Covid-19 will not kill globalization. On the contrary, it will accelerate the underlying trends, compressing in 2020 a transformation of cross-border flows that would have taken years to emerge.
As individuals and businesses go online, national borders become less relevant. Virtual meetings are replacing travel and physical meetings, their greater efficiency translating into higher levels of engagement.
This increased digital connectivity facilitates the rapid flow of ideas, the most influential dimension of globalization. The scientific race to stop Covid-19 and find a vaccine has encouraged unprecedented collaboration. Greater global awareness is evident in the intense interest in the march of Covid-19 and the spread of the Black Lives Matter protests across five continents. Not all flows are good and the spread of bad and misconceptions is also accelerating, from interference by foreign powers to anti-vax fears that are undermining the fight against the pandemic.
Covid-19 will also accelerate and transform financial flows. With more than 100 countries calling for emergency financing, those from the IMF and other multilateral groups will far outstrip any previous era of cross-border capital flows. Foreign currency holdings are also increasing. The pandemic is also likely to precipitate a new wave of cross-border mergers and acquisitions, including higher rates of investment in and from growing East Asian markets.
Travel has been limited by the pandemic, but personal travel will rebound abruptly, as soon as a vaccine or drug allows, thanks to pent-up demand in China, the world’s largest source of international tourism. Growth in business travel is expected to be permanently lower as the pandemic has exposed the benefits of remote meetings.
Trade was already down for reasons that predate and have nothing to do with the pandemic. Overseas supply chains relied on the outsourcing of repetitive tasks to countries with low labor costs.
But artificial intelligence, robotics and 3D printing are changing the model: Automated processes require machines and a skilled workforce, which are more abundant in richer countries. The demand for individual customization and prompt delivery encourages manufacturers to come home. For services, banks, insurers and law firms place their back-office functions on servers or in the cloud, rather than relying on remote call or data centers and highly labor intensive. Protectionist and nationalist policies reinforce these tendencies.
The transformation of work is accelerated by the pandemic. Machines don’t get sick and don’t spread viruses. Now that office workers are logging in from their homes, one wonders why they have to be specific to any location. We will see more and more the globalization of professional services. Many essential services cannot be provided in another country. But banking, law and design can, often at much lower cost.
East Asia has been the main beneficiary of globalization and remains an enthusiastic supporter. The region’s assiduous containment measures have allowed its economies to rebound to pre-pandemic growth levels. Meanwhile, US protectionism and its disastrous handling of the pandemic is accelerating its relative decline. The UK is smaller than it has been for centuries, with similar self-inflicted wounds accelerating its slide. Covid-19 has accelerated the rise of East Asia as the center of gravity of globalization.
Covid-19 has also crystallized our understanding of the threats posed by globalization. The super-diffusers of good – airport hubs, fiber-optic cables, global financial centers – are also the super-diffusers of evil, from physical and digital viruses to stock market panic. Only coordinated action can remedy this “butterfly flaw” of globalization, because no country can stop the threat. A more globalized world combined with fragmented political systems has made us more vulnerable to the next crisis.
The previous model of globalization was unsustainable and increased systemic risks, including financial crises, climate change, rising inequalities and pandemics. De-globalization may be an attractive political slogan, but it would make matters worse. The world, especially countries devastated by Covid-19, need cross-border flows of vaccines, clean technologies, and investment and trade that create decent jobs. The status quo is not an option. We must redouble our efforts to create a healthier, greener, better regulated and more inclusive globalization.