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COVID-19 comes, globalization goes?

March 6, 2020

Will the new coronavirus accelerate a general, Donald Trump-inspired shift away from globalization? DW's Henrik Böhme believes that we can at least expect a new global division of labor.

Shanghai port
Image: picture-alliance/Xinhua/D. Ting

Just look at a car leaving the assembly lines in Sindelfingen or Wolfsburg, Germany. Be it an E-Class Mercedes or a VW Golf — "Made in Germany" is no longer really applicable there. Only about a quarter of all parts assembled still comes from the carmakers themselves with the rest being provided by numerous suppliers. Components come from all corners of the world.

It is a huge logistical challenge. Supply chain management is not plain sailing. And if, say, a container with parts from China doesn't arrive at the port of Hamburg, Sindelfingen and Wolfsburg can quickly have a huge problem.

Bottleneck scenarios are currently being analyzed by many companies in Germany and beyond. Carmakers are dealing with this issue, and so are machine builders, small- and medium-sized businesses, and DAX-listed firms. The topic has also gone viral in Germany's health care system, where the new coronavirus has exacerbated an already simmering drugs shortage.

Many people are asking whether we're seeing the beginning of the end of globalization. Do we have to reassess the global division of labor? Do nations have to bring production back home? Is there a working alternative to the global factory that's been built over the past three decades?

Repatriating production

Here's some disappointing news for all those who believe that all current problems in the world are caused by globalization: There are no easy solutions. On the one hand, globalization has led to an enormous increase in wealth and well-being, and not just in industrialized nations.

Some nations have been able to leave their status of being developing countries and have become emerging economies, lifting millions upon millions of people out of dire poverty.

DW business editor Henrik Böhme
DW business editor Henrik Böhme

Of course one shouldn't ignore problems related to working conditions, or social and environmental standards. But if anyone in the West demands that production be repatriated, lots of jobs would be lost elsewhere if that came to pass.

And no double standards, please! Lots of people go ballistic when US President Donald Trump speaks of bringing back jobs to America. But when German Economy Minister Peter Altmaier or his French counterpart, Bruno Le Maire, talk about creating more production facilities in Europe and bringing back key production capacities, people here are far less worried, if at all.

That doesn't mean that no changes are required at all. Take the pharmaceutical industry. If Germany, just like France, gets some 80% of all required active ingredients for drugs from abroad (40% from China alone), the system needs to be tweaked.

But let's not forget how the discrepancy emerged in the first place. Domestic production had grown too expensive and cost pressures exerted on the industry by health insurance funds were enormous.

It's wrong to believe, though, that Germany is fully in the hands of Chinese players in many industries. The German economy as a integral part and beneficiary of the global division of labor is not dependent on any single country. None of its trading partners accounts for more than 10% of the country's overall imports and exports respectively, according to the Association of German Chambers of Industry and Commerce (DIHK).

Back to the 19th century?

Of course, COVID-19 is prompting companies to reevaluate their supply chains with a view to further lessening dependence on selected market players. There may also be a debate on how good "just in time" really is and whether it would be wiser to return to a policy of buying ahead.

I disagree with the head of the European Union Chamber of Commerce in China, Jörg Wuttke, who believes the times are over for companies to produce where it can be done most efficiently. After all, that would negatively impact Germany as an export-oriented nation.

Germany's economic output dropped by 5% back in 2009 at the height of the global financial crisis. It would suffer a lot more if globalization were to be rolled back. Back to domestic production only — back to the 19th century, really?

With protectionism on the rise in many nations, policymakers are well-advised to scrape together some good arguments to tell people why their well-being will take a hit.

Business with China in times of the coronavirus

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Henrik Böhme Business editor focusing on international trade, cars, and finance@Henrik58