There was a time when political scientists and international-relations scholars were high on the euphoria of an interconnected world – a globalized world. But now, locked down inside their homes, people all over the world are losing hope in the future of globalization. The quarantined world, in fact, has dashed the hopes of an interconnected world, especially one that is linked economically.
There have been multiple times that the world has been hit with financial storms and survived. In modern history, the Great Depression after World War I set the stage for a highly interconnected world. In those trying times, it became a pressing need, for the Western countries particularly, to establish a globally interconnected trade network. After World War II, the world was fully ready to believe blindly in the prophecies of economic interdependence.
Factory of the world
In the second postwar era, China erected a facade of financial prestige by integrating itself deeply into the global economy. It has established itself as the “factory of the world,” since it manufactures one-third of global goods. It is the world’s largest exporter as well.
The benefits of such deep economic interdependence were not only reaped by China itself but others as well. However, the US, a self-proclaimed global hegemon, was not happy with the status quo. Before the coronavirus pandemic hit the world, US-China trade wars ensued. And not so long ago, Beijing was being accused of being a “free rider” of the liberal global economy.
It seemed as though China was sailing smoothly on the path to becoming the next great power with the everyday miracles of global economic interdependence. The pandemic, however, narrowed the scope of interdependence.
With the outbreak of Covid-19, the factory of the world shut down, and the rest of the world began to feel its ripple effect. Industrial production, sales, and investment all started to witness a steep fall just within two months.
This could have far-reaching implications for the countries that are the largest trading partners of China. This is the first time in history that the demand-supply chain has been disrupted at both ends. The pandemic has created an economic void where shortages of supply and demand both exist. This vacuum cannot be filled without involving all the parties participating in the trade network.
Linked with this is the issue of debt and protectionism. After the US reverted to protection with Donald Trump assuming Oval Office in Washington, his Chinese counterpart filled the world with the air of “shared destiny” and tried to revive the glory of globalization. Rolling out the ambitious Belt and Road Initiative (BRI), Xi Jinping promised to invest billions of dollars in partner countries.
Now, when the European countries are scrambling to ward off the perils of accumulating debt, can China’s dream of integrating in the global economy through soft loans and relocating its businesses to other countries come true?
The isolated economy
In the pre-pandemic world, the country that was isolated to a great extent from global economic interdependence was Russia. Facing economic crises one after the other, Moscow was hit hard by multiple rounds of US and European sanctions. The US, in the wake of the Crimean crisis and allegations of meddling in its presidential elections, put the Kremlin on the verge of economic isolation. This is one of the reasons President Vladimir Putin, despite having a tilt toward the West, decided to call it quits and think of forging an informal alliance with Russia’s eastern neighbors.
Although it partnered with China on its grand BRI project, at the same time, it struggled to keep its economic and socio-political influence intact. Russia had been carving out its own sphere of economic influence in the Eurasian region and did not let it fall completely into Chinese hands. It was always skeptical of too much interdependence. While planning to mark its area of influence in Eurasia and fighting off the sanctions, Moscow kept building its financial reserves and stockpiling gold. It is this strategy that has led experts to believe that Russia is better off than others in the pandemic economic crisis.
A New York Times columnist lamented how the years of Russia’s economic isolation by the West has brought it into a position that is better than the rest. Andrew E Kramer, a reporter based in the Times’ Moscow bureau, also explains how, because of this isolation, the Russian economy is almost “debt-free and prepared for economic shocks like the one hammering the global economy today.”
Meanwhile in the European Union, a regionally integrated economy, member states are scrambling to deal with the issues of accumulating debt. Europe today lies exposed, with the fissures of inequality growing ever greater. Italy has asked the rich EU members such as Germany to help it deal with the debt issue. The EU finds itself in a tight spot, since its rich members are declining to do this favor as it could also bring them to the verge of bankruptcy.
Who is better off?
The pandemic has brought us to the point where one begins to reflect on who is better off. There is no denying the fact that the present times are unfortunate, but they actually have shown the path to a better future. As the saying goes, in times of crisis, fix what went wrong. Therefore, it is time to fix the overestimations of economic interdependence. It is time to realize its limits and chart a way beyond them.
Today’s quarantined world is screaming for help. When the pandemic is over, countries will want to secure their local industries, revive their own businesses not those of others. Today, countries are looking to others as if asking, “Would you help us in our time of need?” With this plea, this question echoes: Is this not the time to fathom the limits of economic interdependence and focus on self-sufficiency?