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Thursday, May 23, 2024

Nightmare of globalization: Will Corona reverse globalization?

Coronavirus is dangerous because of its ease in transmission. This forces governments to block tourism and trade services - the most important aspects of globalization. The question is will states allow tourism and trade after pandemic subsides?

Waleed Yawer |

As Facebook would suggest, apocryphal accounts of Americans refusing purchase of the Corona Beer is just that, an attempt at left-wing humour that far lesser people will find amusing by the day, the drawing up of a Potemkin village by the same, and more importantly, regardless of purpose or intent, misinformation symptomatic of globalization; not its triumphs but rather its fears.

Misinformation winnowing through social and mainstream media; of the kind that Donald Trump might want to fret a little over in an election year, is one of many facets of a globalized financial network as an underlying principle of modern institutional governance. Disruptions to the stock market in the short and global trade flows, supply chains and transport networks in the long term, challenges to human and service mobility, a convening of religious, entertainment and sport based crowds, threaten to derail national and global revenue streams.

Chekhov’s gun might have fired its first shot as countries across the globe close down their borders and economies, shying away from all facets of globalization including those mentioned above and those beyond the purview of this article, converging onto a tempestuous reality, the Coronavirus.

Ostensibly, though the state of alarm almost all continents find themselves in is not because of the potency of the Coronavirus, but rather the underlying ease in transmission. As communicable viruses go, the spread is hardly a black swan event. Government reactions, especially in the Trans-Atlantic Region through the uniform is one that Central Banks and financial agencies did not perhaps think they would have to brace for.

The US Federal Reserve cut interest rates by 0.5% last week as Investment Banks gear for further cuts, with the Bank of England following suit by reducing interest rates from 0.75% to 0.25%. The European Central Bank has little room to play around the interest rate. Add to that ambiguity over what sectors to inject funds into, given the caprices of consumer behaviour under a crisis such as this and what appears is a financial system, not unlike the World Health Organization at odds with long-term planning.

This is far from the credit crunch and the ensuing recession that the European and American Central Banks were insulating themselves from; both having had to bail their economies at various points in the previous decade, but the financial instruments in place were not meant to fuel economies wherein consumer retraction was based not on lack of capital but a disruption in global supply chains.

Increased financial capacities for lending, short term liquidity and the shoring up of the Repo Market are reactions to speculative market mania that Central Banks have prepared for; to what end though under such uncertainty remains to be seen.

Trust in central financial institutions is such, and quite credibly founded in the notion that governments will need to scrimp on public expenditure as revenue streams are effected, tourism, sporting, cultural and religious events are called off, that it was able to rally investors back not to normal business but on stable footing following a turbulent weekend for oil prices.

Read more: Oil Prices at 17-year low as virus-hit oil sector struggles to survive

Oil futures are stern indicators of global energy trade. While the conflict over oil prices, the likes of which resulted in a standoff between Russian and Saudi Arabia, has been in the making for a better part of the previous decade, the possible economic implications of the Coronavirus on the commodities market have begun to widen crevasses in the politico-economic arena.

The $50 billion worth imports of oil and natural gas from China, part of the Phase One Agreement between the US and China is perhaps detached more from reality than the uncoordinated response of the global population and leadership to the Coronavirus.

While both the agreement and the Coronavirus are challenged to effective governing of financial globalization, the latter, though was always shrouded in inevitability. The former was borne almost out of disregard for basic economic principles, touted ironically as a response unfair trade and currency manipulations.

Read more: COVID-19 – A Year Of Global Records

In essence, the Phase One Agreement would redirect regional and global supply chains as China would have to bar energy imports from the region to meet import obligations from the US, assuring the Office of United States Trade Representative of no currency deprecation while struggling with a nationally weakened demand for oil. That weakened demand is only set to worsen as the Coronavirus forces people indoors.

The global response to the virus has indeed been uncertain. Such is the uncertainty, that Europe might just find, in its crusade against the virus to be a point of consensus; particularly between the North-Central and Southern European nations. Italy has been the hardest hit and the government response the most austere. What has become clear though is the need in Europe for a financial easing and injection of funds across the continent to ensure a more robust response to the crisis following the outbreak of the virus?

Structural funds, aimed at more fiscally and socially vulnerable regions; such as Northern Italy, are more politically and financially relevant than ever before. Furthermore, the convening of the Employment, Social Policy, Health and Consumer Affairs Council (EPSCO) made clear the urgency in the need for the European Centre for Disease Prevention and Control (ECDC) to design a continent-wide response.

Read more:UN requests $2.5 tn pandemic aid for developing states

An all-round response is indeed the order of the day. The WHO only recently classified the virus as a ‘Pandemic” which should trigger, at least, in terms of narrative a realization that while the virus does need to be tackled head-on through more effective healthcare, institutions need to ensure a more structural response that takes into account socio-political aspects of the virus.

Read more: Coronavirus becomes threatening pandemic: WHO

While interconnectivity has its advantages, we are beginning to see its drawbacks. The European Commission, for instance, has earmarked €15 million for ease in diagnoses of the virus in Africa. The effectiveness of global measures will become clear gradually, but for now, their application is imperative and might prove to be the difference between the uninhibited spread of the virus and managed uncertainty resulting from it.

Waleed Yawer is currently serving as Assistant Research Officer at the Islamabad Policy Research Institute (IPRI).