Deglobalization underway: can China save the world again?

 
Deglobalization underway: can China save the world again?
After almost half a century of uninterrupted expansion of world trade, travel and interconnection, the coronavirus pandemic is dealing a severe blow to globalization. But unlike the 2008-2009 crisis, China will not be in a position to save the world a second time so far this century.

The global economic, political, social and health crisis we are experiencing is the most serious in almost a century, and for some analysts it will overcome the Great Depression of 1929. Martin Wolf, editor of the London Financial Times, said it is "the collapse of la pax americana ", which" is breaking the post-war world system order ", and which is an" unprecedented collapse of the world economy ".

Why did the world not prepare for the announced pandemic and how to get out of it?

According to the most optimistic forecasts of the IMF, in 2020 the economy is going to fall three times more than in the 2008-2009 crisis, at least 3%. This would mean as much as a year's production from the UK. For the Asian Development Bank, the economy could lose two or three times more, between 6.4 and 9.7% of global gross product. Something like all the production in France and the United Kingdom.

    The economy of European countries will fall around 7.4%, according to forecasts by the European Commission, like all of Spain's production in one year.
    The fall in the US was almost 5% in the first quarter and can be as high as 40% in the second.
    Latin America will drop this year more than 5%, the biggest slowdown since 1960, according to the UN, the equivalent of Peru's production in one year.
    China, which grew 6% in 2019, contracted 6.8% in the first quarter and its annual growth is expected to be, hopefully, 1%.

Like all acute crises, the mechanism to get out of it is a phenomenal destruction of wealth:

    The clearest indicator is the drop in the price of oil, which sank below 0, that is, less than keeping it in a tank, because there is already such overproduction that there is nowhere to store it.

    The World Tourism Organization (UNWTO) estimates that international tourism could fall as much as 60-80% in the year. This implied, for now, 67 million fewer international tourists until March, that is, 80,000 million dollars less.

    According to IATA, aviation companies could lose $ 314 billion, something like all of Chile's annual production, leading to massive bankruptcy, the disappearance of thousands of companies and the concentration in a few.

    Almost 2.5 million fewer vehicles were manufactured in these months in the European Union. In April alone, Mexico's auto exports fell 90%.

    In Brazil, daily sales fell 80% between the end of March and April.
    World trade may drop as much as a third this year according to the World Trade Organization (WTO).

    Millions of small businesses and companies will never reopen.

Globalization, Deglobalization, Capital and Global Crisis...

The model sold out

The world economic system has been, for more than half a century, in a chronic crisis from which it has not been able to recover, leading to periodic acute crises, one more serious than the other.

The world emerged - half-heartedly - from the 2008-2009 crisis, the deepest since 1929, thanks to the massive infusion of state credits and subsidies to banks and the massive injection of dollars and euros to sustain consumption. But the fundamental thing was the growth of China, which became the locomotive of the planet and took over 40% of world growth in this last decade.

Faced with the current crisis, many wonder whether China will save the world again after the rapid recovery after containing the virus.

But that model sold out. For the first time since 1970, the Chinese economy decreased this first quarter and the best that can be expected for the year is growth of 1 or 2%.

This will imply that its middle class will consume less, that the country will export less because world trade will fall, and therefore the country will buy less iron, soy, meat, copper, lithium. This will hit Latin America squarely, especially countries that have China as their main commercial client, such as Brazil, Peru or Chile.

In addition to trade, Latin America received 160,000 million dollars of Chinese investments between 2005 and 2018 and loans of 140,000 million dollars, in the hardest stage of the previous world crisis, but these investments and credits, which had been falling, are now will be seriously affected.

Deglobalization

The pandemic accelerated protectionist trends, the drop in foreign direct investment and world trade, transforming the world forever.

A few days ago Donald Trump criticized the trade agreement signed with China in January to stop the trade war between the two countries and threatened to suspend his relationship with China: "We are going to bring manufacturing back," he warned.

Globalization in crisis and the return of nations

"The era of exporting jobs from the United States is over," wrote US Secretary of Commerce Robert Lighthizer in The New York Times. "Every day I speak to entrepreneurs who acknowledge that they underestimated the risk of taking their production abroad or depending on the production of essential parts in some very distant countries."

"Companies could avoid US labor and environmental standards by taking their production abroad and enjoying tax-free access to our market. Low wages gave them high profits, but for the US the effect was traumatic: the US lost five million manufacturing jobs, "he adds in his comment, concluding:" Let's bring jobs to the US again. "

The pandemic will accelerate this trend. The World Trade Organization estimates that world trade will fall between 10 and 30% and foreign investment will decrease worldwide. According to The Economist, Chinese investments in the US were 60% less in the first quarter than two years ago and Washington ordered the main US pension fund not to buy more Chinese shares.

Towards a more humane capitalism?

It is fashionable to talk that a "more humane capitalism" may emerge as a result of the pandemic, but that will not happen. On the contrary, millions of companies will fail, hundreds of millions of people will be unemployed, wages will fall, monopoly concentration, misery and inequality will increase. This is already happening:

    According to the ILO, half of the world's workforce will see their way of life destroyed, that is, 1.6 billion people. Of 3.3 billion workers, 2 billion are informal.

    In the US alone, as of May 8, more than 20 million workers lost their jobs in April, bringing the unemployment rate to 14.7%, 33.5 million unemployed in two months. At the beginning of the year unemployment was 3.5%.

    Some categories of workers will suffer more than others, primarily health workers. At the end of April, health workers were 20% of infections in Spain, 10% in Italy, 14% in Argentina, and the unions estimate that there are many more.

    In Europe, the WHO reported that half of the fatal cases are greater than those that died in adult homes.

    In the UK, the death rate among blacks is 56 per 100,000 population and among whites it is 33 per 100,000.

    In New York, a third of those infected are Latinos and blacks die twice as much as whites, a situation that is reproduced in other states. According to the US Center for Disease Control, the highest number of victims among blacks is explained by the fact that the rate of diabetes is 66% higher in blacks, hypertension is 49% more, life expectancy is 3.5 years lower.

    Quarantine is a privilege for those who have a salaried job and can earn monthly. In the US those who earn more than $ 70,000 a year can do 70% of their work at home. Those who earn less than 40,000 only 40%.

    As the crisis moves fully to Latin America, the populations of Guayaquil, the Amazon, the poor neighborhoods of Bogotá, the slums of Argentina and the favelas of Brazil, have rates of contagion and alarming deaths in relation to rich and middle class neighborhoods.

Planning the post-virus economy as in the postwar period

The government response exacerbates the burden on the poorest. Salvage plans are mostly to save banks, aviation companies, and large companies.

Forced out of fear of a social outbreak, some governments have distributed money or paid a percentage of wages. But instead of guaranteeing 100% of income, they are using the crisis to cause a brutal drop in wages.

In Peru and Chile, governments authorized work suspensions for up to three months without payment of wages. In Brazil, companies were authorized to suspend workers without pay. In Argentina, the government banned layoffs for three months, and guarantees up to 50% of the salary of small companies, but workers will only collect 75% of their wages.

This, not to mention the hundreds of millions in informal employment who will receive nothing, from those who will lose their homes, their cars, their savings and their standard of living.

Will a better world come?

 Not at all. The world we will see will be very different. International travel will be kept to a minimum, conferences will be held by Zoom, huge offices will be emptied by remote work, airports will be left empty as symbols of a globalization that has already been.

The countries will seek to relocate the production of the most essential goods on or near their own borders, and they will move towards greater protectionism, which will favor integrated regions, the richest, but which will disadvantage the rest of the world.

This time, no one will come to save us. As former Uruguayan President Pepe Mujica said, the world "is going to change for the worse because these critical phenomena on the one hand create poverty and, on the other, tend to concentrate wealth." That is the wild, and not at all human, world that awaits us.