The pandemic has “turbocharged” deglobalization

The tsunami The deglobalizer had already been detected with notable intensity in the seismographs of the international foreign ministries before the health crisis. This anti-globalization drive took a truce throughout COVID-19, but has sharpened its aftershocks after the great confinement. The phenomenon, whose collateral damage airs a decline in the interconnections and interdependence of world relations, is engendered the prelude to a new global order.

China monopolizes the wealth of the planet, but shows weaknesses in the battle for world economic hegemony

China monopolizes the wealth of the planet, but shows weaknesses in the battle for world economic hegemony

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We are facing a multilateral geometry with substantial changes driven by the gradual irruption of national-populism. A change that is taking place in some industrialized powers since Brexit took shape under the current prime minister tory Boris Johnson, who has become his most visible banner, after the – momentary – departure from the political scene of Donald Trump. This concentric wave movement has helped create the BRICS club, with Xi-Jinping’s China, Vladimir Putin’s Russia, Narendra Modi’s India, Jair Bolsonaro’s Brazil and even Cyril Ramaphosa’s South Africa, without forgetting from the rampant nationalism of other emerging latitudes such as Recep Tayyip Erdogan’s Turkey.

A new situation that heralds seismic aftershocks due to the rivalry between the US and China, the probable reappearance of health crises, as well as the emergence of medium-sized geostrategic powers, which threaten to transform immigration, world trade or the liberal monetary system .

Ian Bremmer, president of Eurasia Group, prefers to clarify that the world order was already in mutation before COVID-19, as revealed by the logistics crisis and the difficulties of companies in restoring their value chains; the roots of nationalism and its concept of “first, my nation” and the geopolitical rise of China as a consequence of its change in growth pattern (digital economy and domestic demand).

This cocktail in a state of permanent agitation is being analyzed, in unison, by think-tanks strategic and investment banks, which reach very similar diagnoses from political or economic-financial conceptions. Globalization creates natural advantages for multinationals that have positioned their global headquarters and global value chains around the globe, says a recent note to investors from Deutsche Bank. However, the German financial entity clarifies that the consequences of COVID have fed back the business tactics of return to location, in which SMEs have found themselves in a better disposition than their larger rivals to benefit from the new times.

In the same sense, Carmen Reinhart, chief economist of the World Bank, took a position, for whom the coronavirus “has left countries with the feeling that they need to be self-sufficient to a much greater extent than before,” which is why “we will see temptations and protectionist trends in the future ”.

“The great pandemic has turbocharged deglobalization, knocked down value chains and raised the level of geopolitical risks, while investor and consumer awareness in ESG (Environmental, Social, Governance) criteria have pressured companies to be more resilient and local, ”explains Luke Templeman, a market analyst at the German bank.

Five geopolitical signs of change

The geopolitical navigation sheets are no less alarming. At Chatham House, a research center linked to the University of Oxford, the forces of deglobalization are synthesized in five active foci. The first, the rivalry between the two great superpowers, which runs the risk of producing two world orders, in the purest style of the overcame Cold War: one liberal, under American sovereignty, and the other capitalist-authoritarian under Chinese hegemony.

The second front concerns global health solutions. There are movements that delegitimize the Covax Initiative of vaccinations, especially in low-income nations or with national-populist governments that impose protectionist measures and label global health proposals as an attack against individual freedom.

The other three points of latent changes are glimpsed, on the one hand, in the appearance of emerging middle powers in the world order that proclaim deglobalization and present traits of authoritarianism. On the other hand, in the decline of the liberal order, without the leadership of states that promote the full restoration of the free movement of travelers and migrants or end restrictions on mobility. And, finally, in the threat that hangs over the global monetary system, which has faced new challenges such as cryptocurrencies, the end of physical money or changes in consumer habits.

Driving forces of economic deglobalization

In its vision on deglobalization, Deutsche Bank also lists a number of driving forces. The first is the drop in foreign direct investment flows, which the experts from the United Nations agency for Trade and Development had already detected. The drop is 40%, to 2005 levels, below a trillion dollars. This decline has been partly corrected by the profit margins of the multinationals.

The increase in wages in China has cut production advantages by five points compared to the US, as can be seen from the Cost-Competitiveness Index of the Boston Consulting Group. This report indicates that added to the energy costs, there are countries such as Mexico, Ireland, India, Thailand or Romania, which operate cheaper than the Great Global Factory. Other countries, including Poland or Hungary, have prices only slightly above China and, thanks to their proximity to the US and Europe, they have begun to capture the corporate interest of multinationals.

ESG (Environmental, Social and Governance) investments are the third mutating factor. The sudden escalation of capital portfolios under criteria of sustainability, social and good governance have modified investment preferences, but also labor objectives towards teleworking or new wage demands. “The private sector is in the phase of putting its environmental criteria on track and, in this more complex business model, SMEs obtain advantages of adaptation and understanding that the end of CO2 emissions is inevitable and affects supply chains. value, to suppliers and to consumers, ”says Templeman.

Tariff protectionism and tax discussions have made a place for themselves in the civil society debate. The elections in the US of November 2020 attest to this. Also the decision of the G-7, ratified later by the G-20 and the OECD, to establish a minimum tax of 15% on the profits of companies worldwide and to remove tax deductions from their low-tax homes. This global movement is going in the right direction to end fiscal dumping that has damaged globalization, clarifies the Deutsche Bank analyst, for whom this maneuver casts optimism on the “political desire” to create a global economic governance that polishes the excesses in the that populism is protected for its electoral rise.

And finally, factors of a consumer nature: a change in habits and preferences for the authentic and exceptional that has also convulsed the value chains. This change in consumer needs has given minority, local and more artisanal productive segments new skills to place their products on the market.

Digitization, however, has become a balm to cement globalization. A crucial aspect, says Thomas Straubhaar, one of the fathers of the term Industrial Revolution 4.0, for whom “digitization is the answer to maintaining globalization, so we will have to be sure that another epidemic will not happen to the biological pandemic of a virtual nature ”.


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