The COVID-19 pandemic has revealed the fault lines of the globalized economy and triggered a rise of protectionist trade policies. The latest chapter in this trend away from a multilateralism is the U.S. withdrawal from OECD negotiations over the tax challenges of the digitalisation of the economy, which in turn has provoked European nations to retreat to unilateral solutions.
The Globalized Economy and COVID-19
In the period between the end of the Second World War and the on-set of the COVID-19 pandemic, the globalization of production created deep economic interdependencies, binding domestic economies to a global supply chain. Consequently, when the COVID-19 pandemic broke, the structure of global trade was such that a disruption in one link of the supply chain created effects all down the line.
In March 2020, the six nations hit hardest by COVID-19 were the U.S., China, Korea, Italy, Japan, and Germany. At the time, these six nations accounted for 55 percent of world supply and demand, 60 percent of world manufacturing and 50 percent of world manufacturing exports. China, where the virus first emerged, was largest contributor to global trade, the “workshop of the world,” making up 41 percent of world manufacturing exports and 20 percent of global trade in manufacturing intermediate products. Due to the globalization of production, when the pandemic decreased production in these six nations, and China in particular, the effects reverberated globally.Continue Reading