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Globalisation, it’s reasonable to say, is in trouble. Even before the Covid-19 pandemic, the great surge in cross-border movements of goods, services, and capital that started in the 1990s was having to surmount greater and greater obstacles.
First came the world financial crisis in 2008. Then came Donald Trump, starting tariff wars in multiple directions, trying to drive China out of tech supply chains and wanting everything made in America.
…see by the dawn’s early light.
And now comes the coronavirus, a disease itself spread by cross-border travel, which is closing down large swathes of the world economy, causing international trade to collapse and leading to calls from politicians to bring production back home. Will all this really be enough to put globalisation into long-term reverse?
We’ve had episodes before which felt something like this. We’ve had times in history where a whole new trading area developed. Often they were backed by an empire or by new technologies. Those systems eventually degraded or collapsed, but it took quite a lot, sometimes involving disease and even more so war to destroy them.
So to understand what happened in the past and get some pointers for the future, let’s first talk about the ancient Romans.
The Romans imposed their rule across much of Europe and around the Mediterranean. They traded mainly in grain, linen, wine, pottery. Even then, their trade extended indirectly as far east as China in silk.
Now, Rome wasn’t mainly a commercial trading empire, more a system of military occupation. But the most impressive achievement was constructing a supply system of grain to keep Roman citizens fed, the ‘bread’ in bread and circuses.
Much of the grain was grown in the Nile Valley and shipped across the Mediterranean. This was so efficient that, by some estimates, ancient Rome grew to more than a million people. That’s the same that London achieved 18 centuries later.
Like many empires, though, Rome overstretched. It was attacked by Germanic tribes, the Vandals and the Visigoths, and it collapsed.
Europe splintered into a mess of unstable kingdoms who weren’t always keen on trading peacefully with their neighbours. It wasn’t until more than 700 years later, in the 13th century, that another empire rose to pick up where the Romans had left off – the Mongols.
Step forward Genghis Khan, who brought the vast empire together. Now, we think of the Mongols as warlike, destructive types. And true, Mongol culture was top-down and militaristic. But at the same time, they created enough peace and order for long distance trade to flourish once more. Historians call the era Pax Mongolica.
They established a land route from Asia, as far as China, to Arabia and via ships on towards Europe. It was named after its most famous product, the Silk Road, but they also traded in jewels and precious metals and ceramics and also knowledge of medicine and science.
But like the Romans, the Mongols’ empire was too rigid to last very long. It split into rival kingdoms.
It was also savagely weakened, ironically, by a side effect of the Silk Road. As the trade caravans and armies went west, they carried with them fleas which brought bubonic plague, the Black Death. The Covid-19 pandemic of today has already been hugely destructive. The Black Death was an absolute catastrophe. Populations in Europe and the Middle East were devastated. Perhaps a third or a half of all people died. And with their implosion came the end of Pax Mongolica and a darker age for global trading.
Meanwhile, China, which until then had been a huge sea trading power, turned in on itself. Its bureaucrats, who distrusted trade, proved more powerful than its merchants, who profited from it. In the 15th and 16th century, China disbanded its navy and cut its traders off from foreign commerce.
After the Mongol Empire died in the 14th century, new trade routes eventually appeared. But these didn’t grow into a unified trading system that spread across whole continents. European empires established trading routes with the Americas, Africa, and Asia, but trade was generally limited to specialist goods like spices and cotton textiles. It was based largely on imperial monopoly and exploitation, including the slave trade, backed by military force. And the limited technologies – sailing ship communication by hand-delivered message – held things back.
It was the 19th century when things really came together.
New technologies made transport faster and cheaper.
Railways and steamships brought the wheat of the American prairies cheaply to the bakers of Europe. The telegraph meant London could chat with New York. The first transatlantic cable was laid in the 1850s. Manufactured goods like iron, steel, and glass flooded across the oceans, as did capital to build US railroads and cities and migrant workers to seek greater opportunities. Currencies were linked to gold by the gold standard, keeping prices predictable.
The first golden age of trade from the 1880s until 1914, as it became known, wasn’t just a secure trade route enforced by military power. It was globalisation. It was the closest to a single market that, until then, the world had ever got. The system took quite a lot to destroy, but that happened with the first world war, whose destructiveness, of course, was reinforced by another devastating global pandemic, the so-called Spanish flu of 1918 and then the Great Depression.
Soviet Russia and other countries turned toward dictatorship and self-sufficiency. Even democracies, led by the US, retreated behind tariff barriers. The gold standard collapsed. The first golden age was over.
After the second world war, the big democracies laboriously started to dismantle some of these barriers. But the next big wave of globalisation didn’t take off until the 1990s. Soviet communism collapsed. China opened up to international trade. Digitisation and the internet revolutionised global supply chains. Financial markets were liberalised. Asia retook its former place as one of the great centres of business and trade. China started to rebuild the Silk Road to the west. A great surge of goods, services, capital, and a new phenomenon, digital data, started moving around the world everything from electronics to software to artificial intelligence.
Then came the world financial crisis of 2008. After it came populism and suspicion of globalisation. And then came Donald Trump and his trade wars and his trying to drive Chinese companies out of global supply chains, out of the technology sector, out of 5G mobile networks, and ultimately out of America. And now comes Covid-19.
Coming on top of Trump, the pandemic was the last thing the global trading system needed. Trump could be on his way out of the White House by the end of the year. The effects of the virus and of possible resurgences and future pandemics will continue. As well as its direct effects in limiting travel, trade, and growth, Covid-19 will give support to any politician, not just Trump, who wants things made at home, however inefficient and expensive, rather than bought and sold abroad.
Governments are obviously focusing on Covid as a health crisis, their immediate aim being to save lives. Yet from the point of view of the trading system and the world’s future resilience to shocks, their responses have not been impressive. They’ve slammed on export restrictions on medical kits, driving prices upwards and damaging trust in open commerce. The US and China have increased their rhetorical conflict. It’ll be hard for those two superpowers to sit down at a negotiating table and talk about reducing trade tensions after this.
But obvious though this may seem, we need to keep things in a bit of historical perspective here. Donald Trump isn’t as bad as the Visigoths and the Vandals. He’s not as bad as the Great Depression. We haven’t had a major war between the big powers. And terrible though Covid-19 is, it’s unlikely to match the Black Death that cut down huge swaths of the populations of Europe and the Middle East and helped to destroy the Mongol Empire.
There are technological and economic forces that will resist the disintegration of international commerce. Digitisation that spread supply chains and data movements around the world won’t be disinvented. Chinese companies, as well as American and European, operate all over the world.
Assuming – a big assumption, of course – that the pandemic subsides, it’s quite possible that this was the moment that the 30-year era of globalisation stalled, even took quite a big hit, but did not collapse. Of course, there are other actual and potential sources of disruption. Climate change, for one, particularly if it causes a backlash against trade, cyber warfare between the big powers, perhaps. But are we on the verge of another collapse of a global trading regime? Probably not yet.
Source: Economy - ft.com
