The question many are wondering right now is can we, will we, ever return to full growth after this pandemic? We have become used to a global economy, but can it go on or do we need to get ready for a ‘new normal’?
The main objective of globalization is to increase the supply of goods and services at ever lower real prices per unit of output. This is the meaning of productivity meaning to produce ever more at lower costs with fewer wastes.
After decades of growth for world trade, global tourism and (so-called) international cooperation, this globalization seems to be stalling, a resurgence of nationalism and protectionism have helped undo some of the progress made in the past. Global trade has slowed significantly in 2019, (due to trade tensions between the United States and China and Brexit now unraveling the funding stream for the EU) the Covid19 pandemic is expected to cause an steep fall in world trade.
According to estimates from the World Trade Organization, global trade is worryingly set to plummet this year, depending on how quickly the corona virus is contained and trade can return to previous levels.
WTO Director-General Roberto Azevêdo said in a press release
“Keeping markets open and predictable, as well as fostering a more generally favorable 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.”
More data here at Statista
I think he is wrong, Infinite growth is impossible, Economies with contracting supplies (be it labour, goods, raw materials, resources) will contract. The financial system will be the first the first to go when these supplies dry up. A look at this chart (based on World Bank data) confirms global trade volume – measured here as a percentage of global GDP – has been stagnant for years, after several decades of uninterrupted growth. Taking a look at a UK blue chip household name, say Rolls Royce will illustrate the dilemma. Fairly shocking over the last three months. In fact Standard & Poors now give it a junk rating!
Following the trade decline caused by the global financial crisis in 2008, trade never really recovered to its previous trajectory, so it’s reasonable to expect similar effects in the current crisis.
This will remind many companies of the weaknesses of global supply chains, both the pandemic and an imminent trade war could lead companies towards a more domestic approach to production and sourcing, this will result in a sustained reduction of global trade. With finite resources, infinite growth is impossible.
Looking back we can see how everything was exported. The wealthy west exported its need to pay a living wage and adhere to reasonable environmental concerns. The countries that became the “makers” of everything also exported people which lead to an unprecedented demand on resources in their new found home. Sir James Goldsmith also outlined this rather well in 1994.
NO ONE has won this battle outside of the few very wealthy elites who can buy their own islands to get away from it all, but even they will feel it. Richard Branson is struggling to keep Virgin Atlantic afloat being just one, but the REAL losers are ordinary people.
The focus is on will be goods and services not the price of commercial property or the costs of tariffs, they will be avoided if possible. and as everyone starts tightening their belts they will be looking to spend nearer home, instead of relying on the fraught supply chain and so the once globalist West will, very likely, become more focused on domestic matters.
Some kind of feudalism or nationalism may be ahead…. As happened after the Spanish flu pandemic in 1918
We live in interesting times.
Image by Victoria Borodova
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