Will trade cease to flow freely?
This question came to the mind of John Pearson, CEO of DHL Express, as governments sealed borders to keep the coronavirus at bay and controlled exports of emergency items such as vaccines, protective equipment and ventilators. Voices demanding renationalisation of critical industries were also being heard.
But soon the top executive of the global logistics company reveals that the pandemic, though induced lockdowns isolating one country from another, has shown the world the power of connectedness.
The benefits of a more-than-ever connected world are visible everywhere in life and economy. With higher inclusiveness levels, societies have generally witnessed an increase of resilience.
While physical movements were restricted, digital connections prospered, keeping societies connected and giving offices and businesses alternatives to run. Ecommerce boomed both within and across the borders. New supply chains evolved and goods were delivered to doorsteps, softening the pandemic impacts on life and economy. Businesses quickly adapted digital technologies and improved IT infrastructure as they remodelled their ways of doing business.
The World Trade Organization has predicted that world merchandise trade could plummet between 13% and 32% this year, following the impact of Covid-19.
The 2008 financial crisis caused massive decline in global trade, which in fact never returned to the previous growth trajectory. Many fear that the adverse effects of coronavirus on globalisation may carry on for years.
World Bank data shows global trade has been stagnant for a number of years, and Covid-19 came as a fresh blow with much deeper cuts.
Even long before the pandemic, the world saw reemergence of nationalism and protectionism undoing some of the progress of free flow of trade.
Having reminded many companies of the vulnerabilities of global supply chains, both the pandemic and the trade war between the US and China could lead companies towards a more domestic approach to production and sourcing, which might result in a sustained reduction of global trade, Statista data journalist Felix Richter warns in an article on the World Economic Forum's website.
WTO's immediate past Director-General Roberto Azevêdo, however, did not lose heart. Rather he hoped for a rapid, vigorous rebound if free trade takes the lead on the road to recovery.
"Keeping markets open and predictable, as well as fostering a more generally favourable business environment, will be critical to spur the renewed investment we will need. And if countries work together, we will see a much faster recovery than if each country acts alone," former chief of the global trade regulator said in a statement.
After the US-China Phase One trade deal, many hoped that international trade would be healed from the wounds from the tariff war of two biggest economies and start increasing from the beginning of 2020. Covid-19 has scuppered those hopes, bringing the world's factories to a standstill and severely disrupting global supply chains.
But efficiency matters in global value chains (GVCs), meaning that businesses need to source the best possible inputs to keep production costs the lowest and quality highest possible – no matter where those inputs come from and how.
Here is how globalisation is justified, which is more relevant at a time of crisis as severe as the pandemic to ensure consumers the right to quality products, including health and hygiene services.
"Concerns about an overreliance on complex GVCs are justified in the case of products related to national security, such as medical supplies. Many countries will now ensure they can produce such goods without relying on imports," write Jun Du and Agelos Delis of Aston University in a joint article for the WEF.
A strong international cooperation network could be the most reliable and efficient insurance to the next crisis, which nobody can predict, say the economics teachers, who see no end of globalisation, rather a reconfiguration of GVCs is inevitable.
The way the global value chain has developed over the years – cotton produced in a country going to another country to be spun into yarn, then fabric and readymade garment in different countries before ending up in upmarket stores in the West – can it be overturned overnight?
Prof Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), says, "No. It will rather be more consolidated."
Covid-19 has disrupted both supply and demand sides, and even before the pandemic, the WTO order had become dysfunctional somewhat as countries chose multilateral and regional FTAs instead of a global system. The US-China trade war made things further worse.
"So there has been a growth of bloc integration in place of a global arrangement. There may be a shift from centrifugal towards centripetal. But that does not mean an end to globalisation in any way," says Prof Mustafizur.
Though the pandemic had prompted countries to opt for protectionism, most of those measures were withdrawn gradually.
The 12th Ministerial Conference of the World Trade Organization is scheduled for 30 November to 3 December, indicating that the global trade arrangement will come back on track, the trade analyst points out.
"A new trend – hyper globalisation may emerge because of the growing focus on offshoring, outsourcing and cheaper resources, leading to cross-border capital flight," he cautions. But there is no economic logic that protectionism can help the world overcome the crisis induced by the pandemic, Prof Mustafizur Rahman believes.
Prof Chowdhury Saima Ferdous, who teaches international business at Dhaka University, firmly believes globalisation is not going to end, rather it will gain momentum by taking new forms and moving in new directions. "We apparently do not have any alternative," she says, feeling that Bangladesh now needs to develop negotiating skills to ensure her just share in global trade.
To Dr Delwar Hossain, professor of International Relations at Dhaka University, notions like "end of globalisation" or "end of nation state" – all are extreme views. He refers to the changes taking place from the '90s – narrowing the role of nation state on one hand and embracing globalisation on the other.
This double current, he feels, has led the world to a war of nerves, a race of competition. "Now there is no visible escape route from the race. Rather a hybrid globalisation may emerge," Prof Delwar foresees.
Free flow of goods, both within and across borders, matters a lot for economies like Bangladesh as the share of trade in GDP dropped to 31% last year from 37% in 2019 due to pandemic-induced global restrictions, World Bank data shows. In terms of trade-GDP ratio, Bangladesh and Vietnam were at the same level – around 18% – in late 1988. In the last three decades, Vietnam's trade shot up to 209% of its GDP last year, while Bangladesh's trade as a percentage of GDP is still crawling.
Only a more open global market can help Bangladesh move forward at a faster pace.