Financial History Issue 133 (Spring 2020) | Page 13

Will Coronavirus and Economic Nationalism Reverse Two Centuries of Globalization? By Simon Constable Is globalization dead? Anyone reading newspaper headlines through 2019 would have thought so as the United States and China played tit-for-tat in a trade war. But when looked at in a broader historical context, global trade and the intercon- nectedness of the world economy remains near its peak seen in 2008. That said, cracks are beginning to occur in the world order that look eerily similar to those seen just before the last major breakdown in world trade over a century ago. Those parallels don’t mean that global trade is on a death watch. So far, it isn’t, but there are signs about which leaders should worry. At the time of writing, two things stand out as symbolic of the extent of globaliza- tion. The first is the recent outbreak of the covid‑19 coronavirus pandemic. While it started in Wuhan, China—a place few knew of a year ago—just weeks later, much of the world was stricken with the disease. Even the wealthiest coun- tries struggled to cope. A big part of the reason the virus spread so quickly is that Wuhan, home to 11 million people, is an important production center in the global manufacturing supply chain. Ten Portrait of the British economist David Ricardo. Lent to the National portrait gallery by Christopher Ricardo, 2007. This painting shows Ricardo, aged 49 in 1821, just two years before his relatively early death. percent of all cars and light trucks made in China are produced in that location, which requires a slew of raw materials. The materials used to make the automo- biles are sourced from all over the world, and then the finished products are sent back around the globe. In short, it was the massive global interconnectedness of trade that spread a dangerous disease. Economists already knew about the interconnectedness. They have observed that when one country’s manufacturing sector falters, then it won’t be long before others do too. An incident that shuts or closes a significant factory in Ohio, which is part of America’s industrial heartland, will likely be quickly followed by a slow- down in Germany or Mexico. It has to be that way because in this globalized world, the supply chains are all connected. We can see evidence of this by watching the ebb and flow of regional PMIs (pur- chasing managers indexes) that track the strength or weakness of the factory sector. These manufacturing PMIs tend to move in synch. Another familiar symbol of globaliza- tion that relies on long supply chains is jeans. While these items were once closely associated with American freedom and prosperity, they have now become ubiquitous. Few people in the developed world have never worn a pair of jeans. It’s not just their ubiquity that makes jeans a symbol of globalization; it is how they get manufactured that illustrates the matter. Before your jeans get to a retailer, the materials needed to make them must travel thousands of miles. The journey starts with the need to grow cot- ton, which then gets spun into yarn and woven into cloth. After that, it gets cut, sewed and finished before being distrib- uted through wholesalers to stores and then to consumers. Levi Strauss & Co., makers of per- haps the most famous jeans in the world, make their production flow public. That gives us great insight into the company’s far-reaching supply chain, which takes place over multiple continents. Cotton is grown in the United States, Mexico, Bra- zil, China, Greece and Pakistan. Then the fiber gets spun and dyed in Mexico, China and Pakistan. After that, the fabric cutting, sewing and finishing happen in Mexico, Haiti, Egypt, Poland, Turkey, Bangladesh and Pakistan. The jeans get sent to dis- tribution centers in France, the United Kingdom, the United States, China, Japan and Spain. Finally, they get sent to stores where you may or may not buy them. Not every pair of jeans will hit every country during its production. Neverthe- less, they still travel a long way. Other brands of jeans almost certainly follow a similar route. Even if a brand of jeans gets stitched together in the United Kingdom or other northern European countries, then it is a fair assumption that the cot- ton wasn’t grown there. Cotton is grown in hot climates. In other words, even locally produced jeans are a symbol of globalization. These long-winding supply chains may change over time, with the latest catalyst www.MoAF.org  |  Spring 2020  |  FINANCIAL HISTORY  11