Will globalisation become the next victim of the coronavirus?

Globalisation was more than a means of economic exchange. It was also a belief system and a way of life. From the moment Margaret Thatcher and Ronald Reagan opened up international financial markets in the mid-1980s, the world became much more interconnected.

Since the 1970s people were travelling more, thanks to package holidays. But this was different. Unrestricted capital flows immediately reduced the power of nation states to influence economics.

The tech revolution around the millennium turbo-charged the process. Citizens around the world began communicating in real time and in a volume not experienced before. Governments struggled to keep pace.

The momentum seemed unstoppable. Then came the financial crash of 2008 – the result not just of corporate and individual greed but also a failure of will and policy.

The markets had let rip and governments had given up trying to regulate behaviour, stem excess or tackle inequality. Apart from some cosmetic changes to banking practices, the warnings were largely ignored.

It took several years for the effects to be seen. But when it came, the backlash was severe, culminating in the advent of Donald Trump and Brexit in 2016. Alongside those two seismic events was the rejuvenation around the world of far-right and far-left movements.

What does this potted history of globalisation have to do with the spread of coronavirus? This emergency comes at a time when voters around the world have been reassessing not just political priorities but the role of governments and nation states as economic actors.

Globalisation became synonymous with a failure, or refusal, to intervene on behalf of citizens. It led people to believe that companies could build supply chains wherever there was a labour or other cost advantage.

The result would be lower prices, higher profits and greater prosperity internationally. It was assumed that companies could manage supply-chain risks.

However, post-crash anaemic economic growth and wage stagnation undercut globalisation’s glamour. Jobs were created, but they most of them were precarious and low paid.

Populism and nationalism re-energised protectionist trade policies, damaging it further.

The antagonism between the two largest economies – the US and China – was an attempt by Trump to extricate Americans from their dependency on the Chinese supply chain; it was also an admission of how entangled the two countries have become and how hard it would be to consciously uncouple.

The row over 5G and the desire of Europeans, not least the British and the Germans, to entrust China with developing their next generation communications – to the fury of the US – showed how deep the mistrust had become.

The first consequence of coronavirus was to demonstrate the world’s dependency on China. When the country went into lockdown, first in Hubei province and then further afield, it immediately affected the global economy.

In 2002, when SARS hit, China accounted for barely 8% of global output; now that figure is closer to 20%. Chinese factories are a key part of global supply chains and Chinese tourists a bigger proportion of global flows.

Economists estimate the damage to China’s GDP at around 0.5 to one percentage point in the first quarter, a substantial hit to an already-slowing economy.

These shocks have been amplified as the virus has spread. With stock markets in free fall, commodity prices collapsing (including oil), travel drying up and panic only just below the surface, the economic damage around the world is only just beginning to be felt.

The problem for policymakers is that the usual remedies – cutting interest rates or printing money, so-called quantitative easing – do not work in situations such as this when economic behaviour is based in emotions.

In any case, a decade of financial loosening has already been tried, with modest results, and there is barely any scope left for injecting liquidity into the system.

This leaves the global economy largely at the mercy of nature. The only people who seem to be doing well out of the coronavirus pandemic are historians of the Black Death, the Spanish flu and SARS.

Everyone is trying to work out how deep and long lasting the ramifications of the latest global health scare will be.

The short-term consequences are not difficult to predict – a collapse in travel, in many service industries and a break-down in industrial supply chains, alongside a huge drain on the public purse bolstering countries’ health and social care systems.

Medium-term, once the health scare dies down, as it inevitably will, global economies are likely to see a burst of activity. Stock markets will bounce back, although it is unclear how much of the massive losses it will reverse.

Investments that were put on hold will be resumed. The tourism and hospitality industries will seek to make up for lost revenue. Citizens will start travelling again.

The longer-term predictions are the most intriguing. The virus is likely to leave a lasting effect, because it fits into a broader pattern.

While it is premature to read the last rites to globalisation, changes in behaviour that had already begun are likely to accelerate.

One of the paradoxes of coronavirus is that it has temporarily helped the environment.

Air quality levels in China’s big cities and elsewhere have improved markedly. This demonstrates that draconian state intervention can alleviate, if not reverse, some of the damage that the climate emergency and extreme weather are causing.

Yet there is little evidence that voters are prepared to make the sacrifices required to tackle the problems – unless governments intervene or unless social pressure forces them to.

Flight shaming, a campaign that began in Sweden, is beginning to catch on. But a move towards environmentally safer forms of transport will only really happen when price structures change, and serious investment is made.

There is little sign that we want to travel less, that we want to interact less. The most visible example of the damage caused by Brexit will be a fall-off of tourists and of cultural and scientific links between the UK and the EU.

Soon enough voters, particularly young ones, will realise that this was not in their interest. Their music tastes, their choice of video games and social media interactions, have turned them into global citizens. Sealing off our rainy island will not solve their problems.

The spread of the epidemic amounts to an experiment in de-globalisation that will last a number of months. What will follow will be a new variant of globalisation, not its abandonment.

It is all too easy to draw grand sweeps where the reality is more complicated and gradual. Francis Fukuyama’s The End of History and the Last Man, published in 1992 as communism collapsed, foresaw a world dominated by one political and economic value system – the free market and liberal democracy.

Thirteen years later, Thomas Friedman’s The World Is Flat was a paean of praise to globalisation and interconnectedness. They both spoke for their era, but they also overstated their case. The same applies now.

All sudden shocks expose the fragility of our global systems. The terrorist attacks of 9/11 ushered in a period when citizens around the world felt themselves under immediate threat.

The result of that was a mixture of changed policy – a greater onus on security and counter-terrorism measures – alongside an ability of societies to adapt to the new reality.

The climate emergency is now producing equally dramatic and mortal dangers. Just as globalisation has brought untold benefits, lifting hundreds of millions around the world out of poverty and bringing them into the mainstream of economic activity, so it has speeded up our experience of vulnerability.

Trade policy is becoming more protectionist. Governments are becoming more interventionist. The days of laissez faire are over, but its heyday was long past.

Global heating has begun to impel citizens to adjust their behaviour. But more concerted action will be needed if the world is not to go beyond the tipping point. And that is the key: the word concerted.

Globalisation may be part of the problems of coronavirus and climate. But it is also at the heart of the solution. No nation acting on its own will be able to deal with these twin crises or with others to come.

The interconnectedness of our contemporary world cannot be undone.