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The Coronavirus Is Killing Globalization

Until recently, most policymakers and investors remained complacent about the potential economic impact of the coronavirus crisis. As late as the end of February, most wrongly assumed that it would have only a brief, limited, China-specific impact.

Now they realize that it is generating a global shock, which may be sharp—but which most still expect to be short. But what if the economic disruption has an enduring impact? Could the coronavirus pandemic even be the nail in the coffin for the current era of globalization?

The coronavirus crisis has highlighted the downsides of extensive international integration while fanning fears of foreigners and providing legitimacy for national restrictions on global trade and flows of people.

All sorts of businesses have suddenly realized the risks of relying on complex global supply chains that are specific not just to China—but to particular places such as Wuhan, the epicenter of the pandemic. Chinese people—and now Italians, Iranians, Koreans, and others—have become widely seen as vectors of disease; senior Republican politicians in the United States have even labeled the disease the “Chinese coronavirus.”

Meanwhile, governments of all stripes have rushed to impose travel bans, additional visa requirements, and export restrictions. The travel ban on most arrivals from Europe that U.S. President Donald Trump announced on March 11 is particularly broad, but far from unique. All of this is making economies more national and politics more nationalistic.

Much of this disruption may be temporary. But the coronavirus crisis is likely to have a lasting impact, especially when it reinforces other trends that are already undermining globalization. It may deal a blow to fragmented international supply chains, reduce the hypermobility of global business travelers, and provide political fodder for nationalists who favor greater protectionism and immigration controls.

The complex China-centered global supply chains on which so many Western companies have come to rely are particularly at risk. The cost advantage of producing in China has eroded in recent years as the country has become richer and wages have soared. The risks of doing so were highlighted by President Trump’s imposition of punitive tariffs on imports from China in 2018 and 2019, leading businesses to scramble for alternatives.

While the January deal marked a fragile truce in the U.S.-China trade war, the perils of producing in China remain; both Democrats and Republicans increasingly view China as a long-term strategic rival that needs to be contained. And no sooner had the trade war abated than the coronavirus intervened. The extended shutdown of many Chinese factories has pushed exports down 17 percent in the first two months of the year compared with a year earlier, and it has disrupted the production of European cars, iPhones, and other consumer goods.

Inertia is a powerful thing. And there are still many advantages to producing in China, such as scale and efficient logistics. But the coronavirus crisis could mark a tipping point that prompts many businesses to remodel their supply chains and invest in more resilient and often more local patterns of production.

One option is to shift and diversify operations across other Asian economies, such as Vietnam or Indonesia. Another is to shorten supply chains, with U.S. companies moving production to Mexico and European ones to Eastern Europe or Turkey. A third is to invest in robots and 3D printing within advanced economies, producing locally closer to consumers.

A second enduring consequence of the coronavirus crisis may be reduced business travel. Technology gurus have long argued that videoconferencing and chat apps would eliminate the need for most business travel and allow many people to work from home more. Yet until the coronavirus crisis, business travel had continued growing, seemingly inexorably.

Now, whether because of government bans, business decisions, or individual caution, all but the most essential international travel has been canceled, and those who can work from home are increasingly staying put.

Thanks to this forced grounding, businesses may discover that while face-to-face meetings are sometimes necessary, technological alternatives are often just fine—and also much less costly, time-consuming, and detrimental to family life. And at a time of increasing concern about the impact of airplane emissions on the climate, and with many businesses keen to highlight their commitment to environmental awareness and sustainability, there is both an environmental reason and an economic one why business travel may decline.

Perhaps most significantly, the coronavirus crisis plays into the hands of nationalists who favor greater immigration controls and protectionism.

The speed and scope of the virus’s spread across the globe have spotlighted people’s vulnerability to seemingly distant foreign threats. The coronavirus has not just spread to global hubs such as London and New York. It has also leaped directly to provincial cities such as Daegu, South Korea’s fourth-largest city; nursing homes in the suburbs of Seattle; and even small towns such as Castiglione d’Adda (population: 4,600)—one of the 10 towns in Lombardy first quarantined by the Italian government in February.

Philippe Legrain