The spread of the coronavirus from China and all the damage it’s done to supply chains and worldwide travel are prompting a growing backlash against globalization. The critics include longtime skeptics of trade, especially with China, but also those who more thoughtfully wonder if we have become too dependent on global markets.
The latest contagion, COVID-19, has certainly inflicted damage — on human health as well as the world economy. But a forced retreat from global economic integration would only compound the damage, inflicting a “cure” that could be worse than the virus itself.
In fact, the coronavirus should remind us of the growing value of globalization in all its manifestations — trade, supply chains, foreign investment, international travel. When those interconnections are disrupted, the economic pain is real. The Organization for Economic Cooperation and Development recently estimated that the virus will shave a half-point or more off global GDP growth this year. Global equity markets are reeling daily as the virus spreads.
To argue that the coronavirus means we would be better off with less globalization is like arguing that a power failure shows we are too dependent on electricity, and thus we should go back to private generators or candles.
That faulty reasoning ignores the massive gains to humanity that our more integrated global economy has bestowed, beginning here in the U.S. In recent decades, globalization has raised U.S. living standards, created better paying jobs, opened foreign markets to U.S. goods and services, lowered interest rates for borrowers, and delivered more choice and lower prices for consumers. In our era of globalization, Americans are living longer and healthier lives.
Beyond our shores, the spread of global capitalism has been a major factor in the reduction in global poverty. According to the World Bank, since globalization took off in 1990, the share of the world’s population living in absolute poverty (the equivalent of $1.90 a day) has dropped from 36% to below 10%, and the absolute number has fallen by 1.1 billion. Today, for the first time in human history, a majority of the world’s people have reached the middle class.
Globalization has also created a more peaceful world, with economic interdependence encouraging nations to get along better with each other. Geopolitical dangers still exist, but the threat of conventional war between major powers remains low by historical standards.
Critics point to the risk of locating so much of the world’s manufacturing activity in China. There may indeed be sound reasons for global producers to consider making their supply chains less dependent on China in the future, but it would be impractical and economically foolish to decouple from the world’s second-largest economy and No. 1 trading nation. Managing the risk of supply-chain disruption should be left to businesses, not to governments pre-empting millions of individual producer and consumer decisions.
Globalization itself diversifies risk. It means nations can trade for food when their own farmers suffer a bad harvest. Manufacturers can seek better-quality and lower-priced inputs from a diversity of suppliers, rather than being held captive by domestic cartels. Investors can better diversify their portfolios.
Any efforts to forcibly curb globalization would be akin to injecting another kind of virus into the global body economic, a kind of ideological fever that weakens our productive capacity. The Congressional Budget Office recently determined that the tariffs the Trump administration has imposed during the past two years have shaved a half-point off U.S. GDP — similar to the economic impact of the coronavirus.
The Trump administration’s priority should be to focus on coordinating with other governments to find ways of containing and treating the virus. The right economic response is to remove whatever artificial barriers remain to trade and directly offset the disease’s reverberations. That means repealing its ill-advised tariffs on imported steel, aluminum, washing machines, solar panels and more than $300 billion in goods from China, which would arguably do as much good as the Fed’s recent interest-rate cut.
It would be policy malpractice of the worst kind for the U.S. and other governments to compound the negative effect of a medical virus with a policy response capable of causing the same kind of damage to the global economy and human well-being.