The pandemic is likely to set globalization back
It is no secret that thanks to the pandemic, the world will never be the same, but that might not be as bad as it sounds. The coronavirus has shown that having a centralized supply chain, as it was with Asia, is not as strong as previously thought, as companies are now looking to reduce their dependence on this market.
A recent report by the Economist Intelligence Unit (EIU) estimated that the coronavirus effect on the global economy can lead to globalization getting reversed, leading to more regional supply chains being created.
“Covid-19 will push more companies in other sectors to relocate part of their supply chains. The outcome of this will be an Asian supply chain network that is both less China-focused and more diverse.” stated the report.
Companies now look forward to being more resilient to new supply shocks, and the one induced by coronavirus, by moving their supply chain away from Asia. It is likely that, due to how difficult these are to move, these changes could be permanent.
“By building quasi-interdependent regional supply chains in America and Europe, a global company will provide a hedge against future shocks to their network. As for those companies that have this luxury already, they have been able to shift production of key components from one region to another as lockdowns and factory closures resulting from coronavirus have unfolded,” expressed the EIU.
A stark contrast to what we have seen in the past two decades with China joining the WTO in 2001. The has had international trade dominance up until now, as coronavirus can be reverting globalization.
“As a result of COVID-19, it is likely that this period of globalization will not come to a halt, it will reverse,” said the EIU.
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