At a dinner party in mid-February, an architect told me that he was having a problem finishing his building projects. It was the carpets.
Most wall-to-wall carpeting for big construction projects in the United States, he explained, comes from China. The coronavirus outbreak in Wuhan — and the subsequent shutdown of many Chinese factories — was having a ripple effect across the global economy all the way down to the carpeting in U.S. buildings.
The global spread of a new pathogen has exposed the fragility of modern life. As it moves around the world, the coronavirus has compromised the circulatory system of globalization, dramatically reducing the international flow of money, goods, and people. The disease has done so rather economically, by infecting fewer than 100,000 people so far. Extrapolation and fear have done most of the work for it.
In the world of things, the coronavirus has infected the global supply chains that connect manufacturers and consumers. Port traffic in Los Angeles, the largest U.S. port, declined by 25 percent in February. Container traffic in general was down over 10 percent last month.
Manufacturers that depend on the sourcing of components in far-off countries had already been rethinking their participation in the global assembly line because of tariffs, the costs of transport, and increased automation. This “reshoring” will get a boost from the disruptions of the coronavirus.
People, too, are not moving around as much. Airline service in and out of emerging hot spots — South Korea, Italy — has been cancelled. Airline ticket sales last week were down 10 percent over the same period last year. The cruise industry, after outbreaks on a couple big ships, has taken a major hit.
After blithely ignoring the coronavirus outbreak in China for most of February, markets took a major dive in the final week of the month. The stock market lost $6 trillion in value last week, its worst showing since the financial crisis of a decade ago. This is testament to both the persistence of the disease and the incompetence of certain national leaders, notably Donald Trump. Despite the intervention of the Federal Reserve and other central banks, market volatility continues.
It might seem ridiculous to expect that a pathogen, even one that spreads at the rate of a pandemic, could reverse an economic trajectory that’s more than a century in the making. But the coronavirus outbreak coincides with attacks on economic globalization from many different quarters.
Environmentalists, for instance, have long been skeptical of unrestrained global economic growth. The threat of climate change has sharpened that critique and placed it squarely in the middle of mainstream debate.
Meanwhile, worsening economic inequality has called into question the capacity of economic globalization to lift all boats in a rising tide. Even the IMF has acknowledged the pernicious impact of this inequality (but without engaging in the necessary institutional overhaul to address the problem).
Finally, a slowing of global economic integration over the last decade suggests that the world may already have passed peak globalization.
On top of these systemic challenges, a rising political populism has targeted the global economic elite as the enemy of “the people.” Donald Trump challenged this elite and their orthodoxy of free trade by imposing tariffs on allies and adversaries alike and by withdrawing U.S. participation in big trade pacts, like the Trans Pacific Partnership.
The trade war he began with China has had perhaps the greatest impact. It has hit both economies hard, with job loss, higher bills for consumers, and lost markets for manufacturers and farmers. The recent agreement between Beijing and Washington notwithstanding, most of the tariffs remain in place.
Meanwhile, the UK finally pulled out of the European Union this year, which was a victory for economic nationalists. Populists elsewhere have railed against what Steve Bannon calls the “Davos class.” Neoliberal orthodoxy has given way to pronouncements of America First, Brazil First, and the like.
Such a setback is not necessarily fatal. Globalization has been challenged before by financial crises, pandemics like the Hong Kong Flu, even the specter of Y2K.
This time around, however, the failure of the global community to establish new rules of the road for the economy, the environment, and health care is creating a perfect storm of international disfunction. If something with a relatively low mortality rate like the coronavirus — between one percent and four percent, compared to 50 percent for Ebola — can do such a number on the global economy, perhaps the patient was already suffering from some pretty dire underlying conditions.
When people travel, they bring all sorts of luggage, including pathogens.
Thus was the great era of exploration also the dismal era of genocide. Explorers to the New World brought a panoply of diseases like smallpox and measles that were new to the indigenous communities. The colonial invaders subjected the Americas to war and slavery. But it was those diseases that were largely responsible for a catastrophic reduction in populations up and down the Americas. As many as 56 million people, or 10 percent of the world population at the time, died by the beginning of the 1600s. The mortality rate for the indigenous communities was an astonishing 90 percent.
In exchange, the explorers returned to their native countries with syphilis, a horrible disease to be sure, but it didn’t radically depopulate Europe.
Pandemics are closely associated with the movement of traders and soldiers. Roman soldiers returning from Mesopotamia were responsible for the plague that ravaged the empire in the second century AD, one of several pandemics that helped end Rome’s global dominance. The bubonic plague of the fourteenth century began in China and reached Europe via merchant ships carrying flea-infested rats. In the modern era, soldiers returning home from fighting in World War I spread the Spanish flu, killing up to 50 million people.
This last pandemic was one of the factors behind the collapse of the first wave of modern globalization. Prior to the outbreak of World War I in 1914, the world had never been more tightly connected with steamships, trains, and the telegraph serving as the connective tissue. Trade as a proportion of GDP stood at 14 percent on the eve of the war.
The devastation of World War I followed by the flu epidemic dealt a heavy blow to world trade and economic integration. The global economic depression of the 1920s, the rise of various types of nationalism, and a second world war ensured that, by 1945, trade as a proportion of GDP had dropped to a mere 5 percent.
Modern globalization is made possible by modern medicine. A couple of pandemics have broken out since 1945, but they haven’t disrupted the global circulatory system. In the ancient Akkadian language, the word for epidemic disease meant “certain death.” Only recently have medical professionals been able to handle outbreaks of disease on such a scale.
Thanks to a second wave of globalization, trade would rise again to the levels it registered in 1914 — but only by the late 1980s. With the collapse of the Soviet bloc, a third wave of globalization removed more barriers to the movement of goods and money. Even China, a nominally Communist country, joined the World Trade Organization at the end of 2001. It has since offered its own version of globalization through the Belt and Road initiative that places China at the center of a burgeoning network of trade and finance.
The coronavirus, by itself, will not put an end to this most recent wave of globalization. Like the flu pandemic of 1918, it could contribute to a trend of greater fragmentation. Or, by serving as a reminder of how the health of humanity has been mutually dependent across borders for millennia, the latest outbreak could prompt a rethinking of how the world works together.
Things Fall Apart?
China will prove pivotal in determining which direction the world heads.
At the moment, economic pundits in the West are exhibiting a degree of schadenfreude at Beijing’s difficulties. Kenneth Rapoza, for instance, argues in Forbes that “The new coronavirus Covid-19 will end up being the final curtain on China’s nearly 30 year role as the world’s leading manufacturer.” The global assembly line was already shifting away from Chinese sources as a result of Trump’s tariffs, so the pandemic only reinforces this trend.
China could still come out a winner in all of this. No longer dependent on low-end manufacturing, it could invest its surplus capital into an even greater push toward higher value-added production, particularly in the digital sphere. This shift could facilitate a major reduction in the country’s carbon footprint as well.
Much depends on the U.S.-China relationship. Long before the coronavirus crisis, the U.S. policy elite had already moved away from supporting engagement with China. China was already prepared for disengagement. It had laid the groundwork for an alternative globalization, denominated in the renminbi and financed by the country’s considerable trade surpluses. Many countries in China’s vicinity opted to participate in the Belt and Road Initiative and receive financing from the Asian Infrastructure Investment Bank.
At the very moment that China and the United States need to forge a new consensus on economy and environment, the two countries are heading in different directions. And that will make it very difficult for the international community, such that it is, to come up with global solutions to what are increasingly global problems such as climate change and pandemics.
Because of the coronavirus, China has rediscovered how dependent it is on the rest of the world — to buy Chinese products, to supply Chinese consumers, to provide raw materials for Chinese business, to service Chinese tourists.
China’s projected growth rate for 2020 has been revised down from 6 percent to 5 percent, but it might drop even further. Sociologist Walden Bello has long argued that the Chinese economy is in fact quite fragile — with overcapacity in the manufacturing sector, a real-estate bubble, high rates of debt, and growing inequality.
With the Belt and Road Initiative, Beijing was hoping it could grow its way out of these problems. That strategy depends on a number of unknown variables, which in the short term include the persistence of the pandemic and the results of the upcoming presidential election in the United States.
The coronavirus is a wake-up call for both Beijing and Washington. The new status quo of a revived Cold War between the two hegemons is unworkable. It’s time for another wave of globalization, but this time one that reduces carbon emissions, proceeds more equitably, and strengthens the capacity of international institutions to fight pandemics.
It won’t happen without U.S.-China cooperation. And that won’t happen without a different U.S. president and a different approach in Beijing.
Foreign Policy In Focus, March 4, 2020