While Covid-19 has dominated news for much of the year — and understandably so, as people and businesses fight for their survival — a larger, longer-lasting problem has been unfolding in the background, which many businesses will soon need to contend with: As de-globalization accelerates, two hostile economic blocs are emerging, one centered around China and the other around the United States.
Arguably, we’ve been headed towards this moment for a long while. De-globalization has been under way for more than a decade: At best, international trade was stagnating before the pandemic hit, and foreign direct investment had fallen by 70 percent in 2018 from its peak in 2007. Never easy, Sino-U.S. relations have taken a more confrontational turn under Xi Jinping. By 2018 we were already witnessing the opening skirmishes of a new Cold War.
Covid-19 has accelerated the process by providing a justification for re-shoring production of strategic goods. Japan, for instance, has just set aside $2.2 billion to facilitate re-shoring from China. Directly and indirectly, the pandemic has also added major points of contention to the already very long list of friction points between China and the United States, from the question of responsibility for the pandemic to Beijing’s decision to in all probability put an end to “one country, two systems” in Hong Kong.