 73.5 per cent between March and April 2020. This year Pakistan and Bangladesh lost out on an estimated 3.2 billion dollars from cancelled exports in just six months and across Asia millions of low-income workers were laid off. Thus, goods taking long journeys from the factory to the high street have become one of the signatures of globalization. The roots of today’s heavily globalized world were put down at the end of the second world war. The allied nations created a rules-based system for international commerce and finance designed to establish the economic foundations of peace on the bedrock of genuine international cooperation this allowed companies products, science and technology to move across borders.
Then in the 1990s, the world entered an era of hyper globalization becoming more interconnected than ever before a dream of money. In this era, the big new player on the scene was China which joined the World Trade Organization. It grew to dominate global trade alongside the United States multinational companies thrived expanding into china and all over the globe. From 1990 to 2008, the total trade in goods and services increased from 39 to 61 of world GDP. This great globalization boom enabled a billion people in developing countries to lift themselves out of poverty, and in the west consumers enjoyed cheaper and more accessible travel and goods.
Covid19 struck a significant blow to unfettered globalization but before the pandemic arrived globalization had already taken two other big hits. The American financial system is rocked to its foundation, Japanese stocks down by nine per cent, the Hong Kong market’s down, everywhere you look the colour is red and no one it seems can stop the bleeding. The first was the 2008 financial crisis when cross-border investment trade bank loans and supply chains shrank globalization and started to slow down a process known as globalization the global financial crisis decade ago was perhaps an early sign of the beginnings of globalization.
It wasn’t recognized as such at the time because it seemed to be a banking crisis. The global economy suffered, and those who had already lost out during the heyday of globalization felt even poorer. Opposition to the system grew, and we see this kind of sentiment across western democracies to bring the jobs back that were stolen when the factories moved particularly to China. Those who were left behind very cruelly by the policies and people were the one who supported globalization that is the blue-collar workers, for example in factories in Northern England or the Midwest of America. Trump voters desire to revive manufacturing and bring back dignity to workers spread across the western world. A wave of populist leaders was elected across the globe championing nationalist policies attacking immigration and the current global economy. The future does not belong to globalists the future belongs to patriots. The free trade went out of fashion, and protectionism was all the rage. The number of trade interventions such as tariffs and subsidies introduced by countries has been increasing year on year. While some have brought liberalization, most have been harmful to world trade.
In this climate globalization suffered a second assault by President Trump when he said during his speech “we can’t continue to allow China to rape our country and that’s what they’re doing”. A trade war blew up between the world’s two largest economies for years the west had accused China of flouting World Trade Organization (WTO) rules saying its trading practices were unfair to western companies. But President Trump turned rhetoric into policy since the start of his presidency. Tariffs on Chinese exports to the United States have increased six-fold. China hit back more than doubling its taxes on the United States goods.
The advent of the pandemic this year was the third significant disruption to globalization. Within the last 12 years, globalization has sped up. This year the International Monetary Fund (IMF) forecasts that global GDP could fall by 4.9 per cent that is 50 times more than in 2009. The post-COVID world is likely to be more fractious and regionalized. One we saw for 20-30 years with unfettered global trade, with unfettered international travel, with sourcing from China serving the world. I think we’ll never go back to that what we’re likely to see is a messier world and future one with elements of globalization continuing. But many other counter-trends that lead to either regionalization, nationalization, localization some form of deglobalization. Thus, we’re going to a spikey world; we’re going to see much more disruption as multinationals try to navigate the challenges of the pandemic. The talk in the boardroom is increasingly about how to be less global and more local. They have seen how vulnerable their supply chains are to unanticipated disruption of a natural kind. For the first time at the level of the CEO and the board companies are discussing supply chain risk and what to do about it and how to ensure against it now. They see this as something vital to the business.
Master Trainer/ Advisor (Pakistan Industrial Technical Assistance Center, Lahore operated under Federal Ministry of Industries and Production, Islamabad)
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