The Economist believes that the flow of people, trade and capital will be slowed
Even before the pandemic, globalisation was in trouble. The open system of trade that had dominated the world economy for decades had been damaged by the financial crash and the Sino-American trade war. Now it is reeling from its third body-blow in a dozen years as lockdowns have sealed borders and disrupted commerce (see Briefing). The number of passengers at Heathrow has dropped by 97% year-on-year; Mexican car exports fell by 90% in April; 21% of transpacific container-sailings in May have been cancelled. As economies reopen, activity will recover, but don’t expect a quick return to a carefree world of unfettered movement and free trade. The pandemic will politicise travel and migration and entrench a bias towards self-reliance. This inward-looking lurch will enfeeble the recovery, leave the economy vulnerable and spread geopolitical instability.
The world has had several epochs of integration, but the trading system that emerged in the 1990s went further than ever before. China became the world’s factory and borders opened to people, goods, capital and information (see Chaguan). After Lehman Brothers collapsed in 2008 most banks and some multinational firms pulled back. Trade and foreign investment stagnated relative to gdp, a process this newspaper later called slowbalisation. Then came President Donald Trump’s trade wars, which mixed worries about blue-collar jobs and China’s autocratic capitalism with a broader agenda of chauvinism and contempt for alliances. At the moment when the virus first started to spread in Wuhan last year, America’s tariff rate on imports was back to its highest level since 1993 and both America and China had begun to decouple their technology industries.
Since January a new wave of disruption has spread westward from Asia. Factory, shop and office closures have caused demand to tumble and prevented suppliers from reaching customers. The damage is not universal. Food is still getting through, Apple insists it can still make iPhones and China’s exports have held up so far, buoyed by sales of medical gear. But the overall effect is savage. World goods trade may shrink by 10-30% this year. In the first ten days of May exports from South Korea, a trade powerhouse, fell by 46% year-on-year, probably the worst decline since records began in 1967.