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5 things that won’t change in the post-coronavirus economy

Reuters/Aly Song
It may feel like everything is different because of coronavirus, but that simply is not true.
  • Parag Khanna
By Parag Khanna

Founder and managing partner, FutureMap | Quartz Pro

Published Last updated This article is more than 2 years old.

The longer the coronavirus pandemic persists, the more it shakes our belief in linear progress. From 9/11 to the financial crisis to the current global pandemic, we have experienced a major global shock roughly every 10 years. And each time, there are unanimous cries that “everything will change.

Yet numerous trends that were underway before the current global shutdown began will not only continue, but accelerate. Here are five such undercurrents that will be reinforced by the pandemic. If nothing else, this list should give us a more confident view of the world of tomorrow.

1. China will be less dominant

The propaganda war is already at a fever pitch: US president Donald Trump has tentatively said he’ll avoid calling the Covid-19 respiratory disease the “Chinese virus” (secretary of state Mike Pompeo prefers “Wuhan virus”), while China is asserting its statesmanship by supplying surgical masks, testing kits, and ventilators to countries in need—including Italy and the US.

Semantic disagreements have already blocked a common G7 declaration as Europe tries to play nice. But even as China demonstrates its strong capacity to beat back the virus and help others,

Yes, the world knows where the virus first broke out. But across Asia and the rest of the world, trust in China was falling well before the pandemic hit. Its military aggression in the South China Sea and dominance of big infrastructure contracts as part of its Belt and Road Initiative have been raising suspicions from Kenya to Pakistan, Sri Lanka to Myanmar. These and other countries had begun to scale back big ticket Chinese dams, power plants, and railways at least since 2017 in order to control costs and negotiate for a bigger share of the pie for their own companies.

Europe, Japan, India, and the US also launched their own competing ventures to fund infrastructure such as the EU’s “Asia Connectivity Initiative.” At a time when countries can’t afford China’s high interest rates, alternatives to China will be even more welcome. Just as the 14th century Black Death spread from China along the Silk Roads, ultimately fracturing the Mongols’ vast empire, so too will the coronavirus lead to China’s a lessened dominance across Eurasia.

Furthermore China’s demographic and economic trajectories are peaking. The country’s population is aging and near its plateau, and its economy is slowing. Its response to the virus proves that it makes almost everything its own people need; the lesson to others is to do the same. India (whose population is equivalent to China’s, but much younger) and the rest of Southeast Asia (which adds another 700 million young people) combine to receive more foreign investment into their low-wage workforces and fast-growing markets than China, indicating that supply chains began shifting out of China well before the virus. And now, that trend will only speed up.

2. Regionalism = the new globalism

The coronavirus pandemic has proved beyond any doubt how interconnected our lives are.

The novel coronavirus is only the most recent of several shocks to global supply chains that have exposed the vulnerability of our just-in-time delivery models and reliance on foreign imports for critical supplies, such as medical equipment and pharmaceuticals. In 1999, the devastating Taiwan earthquake led to shortfalls in semiconductor supplies. But the near-shoring of at least some manufacturing has been underway since the mid-2010s, when America’s shale energy boom drastically brought down the price of oil and American firms grew frustrated with Chinese industrial policy and theft of foreign technology.

The trade war with China then kicked off in 2017, resulting in Mexico becoming America’s top trading partner by 2019, with $309 billion worth of trade, and Canada coming in second at $306 billion—both ahead of China’s $271 billion.

As a region, North America is far more self-sufficient (and less trade dependent) than other regions due to its large combined population of nearly 500 million abundant natural resources, massive financial wealth, and industrial and technological base. Trump may not like NAFTA, but the continent has effectively become a North American Union.

This mirrors what has already been true in the rest of the world. Indeed, Europe and China were practicing their own versions of Trump’s “Buy American, Hire American”  campaign long before he entered the White House. To compete more with the US and China, Europe last year launched a giant program to bolster strategic industries from clean energy to semiconductors. Seventy percent of Europe’s trade is within the European Union (something Brexit supporters probably should have noted before their 2016 referendum).

In Asia, the figure has climbed to 60% on the back of major trade agreements such as the Regional Comprehensive Economic Partnership. Migration and investment are also far more regional than global. You can safely bet that will be even more the case after the pandemic.

That said, globalization is far from dead. Countries trade abundantly in food, fuel, automobiles, and electronics, to name just a few areas contributing to the world’s $20 trillion in annual trade and trade in digital services—bits rather than atoms. This continues to surge as we exchange software, music, video footage, and other data content.

Furthermore, even as countries practice beggar-thy-neighbor policies thus reinforcing their own industry at the expense of others’, many large multinational companies depend on foreign markets for half or more of their revenue. Where would Apple or GE’s share price be without iPhone or car sales in Europe and Asia? Especially because the US has not joined the Trans-Pacific Partnership trade agreement, American companies actually have to invest more in Asia to access its sizable markets. The objective for global supply chains is therefore the same as before the pandemic: Make it where you sell it.

3. Automation will accelerate

Who will be doing the making? As before the pandemic, the answer is, increasingly, robots. Labor automation has been a significant factor in the global economy for more than a decade (and studies emphasize that it has caused far more job losses than outsourcing).

Germany, Japan, South Korea, and China are among the countries with already high ratios of robots per human worker, and while they have created many jobs in designing and deploying robots, the balance will ever more favor machines—especially after the pandemic.

Consider South Korea’s chief carmaker Hyundai, which suffered the double whammy of dependency on car parts made in Wuhan and a high infection rate that forced it to stop production at its plants. Moving forward, it is certain to invest even more in automation, both to near-shore production and decrease dependency on virus-prone human labor. China and other countries will likely do the same.

In America, the near-shoring revival will be powered by cheap oil and accelerated deployment of industrial robotics. Apple recently announced the opening of a new factory near Austin, Texas, to manufacture MacBook Pro computers (although there’s some controversy as it’s reportedly been operational since 2013). But in due course, as with Taiwan-based Foxconn’s assembly lines that make Apple products, the Texas plant too will be nearly fully automated, as will manufacturing plants in China.

With the US’s large share of workers in transportation, retail, hospitality, manufacturing, and other highly automatable sectors, its workforce was deeply vulnerable well before the coronavirus caused the current economic standstill and spike in jobless claims. Though Amazon has promised to hire 100,000 workers to aid in deliveries, it is also one of the companies investing the most in automating its warehouses and distribution channels. And this week, that same Amazon workforce and other delivery workers announced a strike to call for better wages and protection, including reliable personal protective gear.

With the economy contracting and profits shrunk, corporations will in the long run tend even more toward reducing their labor costs through automation, leaving the task of supporting the population ever more to the government rather than to the private sector.

4. Fiscal policy will be an economic crutch

Main Street is finally getting the bailout it never received after the financial crisis. G20 governments have pledged to do “whatever it takes” to counteract the staggering effects of the virus, including providing $5 trillion in immediate stimulus including tax cuts, cash transfers, bridge loans for businesses, and bailouts for big corporates. Importantly, the consensus around the need for greater fiscal support for the masses, whether in the form of higher minimum wages or universal basic income, has been mounting since the Occupy Wall Street movement formed in response to stagnant median wages, high student debt, weak housing price growth, and retirement portfolios suppressed by low interest rates.

The pandemic has only compounded the pre-existing misery and desire for radical policies that fueled the campaigns of Bernie Sanders, Elizabeth Warren, and Andrew Yang. This entire process is often referred to as “Japanification”—and it’s more or less been the norm in Europe since the financial crisis; now Japanification has formally arrived in the US, too. Big government is here to stay.

Some see a silver lining in the significant asset price correction that is to come, proposing that corporate bailouts come with strings attached, such as preferred stocks granted to the public so that ordinary citizens can benefit from an eventual economic recovery. But this won’t be enough to get most Americans off the crutch they have needed for more than a decade and may require for the next decade or more. From gig workers to baby boomers, new job creation in social services, education, and many other sectors will fundamentally depend on public finance in one way or another.

For those who don’t get the unemployment benefits or social support they need, the only choice left will be to move somewhere else.

5. More people will move

This may seem ironic given today’s widespread border closures and standstill in global transportation, but as the curtain lifts, people will seek to relocate from poorly governed and ill-prepared “red zones” to “green zones,” or places with good medical care. Or, people may relocate to places where involuntary quarantine, whenever it strikes next, isn’t so torturous. Both domestic and international migration were surging before the pandemic, with Gen-Xers and millennials shifting to cheaper second-tier cities in the Sun Belt or abroad to Latin American and Asia in search of an affordable life. Once quarantines lift and airline prices stand at rock bottom, expect more people to gather their belongings and buy one-way tickets to counties or countries cheap enough to start fresh.

At the higher end of the value chain, telecommuting has long been the norm; now it has been thrust upon the entire corporate world. This will allow talented remote workers to justify becoming even more remote as they move to places offering higher quality of life, lower taxes, and equal, if not better, connectivity.

There’s also been talk that the coronavirus signals a deepening of nationalism and xenophobia. Don’t bet on it. With a stagnant or shrinking tax base and aging populations to support, countries from the US and Canada to the UK and Germany have long faced worker shortages for nurses, teachers, and other roles that today’s domestic unemployed aren’t qualified for.

Shortly before he was excused from his position as White House chief of staff, Mick Mulvaney stated that America is “desperate for more people,” urging more (“legal”) immigrants to help fuel economic growth, praising Canada’s skills-based migration policy. Sooner or later, even populist governments will finally wake up and realize that hard-working immigrants are the solution, not the problem. And the contest for talent will pull people across borders more than ever.

The coronavirus pandemic has proved beyond any doubt how interconnected our lives are. As a result, humankind is experiencing unprecedented common focus on the same challenges, evoking coordinated response across hundreds of nations and billions of people. That in itself is something remarkable to behold.

But we shouldn’t forget that well before the pandemic, geopolitical tensions, a broad economic slowdown, aging populations, high debt levels, technological disruptions, and climate change were already conspiring to shift supply chains, populations, and public policy. All of these factors—not the pandemic alone—will continue to shape the global future.

If one can encapsulate the picture that results from the confluence of today’s colliding vectors, it would be a neo-medieval world in which empires, cities, and companies compete for authority and offer varying degrees of services to their constituents. The pandemic has reminded us that we seek physical and financial security above all else, but also that connectedness—both local and global—is as much an element of that security as ever.

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