George Sagris
At the end of World War 2, ties between countries began to soften and become cordial. This led to increased trade between countries and cemented the existence of economic globalisation.
Economic globalisation is the increasing interdependence of world economies due to the trading of commodities and services, flow of international capital and the vast spread of technologies.
For example, a car made by the company Ford is designed in Germany, its gear system is produced in Korea, its pump in USA and its engine in Australia.
As different countries have different technologies, large organisations make use of this diversity and it allows them to create products and services which make use of a vast range of expertise to benefit people’s lives.
Up until recently, this economic system was running relatively smoothly. That is, until the coronavirus (COVID-19) reared its ugly head and destabilised everything.
In 2017, China contributed 50 per cent of the world’s global manufacturing output. The world economy relies heavily on China to manufacture and disseminate products, and ensure the stability of local and international market chains.
There are 100,000 clothes-producing factories in China. China is the world’s largest exporter of furniture. China houses almost all of the world-leading auto-parts manufacturers and exports.
As well as this, the world’s most productive car producer Hyundai, as well as Apple and many other multinational companies, rely on their factories in China for production.
The introduction of COVID-19 threw a spanner in the works of big business, national economies and therefore, the world economy as a whole.
What happens when China goes into lockdown, and the world is facing a virus which can be easily transmitted via people, and also by the handling of objects? Well, these big factories then have to shut down.
Not only that, but then the people who work for them are out of work, the companies that transport these products have nothing to transport, and the stores that sell these products have nothing to sell.
That then has a flow-on effect to the rest of the world as supply stops while demand continues to exist. The well-oiled economic mechanism ceases to function effectively and, as the virus becomes a worldwide pandemic, economies that relied on interdependence are left stuck.
Therein lies the problem with economic globalisation.
In the last 75 years that economic globalisation became popular and its practical use widespread, there has not been such an event that has affected the world economy on this scale.
COVID-19 has created a situation where it is a danger to the community and society as a whole to continue working. And when the ability for people to work is severely limited, and countries are locked down to ensure people’s safety, how can economic globalisation and interdependent liberal economies function? They can’t.
In the month of March 2020, the virus exploded and increased worldwide at a rate that no country could expect, and it continues to do so. The United States—another large manufacturer of products used worldwide—is now the epicentre, with new cases increasing by over 20,000 per day.
The two biggest economies in the world, both incredibly pivotal to the health and the success of the world economy have come to a standstill.
Countries are being forced to outlay incredibly large stimulus packages just to keep their economies running. But where is this money coming from, if economies have considerably slowed? Well, it comes at a great cost to these countries.
A new World Bank report estimates that if conditions worsen, it will send 11 million people in Asia into poverty, and stop 24 million people escaping poverty, as they would have in the absence of the virus.
Further, the latest United Nations trade report says that the world will enter into a global recession due to the coronavirus pandemic.
It is understandable that up until this year, the framework of economic globalisation was working for a majority of developed countries.
However, it is likely that the countries that have suffered the most—economically—from this virus will seek to diversify their industries to ensure that in times of a crisis, their population has greater, immediate access to much-needed products.
Future economic policy may be more in favour of a protectionist way of thinking to ensure surplus amounts of stock.
Regardless, no theoretical or practical framework is invincible, and it is clear that in the case of a worldwide virus, economies that rely on others to function are facing the effects of economic globalisation’s greatest flaw.
George Sagris is a journalist and Honours graduate in Japanese-Chinese politics, based in Tokyo.