Financial History Issue 133 (Spring 2020) | Page 13

Will Coronavirus and Economic
Nationalism Reverse Two
Centuries of Globalization?
By Simon Constable
Is globalization dead? Anyone reading
newspaper headlines through 2019 would
have thought so as the United States and
China played tit-for-tat in a trade war.
But when looked at in a broader historical
context, global trade and the intercon-
nectedness of the world economy remains
near its peak seen in 2008. That said,
cracks are beginning to occur in the world
order that look eerily similar to those seen
just before the last major breakdown in
world trade over a century ago. Those
parallels don’t mean that global trade is on
a death watch. So far, it isn’t, but there are
signs about which leaders should worry.
At the time of writing, two things stand
out as symbolic of the extent of globaliza-
tion. The first is the recent outbreak of the
covid‑19 coronavirus pandemic. While
it started in Wuhan, China—a place few
knew of a year ago—just weeks later,
much of the world was stricken with
the disease. Even the wealthiest coun-
tries struggled to cope. A big part of the
reason the virus spread so quickly is that
Wuhan, home to 11 million people, is
an important production center in the
global manufacturing supply chain. Ten
Portrait of the British economist David Ricardo.
Lent to the National portrait gallery by
Christopher Ricardo, 2007. This painting shows
Ricardo, aged 49 in 1821, just two years before
his relatively early death.
percent of all cars and light trucks made
in China are produced in that location,
which requires a slew of raw materials.
The materials used to make the automo-
biles are sourced from all over the world,
and then the finished products are sent
back around the globe. In short, it was
the massive global interconnectedness of
trade that spread a dangerous disease.
Economists already knew about the
interconnectedness. They have observed
that when one country’s manufacturing
sector falters, then it won’t be long before
others do too. An incident that shuts or
closes a significant factory in Ohio, which
is part of America’s industrial heartland,
will likely be quickly followed by a slow-
down in Germany or Mexico. It has to
be that way because in this globalized
world, the supply chains are all connected.
We can see evidence of this by watching
the ebb and flow of regional PMIs (pur-
chasing managers indexes) that track the
strength or weakness of the factory sector.
These manufacturing PMIs tend to move
in synch.
Another familiar symbol of globaliza-
tion that relies on long supply chains
is jeans. While these items were once
closely associated with American freedom
and prosperity, they have now become
ubiquitous. Few people in the developed
world have never worn a pair of jeans.
It’s not just their ubiquity that makes
jeans a symbol of globalization; it is how
they get manufactured that illustrates
the matter. Before your jeans get to a
retailer, the materials needed to make
them must travel thousands of miles. The
journey starts with the need to grow cot-
ton, which then gets spun into yarn and
woven into cloth. After that, it gets cut,
sewed and finished before being distrib-
uted through wholesalers to stores and
then to consumers.
Levi Strauss & Co., makers of per-
haps the most famous jeans in the world,
make their production flow public. That
gives us great insight into the company’s
far-reaching supply chain, which takes
place over multiple continents. Cotton is
grown in the United States, Mexico, Bra-
zil, China, Greece and Pakistan. Then the
fiber gets spun and dyed in Mexico, China
and Pakistan. After that, the fabric cutting,
sewing and finishing happen in Mexico,
Haiti, Egypt, Poland, Turkey, Bangladesh
and Pakistan. The jeans get sent to dis-
tribution centers in France, the United
Kingdom, the United States, China, Japan
and Spain. Finally, they get sent to stores
where you may or may not buy them.
Not every pair of jeans will hit every
country during its production. Neverthe-
less, they still travel a long way. Other
brands of jeans almost certainly follow a
similar route. Even if a brand of jeans gets
stitched together in the United Kingdom
or other northern European countries,
then it is a fair assumption that the cot-
ton wasn’t grown there. Cotton is grown
in hot climates. In other words, even
locally produced jeans are a symbol of
globalization.
These long-winding supply chains may
change over time, with the latest catalyst
www.MoAF.org  |  Spring 2020  |  FINANCIAL HISTORY  11