Forgive the punk reference and the play on the Sex Pistols’ cult single, but are we about to experience economic Anarchy in the World?
Cracks were already starting to appear in globalization before the Covid-19 crisis amid a Sino-American standoff. Now, they could fracture further in a post-pandemic landscape, reshaping manufacturing and supply chains.
“The pandemic seems to be pushing globalization back to the years before the 1980s, as countries are locked down and borders sealed,” He Yafei, the former deputy minister of China’s Ministry of Foreign Affairs, said earlier this week in a series of “Anarchy Scenarios.”
“Globalization was already under siege before Covid-19 with the system ravaged by trade wars. The pandemic has disrupted world commerce, trade and the free flow of people, [while] Chatham House CEO Robin Niblett said that globalization as we know it is coming to an end,” he wrote in an essay on the academic website China-US Focus.
For He, this is the worst-case scenario after highlighting the opening salvos in the New Cold War between China and the United States.
“The pandemic has broken down global supply chains and brought the global economy into negative growth. The International Monetary Fund estimated that global GDP in 2020 would be minus 3% [while the OECD predicted global economic activity would fall 6%],” He, a senior research fellow at Renmin University’s Chongyang Institute for Financial Studies, said.
Relations between Beijing and Washington were already frosty before the coronavirus outbreak in January. A two-year trade war launched by US President Donald Trump, and friction in the South and East China Seas, are still open sores.
But the atmosphere has become even more poisonous after the clampdown on Hong Kong’s pro-democracy movement in the past few weeks and revelations about Muslim detention camps in the Xinjiang region last year.
Rivalry in the high-tech sector has also sparked new levels of hostility amid national security concerns. Academics and analysts have even used the “decoupling” buzzword as Trump pushes to bring American manufacturing back to the US.
“For three decades, Western nations have pursued a policy of strategic engagement with China. We hoped that by trading and engaging ever more closely with China, it would open up and move towards democracy over time. In fact, if anything, China has become steadily more authoritarian,” a report published by the Henry Jackson Society and entitled in part, Breaking the China Supply Chain, stated.
“Now is also the time to ask whether, given all we now know, it is prudent to rely on China for so much of our critical national infrastructure … As we rebuild our world from this present upheaval, the time has arrived for us to make trade and investment decisions with thought not just on finances but on security and human rights,” the United Kingdom-based think tank said.
Latest data released in 2018 by the United Nations Statistics Division showed that China accounted for 28.4% of global manufacturing output. The US came in second at 16.6% followed by Japan at 7.2% and Germany at 5.8%.
In turn, this has produced complex links to the global supply chain which moves goods and products across the planet.
A rethink of China’s role was being discussed even before the Covid-19 catastrophe. It simply accelerated as the world went into lockdown.
“Many are now highlighting the dangers of relying on global value chains, and in particular, those linked to China, leading to talk of ‘de-globalization,’” academics from the Aston University in the UK said in a commentary entitled Coronavirus won’t kill globalization – but a shakeup is inevitable.
“The European Commission President, Ursula von der Leyen, for example, has called for the ‘shortening’ of global supply chains because the EU [European Union] is too dependent on a few foreign suppliers. Similarly, the French president, Emmanuel Macron, has argued for a strengthening of French and European ‘economic sovereignty’ by investing at home in the high tech and medical sectors,” they wrote for The Conversation last month.
“So is this the end of globalization? No. But a reconfiguration of GVCs [global value chains] is inevitable,” they added.
Yet this is still unlikely to trigger a foreign exodus as the economic opportunities are too tantalizing. The sheer scale of the consumer market is also too alluring.
Retail sales in the world’s second-largest economy were on course to hit more than US$5.6 trillion in 2019, according to the New York-based research company eMarketer.
Obviously, the pandemic will crunch those numbers this year but the long-term trend is positive. For foreign firms, it is all about the bottom line.
“Most Western companies are not leaving China because they are primarily for the China market, not because China is a cog in their long global supply chains,” Scott Kennedy and Shining Tan, of the Center for Strategic and International Studies, wrote in a commentary.
“The latter is more adjustable, and that process has long ago commenced, driven not only by diplomatic tensions but also by rising Chinese labor costs, the emergence of other production locations (such as Vietnam and India), the improvement of 3D printing and other automated manufacturing processes,” they said.
Still, a more harrowing China-centric future has been outlined by He, who was the deputy minister of the Ministry of Foreign Affairs between 2012 to 2016.
In his “Anarchy Scenarios,” he envisaged an increase in the “strategic” rivalry between Beijing and Washington, raising the threat of decoupling between the world’s two largest economies.
“Geopolitical strategic competition between major powers becomes more intense and complicated with Covid-19 further exacerbating an already deteriorating bilateral relationship between the United States and China The emerging decoupling of the two countries, especially in high-tech and scientific fields, is greatly worrying, though it is still uncertain [it] will become a reality,” He said in “Anarchy Scenario 2.”
“The US is bent on pulling China into a destructive geopolitical rivalry no one can win, forcing Sino-US relations into a virtual free-fall that could end up hurting everyone,” he added.
All it needs now is a thumping Sex Pistols’ soundtrack like “Anarchy in the UK?”