It was once fashionable to speak of globalisation as an inexorable force. Given the promise of free trade, an unlimited labour market and, of course, McDonald’s hamburgers, it was the apparent destiny of nations to be pulled into the world economy’s irresistible orbit. The pandemic has put a damper on such thinking. History has a habit of not obeying the laws we are inclined to discern in its curious movements.
This is not the first time that events have rained on the parade of global progress and integration. Writing in 1919, John Maynard Keynes describes how different the world economy had been at the very beginning of the twentieth century, before World War I and the crumbling of empires—at least as it had been experienced by affluent Europeans: “The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep.”
Keynes is describing a period of unprecedented economic growth, made possible by what he calls the “animal spirits” of traders, and the political order imposed by multinational European empires. During the nineteenth and early twentieth centuries, the value of exported goods as a share of global output rose impressively, peaking at 13.9% in 1913. The ease with which Keynes’s Londoner could access goods on the global market suggests that there is truly nothing new under the sun—even Amazon and Deliveroo have their precedents.
But World War I was the serpent in that pre-1914 paradise, sending globalisation into retreat. After the war, Keynes observed that the march of history never takes time off. His retrospective was meant as a wake-up call to those who regarded the riches of 1900 “as normal, certain, and permanent, except in the direction of further improvement.”
The shock that World War I administered to global trade persisted long after the Versailles peace treaty was signed. In the decades that followed, autarkic governments became the norm (even the British ditched free trade) and the world was struck by the Great Depression and World War II. By 1945, only 4.16% of global output was due to international trade. It did not reach 1913 levels again until 1974.
What are the chances that Covid-19 will have a similar long-term impact? By comparison to World War I and the Spanish flu that followed it, the coronavirus pandemic is a mild catastrophe, producing much less global mortality and disruption to international trade. Still, as in the post-1918 era, Covid-19 has moved governments towards higher spending and has fostered an appetite for greater economic self-sufficiency. The idea of an integrated world economy, open for business and connected to all, has fewer friends than it did as recently as December 2019.
When the pandemic struck last year, decades of talk about free trade and commercial openness swiftly gave way to a global scrum for medical resources and to border closures—not only to keep the biohazard out, but to keep medical goods in. In 2020, countries were competing to acquire personal protective equipment (PPE); today, in 2021, they are competing for vaccines. This past March, the EU threatened to block exports of the vaccine to Britain in an effort to address supply shortages on the continent. And two months earlier, the EU had invoked the emergency provisions contained in its post-Brexit trade deal with Britain, seeking to impose border checks on goods—including vaccines—that were travelling between EU territory and Northern Ireland. (This move was reversed after it was unanimously condemned by political leaders in Dublin, Belfast and London.) Clearly, during emergencies, self-sufficiency is valued more highly than interdependency.
Nor has Britain been immune from the desire to retreat into attempted economic self-reliance. It too has implemented semi-autarkic government policies with regard to medical supplies: currently, about 67% of Britain’s PPE is being supplied by UK manufacturers, compared to only 1% before the pandemic, and British leaders have arranged for the lion’s share of the supply chain for the British-made AstraZeneca vaccine to be located in the UK.
These moves are not unreasonable in the context of a public health emergency. An unexpected pandemic requires a flexible response, and leaders who stick to rulebooks are unlikely to be rewarded for doing so. However, as Friedrich Hayek warned in The Road to Serfdom (1944), an appetite for autarky and top-down control that develops in a time of crisis is likely to outlive the crisis itself. As he notes, any state-led “organisation of the nation … achieved for the purposes of defence shall be retained for the purposes of creation.” Hayek sought to undo the “post-war consensus” in favour of higher taxes and nationalised monopolies—but in vain.
Are we moving towards an international post-Covid consensus of a similar nature? There are already signs that, even after we have learned to live with the virus, governments will want to retain aspects of their pandemic response plans—from mandatory quarantines to handouts for homegrown manufacturing.
For instance, there is talk in the British cabinet of building—at great cost to the taxpayer— a national telecommunications company big enough to rival the Chinese giant Huawei, which currently dominates the global telecommunications market. And it has been reported that this trend towards government-led industrial strategies may also be applied to other sectors in which Britain is felt to have a competitive advantage, such as electric vehicles, batteries and robots. Once governments get used to subsidising domestic industry for public-health and national-security purposes, what began as one-off measures soon become settled habits.
In the US, the challenges presented by Covid-19 have underlined the long-term dangers of excessive dependence on trade with a single country—especially when that country is led by the Chinese Communist Party. Not long ago, Donald Trump was a lone wolf in the fight against American commerce with China. Today, President Joe Biden’s trade policies are even more protectionist than Trump’s were. As James Traub wrote recently in Foreign Policy, when it comes to economic policy, these days even mainstream Democrats tend to be “soft nationalists.”
Biden has promised to keep in place the Trump-era tariffs on steel and aluminium until global overproduction of those goods (largely centred in China) has been addressed. And he has built additional trade protections on top of the foundations laid by Trump, having signed an executive order that tightens the rules requiring federal government departments to “buy American.”
The Biden administration’s soft version of economic nationalism is not aimed only at helping American businesses; it is also aimed at competing with China—which is seen as the US’s main economic rival. In June, the US Senate passed two bills more or less unanimously: one authorising the expenditure of $250 billion to help the US maintain its competitive edge over China in artificial intelligence and computing, the other strengthening Trump’s bans on American investment in as many as 59 Chinese firms. Such policies are part of an overall bipartisan strategy that began under Trump and was accelerated by the Covid-19 crisis; its goal is to ensure that American industry “can continue to lead in the global marketplace.” Which, as far as Washington is concerned, means ending US reliance on trade with China.
The global fight against Covid-19 has largely been led by national governments, notwithstanding the crucial help provided by pharmaceutical companies, and this has inevitably led to the expansion of government power at the same time as the mobility of goods and people has decreased. As Keynes noted in the aftermath of World War I, the openness that globalisation fosters is fragile. All it took to destroy the early twentieth-century network of globally exchanged information and goods was, as he puts it, “the politics of militarism and imperialism.” The post-war governments of that era erected high tariff walls—protections against foreign commerce which, while they may have seemed temporary at the time, survived until late into the twentieth century.
Now Covid-19 has sent globalisation into its second great retreat. The only truly worldwide phenomena over the last 18 months, other than the virus, have been strict lockdowns, increased trade controls and eye-watering budget deficits. Are these measures a short-lived response to a new pathogen, or a rejection of the liberal world order in the name of protection and self-sufficiency? Even before the pandemic, western countries grappling with the challenge presented by China’s growing power were already doubting whether openness on trade and foreign investment was wise. But the experience of the pandemic has both lowered China’s global reputation further, and led to the empowerment of governments that are more managerial, semi-autarkic and highly risk-averse. If the open economy becomes a relic of the pre-Covid era, historians should have little difficulty explaining why.