The big pivots in global trade: Prashant Jha on the pandemic and globalisation
The pandemic drove nations to turn inward, and form new groupings. Attempts were made to diversify, rely less on China. Five years on, the results are mixed.
Made in China.
Five years ago, the innocuous tag attached to so many of our purchases, from toys and electronics to clothes and the idols one might worship, acquired an entirely new meaning. And no, this wasn’t about how the virus originated in China.
It was about how living through the pandemic, surviving it and overcoming it, required a high degree of Chinese commitment to abide by the rules of the game. It required China to be generous. At the very least, it required China to not leverage its centrality to the production of everything the world needed in that dark period (from pharmaceutical ingredients to masks, personal protective equipment and electronics), for political and strategic gain.
Guess what? China behaved as most nations might when armed with that power. It used the centrality it had acquired to hold global supply chains hostage. It used the moment of vulnerability to push territorial claims vis-a-vis its neighbours. It used the moment to expand market access in the Global South. And it used the moment to project itself, not fully accurately as it turned out, as the calm and competent power that could withstand the pandemic better than developed Western democracies.
All this would have repercussions, because in politics, all sides get a vote.
The 2016 US election had already reflected the growing angst in middle America over the loss of jobs to China. Donald Trump’s win was driven as much by a yearning to bring manufacturing back to America as by factors such as cultural conservatism and racial resentments.
The US wasn’t alone. As Made in China became ubiquitous in stores around the world, populists and protectionists began to ring alarm bells. An inward economic turn was already visible across major economies before 2020.
What the pandemic did, particularly in the world’s largest economy, was add to this constituency of populists and protectionists the entire apparatus of the American national security establishment.
The national security community woke up to the dangers of being excessively reliant for basic necessities not just on a single country, but on a country that was also a prime adversary. Joining this cohort of American politicians and economic and security policymakers now were key powers of the Indo-Pacific, including India, and, to a lesser degree, Europe.
The strategic goal of supply chain diversification tied in neatly with the renewed political-economic goal of boosting domestic manufacturing and generating jobs.
A glance at international communiques involving non-China groupings of states across geographies, since the pandemic, shows how central the idea of supply chain diversification has become to global geoeconomics.
From Quad (India, Australia, Japan and the US) and the Indo-Pacific Economic Framework for Prosperity (IPEF; a grouping of 14 countries from the region, and the US) to the US-EU and EU-India Trade and Technology Councils, the signal is clear: the world must reduce its reliance on products Made in China. (Incidentally, only Quad predates the pandemic; the other groupings were formed between 2021 and 2023.)
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Five years since the pandemic began, though, results have been mixed. Those who had hoped the world would see the perils of overdependence on China can take satisfaction from five key metrics.
One, there is political recognition in the US, Europe and Indo-Pacific that the world needs more manufacturing hubs.
Two, the US has sought to introduce export control measures, especially in critical technologies such as semiconductor chips, to slow China’s ability to do in the world of tech what it has done in the world of manufacturing.
Three, companies have shifted or expanded manufacturing operations across new geographies from Vietnam and Mexico to India.
Four, policymakers around the world, including in the Global South, are more cautious when they engage with China, especially on economic initiatives.
And finally, the Chinese economy itself has suffered blows that have, at least partly, inhibited it from exercising the kind of external adventurism Beijing displayed before 2020.
However, for those who had hoped to see the pandemic result in a far more equitable refashioning of the global economic order and supply chains, a reality check is in order on five counts.
One, China continues to be the single most important global production hub. Its trillion-dollar-plus trade surplus is only one indicator of this.
Two, manufacturing hasn’t moved out of China to the extent that many in the Western world and in the Indo-Pacific might have hoped, with companies continuing to leverage China’s many advantages for business, as well as its domestic market and trade linkages, to continue their operations.
Three, even when manufacturing has moved out of China, there has been a strong element of linkage back with China, either in terms of intermediate inputs or personnel, as India is experiencing, or in terms of direct capital investment, as both Vietnam and Mexico have experienced. The dreams of supply chains that exist outside of China’s control, or that exist in addition to China’s, has met the reality of the visible and invisible Chinese presence even in manufacturing and trade that occurs outside China.
Four, American export controls may have lessened China’s tech prowess by a bit, but it is, by most reckonings, a far smaller reduction than was hoped for. Instead, these controls may well have unleashed an entrepreneurial energy of a different kind, and a drive to succeed within resource constraints, as DeepSeek has shown.
Finally, China has assets it can weaponise, especially given its dominance over critical minerals and its centrality to the new-energy economy. And it is showing a willingness to do so. This only reinforces the need to work on supply chain diversification.
The central geo-economic question the pandemic threw up was how the world would respond to China and how international trade would change. Five years on, certain trends are visible.
Every major power is turning protectionist, concerned by how globalisation eroded jobs and manufacturing, and empowered China. This trend will likely intensify with Trump’s return to the White House.
The international trading regime is undergoing a process of slow burial, with bilateral trade deals and regional trading arrangements replacing it. The increasingly erratic nature of America under Trump, with his own tariff obsessions, will only fragment global geoeconomics further. While this may lead to increased costs for China in the short term, as tariffs go up, it may well lead to even greater dependence on China in the longer term, as the rest of the world begins thinking of a world where America no longer upholds the norms of global trade and economic openness.
(prashant.jha1@htlive.com)
