COVID-19 has dealt a blow to globalization but world trade was on the wane well before the pandemic closed borders and sent shock waves through the global economy, experts say.
The economic slowdown spurred by the virus will accelerate changes to the export landscape, not all of them necessarily negative. In fact, Canada could benefit as countries look to find stable suppliers and partners.
“Globalization had already peaked five or six years before the onset of COVID and COVID is just one more nail in the coffin,” says Alan Robinson, vice-president and global portfolio manager for RBC Wealth Management. “That’s not to say that globalization is going to die completely but it’s definitely past its peak.”
After the Second World War, global trade represented about five per cent of total global gross domestic product, Mr. Robinson says. It peaked about a decade ago at around 30 per cent.
“Yes, coronavirus has had an impact on globalization but it merely accelerated trends that we were already seeing,” he says.
It’s not just the volume of trade that has changed but the nature of it. Exports are no longer dominated by goods but have shifted to trade in services, he says.
Border closures and the challenges in transporting goods have forced countries and businesses to move their supply chains back home, Mr. Robinson says, and supply chain resilience will be a lasting trend from the pandemic lockdown.
“The whole idea of flexibility and resilience is critical,” he says. “And speed to market is becoming this key battleground and for that reason many companies are starting to localize their supply chains for better co-ordination.”
Prior to the pandemic, globalization was plagued by geo-political issues, says Darrel Pearson, partner and head of international trade and investment practice at corporate law firm Bennett Jones LLP.
Led by the United States and China, global trading was becoming increasingly a domestic market-first landscape, Mr. Pearson says.
“That was led by America-first [policies] but the U.S. was not the only country that was thinking of its own economy and its own ability to create jobs and attract investment,” he says.
“This was going on before COVID and COVID I think has really raised the profile of this issue because countries around the world are now starting to deal with the fact that their economies have slowed significantly because of the pandemic and that has resulted in even more ‘buy local’ philosophies.”
At the same time, Mr. Pearson says, countries are looking at how to deal with the aftermath of the pandemic and accelerate their economic recovery. There will be a significant amount of trade disruption and trade disputes, he predicts.
Expect an increase of anti-dumping and countervailing duties, safeguard measures, and negotiated quotas.
“Anything and everything – national security interests, surtaxes – will be used as a sort of a quiver of arrows to defend local markets,” he says. “So, I think 2021 and into 2022 are going to be a gong show. It’s going to be a bit of a Wild West when it comes to these issues, while at the same time you’re going to find countries revving up their protectionism.”
It will likely take two to four years for this to play out and to find a new global economic equilibrium, he says.
This will unfold with the World Trade Organization, the only global body that can do anything about trade disputes, in turmoil. That’s because the United States has paralyzed the WTO’s Appellate Body, the court of international trade, by blocking appointments for over two years. The appeal body no longer has a quorum of adjudicators to issue rulings due to the American filibuster.
“That’s symptomatic at the very highest level of where things are at. Countries are going to get into arguments about this stuff and where do you go to get things fixed?” Mr. Pearson says.
Canada is part of a team of countries that have put in place an alternative WTO appellate body but it will apply only to those countries that have agreed, which is not the majority, he adds.
While it may take a long time for the global economy to bounce back and the post-pandemic world economy may look a lot different than it was prior to February 2020, there will opportunities in addition to challenges, says Douglas Kennedy, RBC managing director at the Centre for Global Enterprise at the Schulich School of Business.
“The main drivers of globalization and international trade remain, so the economic rationale remains intact,” Mr. Kennedy says.
What is changing now was shifting before the pandemic: the move from multilateralism to unilateralism, and the increasing use of economic leverage to achieve political ends.
But Canada’s reputation for reliability and resilience can be used to our advantage, he says.
“Look to markets that are continuing to grow,” Mr. Kennedy says. “Other countries are facing the same issues as Canadian companies and consumers. They are as motivated to start trading with us as we are with them.”
Canada does not have an international economy, he says, with 75 per cent of our exports going to the United States. Our export economy lives or dies based on the health of the U.S. economy, “which, given their COVID situation, is a real question mark,” he says.
“The opportunity is with companies within countries that are looking at their supply chains, looking at the reliability and resilience of the people that are sending them product or components for products,” Mr. Kennedy says. “If you can hit the right price points and provide a quality product and you score high on those risk factors of resilience and reliability, there’s going to be a good opportunity for you to do business.”
Companies relying on exports from the U.S. and China may look at their use of economic levers for political pressure and decide they need to shore up their supply chain with a country that has a strong rule of law, where there are no issues with quality and no concerns about government interference. A country like Canada.
“I think that will create lots of opportunities,” he says.