Covid-19 and the Immediate Effects on Globalization
The Covid-19 pandemic has caused the largest and fastest decline in international trade, foreign direct investment, and international travel in recent history.
Forecasts indicated up to a 32% slump in merchandise trade, a 40% reduction in foreign direct investment, and an 80% slump in international airline travelers in 2020. Although these statistics imply a grim period for globalization and international integration, they don’t, by any means, signal a fundamental collapse of globalization itself.
The volume of global goods exports in 2020 could fall to a levels last seen in the mid-2000s. In spite of this, even the most pessimistic of trade forecasts do not project a retreat to the world of disconnected national markets. The majority of the run-up in trade integration since the end of the second world war will likely remain intact.
Similar to other capital flows, foreign direct investment is inconsistent. FDI, for instance, fell by over a third during the subprime mortgage crisis of 2008. FDI flows aren’t a reliable measure of globalization and its trajectory.
The massive decline in international travel, however, stands out as a steadier growth trend. During the early stage of the pandemic, every country had imposed restrictions on international travel. 45% of countries had partially or completely closed their borders to foreign travelers. Airlines were flying 90% fewer seats on international flights, as compared to domestic flights.
2020 has hence been a low point for globalization, and growth can only be restored once the pandemic is brought under control. However, globalization has also proven to be a powerful contributor to growth and health, particularly in the vaccination process. It is yet to be seen what will be the larger trend of globalization post 2021