Leaders from the G20 major economies showed it was possible to take special measures together to tackle the coronavirus pandemic by convening a video conference for the first time ever recently.
Sitting in their respective meeting rooms in capitals all around the world, as they gathered with their aides around screens and monitors, statesmen must have had much to ponder as they exchanged views in such an isolated and peculiar manner.
Could this disruption to normal communications be the springboard needed to get international economic cooperation and the world’s stalled globalization project back on track?
Globalization has been in retreat since 2018, if global trade in goods is a reliable indicator. Trade volume grew by a mere 0.6 percent in 2018, and even lower at 0.3 percent in 2019. Economists and think tanks put this down to increasing trade tensions between the United States and China. For a brief moment, things were looking up in the last quarter of 2019 following the inking of a US-China phase-one trade agreement. The positivity, however, was short-lived.
No one could have imagined that, soon afterward, a novel viral strain would lead to such devastation in the global economic environment. The world watched as China locked down its cities and ramped up its healthcare network－building hospitals in a matter of days－as it reported an exponential growth in the number of COVID-19 cases and deaths. Little did the world realize that Act 2 of the same play would take place in other countries barely two months later. Today, country after country has implemented their own versions of lockdowns and closed their borders. Hotels, exhibition centers and stadiums are being turned into temporary health facilities. Global production is grinding to a halt as lockdowns take effect across the globe.
A global recession is not only imminent, but we may already be experiencing one. Perhaps it was a blessing to the world that China－the factory of the world－is now beginning to come back to life, and is the only economy that is capable of meeting the pent-up global demand for essential supplies of necessities, including surgical masks, personal protective equipment and ventilators. Nevertheless, the current economic crisis will fluctuate between being a supply problem and a demand problem. As the supply chain in China roars back to life, demand from the rest of the world will be sluggish, particularly for nonessential products. It will take time for both demand and supply to recover in tandem. The V-shaped recovery predicted a month ago by some economists is fading.
There is a general consensus among economists that globalization has benefitted most if not all countries, and that a reversal in this process will have a negative impact on economic growth. Industrialized countries have actually gained more from globalization because the income gap between developed and developing countries has increased in absolute terms between 1990 and 2016.
The critique against globalization, especially among politicians in Western industrialized countries, is that the benefits of globalization have not been shared equitably among the population. This is not the fault of globalization, but rather the income distribution and taxation policies of the countries concerned.
The irony is that the solution to the current darkness faced by the world today is greater globalization. Many of the pressing problems faced by countries now, such as climate change or the current COVID-19 pandemic, require global solutions.
National level attempts at addressing these issues will fail or, at best, only delay the impact. Nations must come together and work out the best approach at resolving these problems collectively. Scientists around the world have to share their ideas and resources to find a vaccine and a remedy to defeat this invisible enemy. Or at least, disease control experts and pharmaceutical companies must race to find a cure so that the healing of the world can happen.
On the economic front, a coordinated and synchronized global fiscal stimulus package is being called for by the International Monetary Fund－one that is similar to the actions taken to overcome the financial crisis of 2008-09, but at a scale several times larger. There is sufficient experience from various crises in the past that when the international community acts together in a coordinated way, confidence reemerges and growth follows. No single country will be able to overcome its economic woes alone. Perhaps we should look at the world as one country and humankind its citizens.
For this to happen, global leadership is necessary. But, alas, there has been a vacuum in such leadership in recent years. Nationalism and populism have been used to usurp power for self-aggrandizement. The respect accorded to such narrow-minded leaders is diminishing. Others, whether from the developing world or from smaller nations, will have to step up to fill this vacuum.
No doubt, the nation is any leader’s top priority, but “beggar thy neighbor” policies have never resulted in any good for anyone. Rallying the whole world together to fight a common enemy seems to be the only path to victory. And once on the other side, there will be a deeper appreciation of the power of unity.
Nature is perhaps trying to teach us an important lesson. Globalization is a natural phenomenon, and like the virus that is impervious to borders, nationality, creed and class, so too should we overcome such barriers and realize the strength in interdependence. The future of the world depends on it.
The author is associate dean and professor of economics at CEIBS.