It is well over two decades since the global value chain (GVC) has earned the distinctive attribute of being the most influential factor in mapping pathways for countries — rich or poor alike — to not only grow but, more than anything, to survive in the thickly connected globalised world.
Now that many people across the globe tend to deny globalisation its efficacy in the COVID-induced circumstances of global trade and economy, is it at all appropriate to be too impatient to say globalisation was a hype? Many are highlighting the dangers of relying on global value chains — and in particular, those linked to China — leading to the talk of ‘de-globalization’.
Curiously, these dangers are being flagged by none other than powerful economies. Not to mention the USA, the President of which, soon after assuming office, had demonstrated his utter dislike for the WTO oriented multilateralism in global trade that for decades did bear fruits — though disproportionately for rich and poor countries. Now, sadly, others are echoing similar reactions. The European Commission president, Ursula von der Leyen, for example, has called for the “shortening” of global supply chains because the EU is too dependent on a few foreign suppliers. Similarly, the French president, Emmanuel Macron, has argued for the strengthening of French and European “economic sovereignty” by investing at home in the high tech and medical sectors. All they seem to be averse to is the varying ways, they think, their economies are being affected by global value chain (GVC).
It is well over two decades since the global value chain (GVC) has earned the distinctive attribute of being the most influential factor in mapping pathways for countries — rich or poor alike — to not only grow but, more than anything, to survive in the thickly connected globalised world. In fact, given the multilateral framework of global trade and commerce enunciated by the WTO, it became increasingly imperative for countries to get their businesses and manufacturing integrated into the global chain.
COVID 19 has shattered this chain. It is clear that the outbreak of the pandemic is disrupting manufacturing and global value chains, with severe consequences for businesses, consumers and the global economy. From a value-chain perspective, the disruptions associated with past crises such as the 2003 outbreak of SARS or the 2011 Fukushima nuclear disaster may not be instructive for today. For many analysts, this comparison makes no sense because the relative importance of China in the worldwide economic ecosystem has increased tremendously in the past 18 years: China has more than doubled its share of trade with the rest of the world between the SARS epidemic and today, and many more industries are now heavily dependent on China. Furthermore, today’s value chains are more global and more complex than they were in 2003 or 2011.
Reports on how the Covid-19 outbreak is affecting supply chains and disrupting manufacturing operations around the world are increasing daily. But the worst, many fear, is yet to come. The most vulnerable companies are those that rely heavily or solely on factories in China for parts and materials.
Decades of deep economic integration have restructured international trade and investment. In modern global value chains, production processes are often spread across dozens of firms operating in multiple countries. The averageautomobile, for instance, contains about 30,000 parts, and one recent analysis found Toyota relied on 2,192 distinct firms (both direct and indirect suppliers) in its production process.
These global value chains have improved economic efficiency, but also introduced new, and unpredictable vulnerabilities: When any link in the chain breaks, upstream and downstream suppliers and consumers are impacted too. Today many global supply chain networks are becoming so complicated that they are best thought of as complex systems—systems where the cross-cutting relationships between individual units are so dense and convoluted that it is impossible to understand how the system as a whole is going to react.
Analysts also say that production shutdown is going to reveal previously unknown chokepoints in global economic networks. As the political scientists, Henry Farrell and Abraham Newman have recently argued, globalisation has not produced ‘a flat, decentralised world economy, but rather a hierarchical, imbalanced network, with critical hubs exerting outsized influence. These hubs can become the choke points of globalisation—vital junctures that, when closed off, can severely disrupt economic activity.’ In other words, COVID-19 has exposed the hidden and almost incurable vulnerabilities of the existing GVC practices.
Wasi Ahmed is an acclaimed Bangladeshi novelist and short story writer. His works in original and in translation have been anthologised in Bangladesh, India, Sri Lanka and the UK. He has co-authored and edited an anthology of South Asian short stories. Formerly a civil servant and diplomat, he is currently associated with the English daily The Financial Express as consulting editor and contributes to a number of Bangla and English dailies.