News regarding COVID-19 is now a part of our daily lives. Besides a world health crisis, tragic loss of life, and record domestic unemployment, the pandemic has also had a significant impact on the global economy. A large part of this impact is the disruption of globally interconnected supply chains.

Empty shelves or missing products in stores are constant reminders of disrupted global supply chains. But what does this tell us about how globalization influences our daily lives and what the future holds for such an interconnected global economy? Is there currently a shift toward deglobalization, and is it necessary? Additionally, is it a result of the pandemic or did this shift begin to occur prior to the outbreak?

But first, a refresher on the history of globalization

Most economists argue modern globalization began around the end of World War II, as nations and their economies grew more cooperative and interdependent on each other and trade barriers were, to a large extent, gradually reduced or eliminated. In some form or another, globalization has seen the increase in the transfer of products, jobs, information and technology to all corners of the planet for the last 75 years.

What was happening to globalization before COVID-19?

Even prior to the pandemic, rising political and economic nationalism was playing its part to disrupt the decades-long advances in economic globalization. For example, ongoing tariff wars, especially those between the world’s two largest economies, the United States and China, were disrupting the free flow of goods around the world, ultimately affecting supply chains, exports and imports worldwide.

The COVID-19 pandemic has only compounded these supply chain effects, as many factories and businesses physically closed production, while the logistical transportation industry, mainly sea-going cargo ships, drastically cut service due to routing restrictions, container shortages/displacements, and cancelled orders due to decreasing demand.

What does this mean for the future of globalization?

So, is all this doom and gloom a reason to argue for the end of globalization and a return to more self-sufficiency in local economies? The short answer is no.

There are some interesting arguments for deglobalization or isolationism, including:

  • International travel has contributed to the spread of COVID-19.
  • Many personal protective equipment (PPE) items and medical equipment shortages in the United States are a result of items being sourced outside the country.
  • In an era of increased cyber warfare and a resurgence in terrorism, some argue isolating from the rest of the world may offer more protection.

However, these arguments ultimately do not stand up to reality. Even in a country as rich and diverse in geography and technology as the United States, we still do not have enough supplies of certain resources, such as rare earth minerals (needed to create smartphones, for example!) to fully meet our consumption needs.

Additionally, isolationism has historically led to eras of increased political and military tensions, principally due to the lack of mutually beneficial, critical engagement among nations and people. Big ticket problems like climate change, nuclear proliferation, and terrorism are often best resolved through collaboration and goals nations have in common.

The importance of globalization

The most compelling argument against deglobalization is that our global economy is simply too intertwined to unwind. We’ve reached a point of “no-going-back.” Never in history has there been such social and economic security brought by the geographical diversification of production.

The global supply system continues to improve as more economies of scale and increased productivity are realized. This continuous improvement should remain a priority, so that future pandemics, natural disasters and other disruptions don’t create the havoc on the world economy as we have seen with COVID-19.

Next steps:

  1. Check out our other Business articles, like this one on tips for businesses during the COVID-19 pandemic.
  2. Learn more about Bankers Trust’s Global Banking
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