From the early 1990s, there was an increasing emphasis on ‘global integration’ of national economies through free and open trade, segmented production processes, input and technological sharing; giving rise to a single coherent international economic unit.
From 2019, the Coronavirus began impacting provinces in China and slowly spread to the rest of the world till early 2020, causing operations to shut down owing to national lockdowns and restrictions enacted by states. As a result, production was hampered, employment was affected, level of revenue had dampened and economy, at large, suffered.
An important link that this pandemic exposed was the dependance of countries on other countries for generation and supply of basic products and services. Due to rising dependance on global value chains, from raw material extraction or assembling processes to import of necessary commodities that kickstart local production, countries began to see this integration process as a weakness rather than a strength.
Today, states have begun rethinking their strategies to avoid such an economic shock in the future. As supply chains were disoriented, new policies have been aimed towards increasing barriers and promoting growth through self-reliance. Here are a few important features of the changing global dynamic –
Re-orientation of Global supply chains
The most likely and direct impact of the pandemic has been a halt in production by companies in Global Value Chains (GVCs) due to health precautions in locations where the virus has spread, which has disrupted the operations of firms, part of the same production process in other countries. Indirectly, the three major impacts on international manufacturing have been the “supply chain impact” where production in one country has been disrupted due to lack of access to inputs sourced from another location which has been severely impacted by the virus; the disruption in international transport networks where local production remains unaffected but intermediary transportation has been stopped owing to precautionary regulations on international trade; the restrictions in the movement of people and additional requirements at the border for customs clearance which discourages transparent exchange of resources.
As a result, policy makers have highlighted the need to make such GVCs more resilient by diversifying the supply base through local production houses and reduce growing dependence on international actors.
Inward-looking trade policies
Earlier inclusive trade policies have now been revamped and changed completely. Levying of heavy tariff restrictions by countries like the USA and other European countries has discouraged already suffering international manufacturers to export.
As a result, those earlier producing solely for the purpose of trade have had to pull shutters amidst this situation. Moreover, rising importance has been given to local production houses as they are being provided with incentives to diversify and spread their channels to inculcate a larger group of agents, and stabilise the staggering employment levels.
Be it policies aimed at self-sufficiency like “Aatm Nirbhar Bharat” or initiatives like the “Make in India” campaign, the emphasis has been to “Go local” by empowering small businesses within the country and providing them with the edge to compete with MNCs and international actors, when trade opens up again while ensuring national dependence on such MNCs is minimized.
The global impact of changing economic perspective
While all countries actively stack up precautionary measures to protect their interests, the question arises, is this strategy the best option to ensure recovery?
No country can be completely self-sufficient owing to the differences in geography, access and availability of resources and limitations to the competencies of their respective populations.
This is why the concept of trade was initiated in the first place, because the way to greater economic development is through integration that boosts local production. Be it provision and production of essential vaccines to luxury goods, we cannot survive as individual pieces of this international puzzle.
While COVID-19 continues to pose the greatest threat to the outlook for trade, as new waves of infection could easily undermine any hoped-for recovery; global trade may also turn out to be a vital component in the revival of declining national economic growth in several parts, especially developing countries.
In fact, turning inwards won’t help tackle the health crisis, it will harm many (especially in developing nations), and it will hinder the collaborative spirit that the human race will need to defeat this disease.
Trade isn’t part of the problem – it’s an essential part of the solution, and we must begin seeing it as one.
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