With several countries and regions locked down, will
there be a redrawing of geographical boundaries?
Much of what we saw in terms
of global integration of trade and finance would suffer in the short run.
When the world was hit by
economic recession in 2008, trade dipped by almost 10% in 2009 when there
was a 3% decline in global GDP.
That’s roughly the relation
between trade and growth. When there’s a boom, trade grows much faster
The World Trade Organization
(WTO) has now estimated that in a worst-case scenario, global trade could
dip as much as 32%, indicating the kind of dislocation they expect in
It’s going to be a very
different ball game — the first thing that will happen is countries will
try to build themselves up.
How has it hit India and what can we expect as impact?
In India we can see the
disruption that is taking place — almost 50% of our trade is directly
linked with the micro, small and medium enterprises (MSMEs) sector as even
large players have sub-contracted to the smaller producers.
So it is anyone’s guess what
the impact is going to be on trade because of the disruption in
Going forward, most
economies, with the exception of China, are going to see a very different
kind of dynamic as they will try to build up from where they would be in a
few months’ time and then think in terms of how to integrate themselves
again with other countries.
How could this impact Asia Pacific as a region and
India in particular?
released its annual Economic and Social Survey on 8th April 2020 — what
we are finding of course, is that the COVID-19 crisis is a challenge never
seen before and it is going to be a bigger shock for the world economy
than the global financial crisis which was only driven by a demand shock.
This entails a demand and
supply shock and it is still unfolding.
It is now clear that many
economies are going to shrink — developed countries as well as many in the
Asia Pacific region that are highly dependent on tourism and commodities
trading will also shrink.
Commodity prices are at their
lowest in the last 10 years.
Specifically, With respect to India
There is a slight silver
lining because of low oil and commodity prices as we are net importers
and, also, since the government is not allowing a full pass-through of the
lower global prices, it means that there is some fiscal space through
commodity price reduction.
Still, the disruption in
work, especially in MSMEs that are the backbone of manufacturing, trading
and services, is very serious.
Is COVID-19 set to reverse the trend of globalisation
as we know it?
The process of globalisation
was already in retreat and last year, the term ‘slowbalisation’ was being
World trade had never really
recovered since the global financial crisis — from a 10% growth, it had
been hovering around 1%-2%. Add to that the trade wars and the WTO talks
process coming to a grinding halt.
Now, with this pandemic,
there is another recognition of the vulnerability that global economic
So some countries are facing
difficulties in getting medical supplies, some find their manufacturing
can’t run as value chains are linked with China.
Countries will reconfigure
their economies to look at import substitution with a greater clarity now,
as the perils and pitfalls of overdependence on foreign supplies become
Import substitution, that had
become a bad word, may be back in currency.
How different is China’s position?
News has been filtering
through that China’s manufacturing sector is back.
Other countries will remain
in a lockdown phase for at least another two months.
So, if the Chinese get a lead
in getting their act together, they are going to consolidate their
position in the global economy further.
However, China doesn’t really
figure in the top of countries that have announced stimulus packages.
Countries are going to be
extremely wary of the superpower that China will become and would like to
Could this dampen movement of labour across countries?
Once you talk of import
substitution, you focus more on your domestic skills.
The movement of personnel
will follow the formula of economic needs.
The first priority of every
government would be to create jobs for its own people.
In a high unemployment
scenario, hiring expats won’t be in favour.
Could the role of WTO evolve in such a situation?
Trade rules have worked best
when the global economy is booming and isn’t facing a crisis.
On the issue of subsidies for
small industries, no country will like the WTO to be telling them what to
do or what not to do.
The agricultural subsidies
issue is going to be junked.
If the WTO rules are junked,
then it’s a free-for-all situation.
Shall there be a rethink on existing multilateral and
Countries cede a part of
their sovereignty while getting into these trade agreements. In the last
quarter of the twentieth century, we saw one driver of governance — market
But now, in major economies,
governments have taken centre stage and depending on how long the pandemic
drags on, the government will remain in the driver’s seat and markets will
take a backseat.
If governments have to do the
heavy-lifting, then they want full force of their sovereign powers.
The project of globalisation
could settle at a new normal and it will be a very different WTO and trade
governance framework, with different kinds of regional and bilateral
India, of course, has already
become a reluctant player and had, in a way, started disengaging.
Other countries were more
tightly knit together through pacts like the ASEAN.
The European Union is already
in tatters and it will be important to see the role of the European
Commission and the European Central Bank in getting a decent stimulus in
addition to what individual governments have done. NAFTA is already being
So going forward, much of the
churning is going to get bigger in regional formations.