Deglobalization and the Future of Global Supply Chains

August 14, 2020 by Yuyang Jiang

Globalization, a trend that has really been gaining momentum in the past decade, was revealed to be a vulnerable process with the onset of COVID 19. Not only are flows of ideas, investments, and information faster than ever, a pandemic originating in one region will also inevitably spread to every corner of the world. When each country cannot even handle its domestic disarray, proactive assistance on an international scale also comes to an end. Economic interdependence thus shatters into pieces. When the healthcare sector is pressured by massive demand and limited supply of face masks and Personal Protective Equipment (PPE), the question of self-reliance pushes many countries to pursue more protectionist approaches in politics.

Even before the virus, signs of economic disintegration were surfacing. The relationship between China and the U.S, the two largest economies in the world, is at its historical low. With ambiguous rhetoric, Trump’s administration has questioned the detrimental effect of China’s trade policies on America’s national security and aimed to gradually make America independent from China’s economy. Apps, such as TikToks and Wechat, will be permanently banned from the U.S. China, on the other hand, continues its hard, uncompromising foreign policy under President Xi’s regime. The new security law established in Hong Kong gives the Beijing government extensive power over Hong Kong’s legislation, which directly contradicts the “one country, two systems” principle promised by the Chinese government regarding special administrative regions. Such bold moves undoubtedly heightened the tension between China’s authoritarian control and the U.S’ democratic ideals.

Additionally, the virus heightens the existing problems. With China in lockdown, many organizations and corporations highly dependent on China find that their normal operations face major disruptions. Clearly, the single-sourcing model approach that the current global supply chain relies on has many fundamental flaws that the current pandemic is bringing to light. To adapt to the new normal, many countries began to consider turning production inward to gain more economic sovereignty. Moreover, the fear of resource shortages led many countries to impose restrictions on foreign exports, especially critical supplies that are needed globally. Indeed, globalization is slowly declining, and COVID 19 was the beginning of a new era marked by inward thinking and conservative diplomacy.

However, there are better alternatives than protectionism. Historically, during periods of turmoil, the world economy suffers greatly from international cooperation and unstable politics, for example, the Great Depression following the First World War. Yet the economy does bounce back after some time. By establishing different NGOs and agreements on tariffs and trade, the international community found a new way to facilitate economic growth. Perhaps, during this unprecedented time, the economic problems at hand also require innovative thinking and solutions. Perhaps, COVID 19 cautions us that we currently rely too much on outdated processes. With new technologies and rapid growth in internet-based industries, the global supply chain should become more flexible in finding alternative suppliers to prepare for a new normal that pandemics and many other unforeseen disasters in the future will bring. In fact, the development of a more resilient supply chain system requires even more international cooperation rather than protectionism and isolation. Some coping strategies proposed by the international community include a management platform that provides real-time data on shipment and production of critical supplies, easing of export restrictions, as well as a strict guideline on the price cap. A “LIT” (lenience, innovation, and transparency) future of the global supply chain has been illustrated, but its implementation still lies on whether each country can collaborate despite individual profits and differences.

Just like the uncertain future of the Coronavirus, international politics is also at a major turning point. Whether the future of state politics and economic cooperation is optimistic or pessimistic, we are witnessing and learning, all while attempting to solve this incredibly complex global supply issue.

Yuyang Jiang ('20) was a member of the SMUS Economics Club and is heading to the University of Toronto to study Finance and Statistics.