[US-China New Cold War] "Global Economy Going Separate Ways... The Era of Slowbalization"

US-China Conflict Slows Trade Growth
COVID-19 Adds Challenge
Global Supply Chains Hit
Countries Adopt Protectionism for Health, Security
Reversing Protectionism May Take Decades

[Asia Economy Reporter Naju-seok] Amid the trade war between the United States and China, the outbreak of the novel coronavirus infection (COVID-19) has further shaken the global trade order. There are even forecasts that the era of "slowbalization"?a decline in globalization?will fully begin as a result of COVID-19.

Douglas Irwin, a Dartmouth professor and a leading advocate of free trade in the U.S., recently pointed out in an article for the Peterson Institute for International Economics (PIIE) that "the COVID-19 pandemic has accelerated the movement toward deglobalization." The trade war between the U.S. and China, involving tariffs and non-tariff barriers, had already slowed trade growth, and COVID-19 has emerged as a new obstacle.

Countries around the world have already imposed export bans on medical protective equipment such as masks and pharmaceuticals to protect their citizens. Moreover, amid the COVID-19 crisis, government officials and companies worldwide have begun to question existing supply chains that relied on overseas parts and components based on price competitiveness. This is because, earlier this year, the outbreak in China caused shortages of parts and equipment, shaking the global manufacturing industry.

Professor Irwin warned, "Policymakers in various countries are trying to implement policies that strengthen deglobalization for reasons of health and security," adding, "As a result, the economic growth achieved through globalization is at risk of slowing down or reversing." He also noted, "It could take decades to correct these trade-restricting measures."

He viewed that the global economy has undergone five major changes since 1870 based on the scale of trade relative to global gross domestic product (GDP). After the 1870s, with the development of transportation such as steamships lowering the cost of moving goods between countries, trade grew faster than economic growth until World War I. However, after World War I, the Russian Communist Revolution, the Spanish flu pandemic, the Great Depression, and protectionist measures by various countries caused a significant decline in global trade volume.

Photo by AP Yonhap News

Subsequently, global trade began to grow again rapidly after World War II, led by the U.S., with the establishment of the General Agreement on Tariffs and Trade (GATT), focusing on the U.S., Western Europe, and Japan. Furthermore, in the 1980s, with the inclusion of China, India, and Eastern European countries following the collapse of the communist bloc into the global trade order, the scale of world trade rapidly increased to exceed about 60% of global GDP.

However, this growth trend slowed after the 2008 financial crisis. Then U.S. President Donald Trump promoted "America First," prioritizing U.S. interests in all areas including trade and security. China also introduced "Made in China 2025," aiming to strengthen its core manufacturing capabilities. Professor Irwin believes the emergence of slowbalization began during this period.

With the U.S.-China trade conflict placing global trade at a turning point, COVID-19 dealt a decisive blow. The World Trade Organization (WTO) forecast last month that the global trade volume could shrink by 13 to 32 percent compared to the previous year.

In particular, Professor Irwin diagnosed that the current crisis is producing destructive results due to the absence of U.S. leadership. To prevent the so-called beggar-thy-neighbor policies, where countries sacrifice others’ economies for their own benefit as during the Great Depression in the 1930s, coordinated efforts among countries are required, but the U.S. has not shown such efforts.