The Pandemic spanner in the globalisation and inflation wheel
So, the big shutdown of global trade during the pandemic, made nations aware of their dependence of just-in-time deliveries from low cost to high cost-countries. Because, once people could step out of their houses again, they wanted to buy a lot of things and demand for goods and services exploded. The supply side was not ready. Prices had to go up. But crucially, importing countries also found out how, in certain cases, they were at the back of the line for the things they needed and that - apart from having to pay higher prices - they could not even buy the required goods. A poignant example of this was the great shortage of computer chips and countries having to beg the biggest global manufacturer of chips, Taiwan Semiconductors, to sell to them. Not a great position to be in. Better to produce highly necessary goods at home. And in fact, to have a homegrown semi-conductor industry has become a key policy objective for both the US and Europe, reversing an important part of the global trade.
Another issue where globalisation has created an unwanted dependency is with rare earths. China, the world’s biggest exporter of rare earth, which is used in everything from fighter jets, mobile phones and computer hard drives to electric cars, has threatened to reduce or even totally ban exports to the US. The US, having abandoned its own rare earth mining activities about 20 years ago as it was easier and cheaper to buy it directly from China (globalisation at work), is now wanting to revive its mines in Texas, Wyoming and Nevada to reduce its dependency on China.
Other, equally urgent examples of uneasy dependencies, are the lack of grain due to the war in Ukraine (and the Ukraine understandably holding back grain reserves for feeding its own population), leaving countries fully depending on grain imports scratching their heads as how to avoid being left hung to dry – foodwise that is – in the future. Oil and gas are another painful reminder how much power other countries have over our daily lives and a great reason to be more self- sufficient.
So, did the pandemic and its economic consequences change the trajectory of globalisation? Do we feel better and safer when we make things at home (if we can) instead of delegating everything to others? Absolutely. Esther Duflo’s argument against the great benefits of globalisation – once a very unpopular stance – may be heard with more urgency in Brussels, London and Washington today.
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