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Pandemic fallout is just starting

The Covid-19 pandemic is set to reshape the geopolitical landscape as countries around the world wrestle with the realities of the economic fallout and the heightened friction that will inevitably follow.    

The signs are already there, as supposedly level-headed politicians and diplomats ramp up their war of words about everything from control measures and the origin of the virus, to trade agreements, security and the viability of international cooperation. 

Sometimes obscured by all that noise, other dire warnings continue to rumble in the background. In developed countries, they centre on the outbreak’s debilitating impact on major industries and what that will mean for employment, exports and government finances. 

But in the developing nations, the picture can be even more alarming. Forecasts now suggest millions more are likely to fall into poverty as a direct result of the spread of the virus. And as fault lines emerge and interests narrow, the chances of concerted action and generous funding to halt this slide appear less than encouraging.      

All this causes Dong Tao, Credit Suisse’s vice chairman, Greater China, Private Bank Asia Pacific, to predict that history will look back on the Covid-19 pandemic as a real landmark event. 

He believes it signals the end of the era of globalisation which, in effect, began in 1945 as the world began to rebuild after the devastation of the Second World War. Succeeding decades saw the birth of the UN, Europe’s Common Market, the rise of Japan, Asia’s tiger economies, China’s emergence as the world’s factory – and much more. The underlying theme was the opening up of markets and territories, which ushered in a sustained period of increasing productivity and prosperity, in some way affecting almost every corner of the world.          

Based on the current evidence, Tao suggests Covid-19 will be a watershed marking the “reversal of globalisation”. In fact, the process has been under way for the past 10 to 15 years, prompted by the loss of blue-collar jobs in developed economies and a rising sense of inequality as the division of wealth and labour too often favours the few.        

“But this pandemic will accelerate the process,” Tao says. “We see one country after another turning to political extremes, either left or right. We were also seeing actions to limit the free flow of trade capital, information and people. Covid-19 then forced countries to shut their borders and lock down domestic markets, which will change ways of living and doing business. Overall, things are turning away from globalisation, and we can expect more restructuring of sourcing, production and access to markets.”  

At one level, Tao foresees much less international travel over the next decade. But more broadly, he highlights the moves by major companies to rethink their supply chains and, where feasible, bring manufacturing back closer to home. 

The shutdown of Wuhan production lines, which make essential components for the international car industry, served as a shock to the system. As a result, major names in that sector – and others such as pharmaceuticals and electronics – are openly questioning the principles of globalisation and figuring out alternatives. The outcomes seem sure to have an impact on trade flows, investment and jobs, with the possibility of tariffs and threats further complicating the picture.  

“As long as you produce or consume something you will be affected,” Tao says.

Another area where he expects a geopolitical shift is in the structure and operations of multinational organisations. Post-1945, led by the US, countries built the current world order with the UN, World Bank, IMF, Unicef and the WHO assuming a prominent role in establishing international understanding and cooperation. 

Now, though, with the US obviously losing trust and interest in the work of these bodies, the writing is on the wall.    

“Already the US didn’t like the UN and I think the way the WHO handled this pandemic is the last straw,” Tao says. “It is likely to be one of the triggers to push for restructuring of perhaps all the multinational organisations. In the eyes of the US, the required level of efficiency is just not there.”   

At the same time, though, there is the ever more compelling issue of the changing relations between China and the US, and how other blocs and countries either align themselves or can avoid doing so.  

Tao notes that neither economic superpower currently inspires much trust in the rest of the world. But there is a feeling that, after the early stages, the Chinese government did a reasonable job slowing the outbreak and keeping it under control. 

That may win no arguments in diplomatic circles, but it can serve as a handy point of comparison.  

“I think it is way too early to make a definite call on whether China will benefit from its handling of the pandemic,” Tao says. “But the experience might help to push the country into the next era. Freed from over-reliance on property and infrastructure to sustain GDP numbers, the government can jump start the economy with investment in 5G, AI, blockchain and the cloud.”  

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