Covid-19 impact: Maintaining global connectivity is the way forward

There is much speculation at the moment. About a retreat of globalisation. About the formation of rival economic blocs. About shorter supply chains and a production that comes back home. And the expansion of key national industries. Understandably, many people are concerned about the future of the global economy at the moment.

There is no denying that we are in a serious crisis. The collapse of the world economy as a result of the Covid-19 pandemic looks serious.

According to the WTO, global trade flows could fall by up to a third this year. The predictions for capital flows go in the same direction – foreign direct investment could fall by 30-40 per cent in 2020/21.

Cross-border travel is also declining sharply. The number of air passengers is expected to fall by about 500-600 million in the first half of the year. All this and much more will put many people, companies and sectors of the economy to severe tests.

Booster for our social and economic immune system
Despite gloomy prospects for 2020, I do not believe that we will see a massive decline of global connectedness after the crisis. Instead, globalisation will take hold again. Even the pessimistic scenarios do not expect trade and capital flows to collapse. Especially in this pandemic, we are experiencing in many places how important globalisation is for our economic and social immune system.

Many globally active companies are currently far better equipped than those with a purely national or regional focus.

This makes sense: Those who are only active in one country are completely at the mercy of the local situation. Companies with a foothold in multiple countries are more solid and flexible. At the beginning of the crisis, for example, the China business of many companies was considered a burden. Now the initial disadvantage turns out to be an advantage. The local economy is recovering and is giving a boost to companies that are located there. Of course, the situation is different in every industry. But the tendency is for international companies to show more resilience.

Open-mindedness protects against vulnerability
For similar reasons, I also believe that many statements about more production at home and the renationalisation of economic sectors are misguided. Depending on the emergency, national supply chains are not necessarily more resilient. If anything, supply chains would need to be even more diversified in the future.

So more, not less globalisation. Of course, there is no reason whatsoever why precautions should not be taken and a strategic reserve of critical goods should not be built up for emergency situations. But let’s not forget that the global division of labour remains vital for prospering societies. It would be unaffordable in the long term if all countries were to produce their own medical products, for example.

I have no doubt that cosmopolitan societies will ultimately prove to be more robust in the crisis. In order to get the virus under control, we need globally connected research and the best medical knowledge from around the world. And more mutual international help – for example, by sharing free intensive care capacities or sending teams of doctors to other countries. Conversely, hurdles erected before the crisis, such as customs duties on medical products, can now intensify supply bottlenecks. It is paradoxical that the thicket of export restrictions and import tariffs covers many goods for medical care and basic hygiene, which are crucial right now.

Who would have thought that the global average tariff rate for the import of hand soap is still 17 per cent?

My appeal for more openness applies all the more to the poorer regions, some of which are still being affected by the crisis. Here too, access to world markets is a strengthening factor, especially for the many small and micro-entrepreneurs. Where local sales come to a standstill, e-commerce – including the cross-border shipment of goods – can become a ray of hope. However, this requires a favorable environment, especially more modern customs procedures and a reduction of bureaucracy at the border.

A piece of normality in the crisis
These days, each and every one of us experiences how much our well-being depends on trade, functioning logistics and global digital connectedness. Imagine how this pandemic would have happened a few decades ago. Without highly developed e-commerce systems, without a powerful global IT infrastructure, and without technologies, platforms or smartphones that digitally connect us. Thanks to all these achievements, we can currently maintain much more continuity than would have been possible in the past.

Teams can also work together or advise customers from their home office. Managers can make business decisions without the responsible persons being physically in one place. Family, relatives and friends can stay in close contact without seeing each other personally. Despite isolation, we have access to an infinite amount of digital knowledge, information and entertainment. Combined with state-of-the-art logistics, e-commerce has become an important lifeline of supply today.

I am therefore convinced that global connectedness has made our world more stable and less vulnerable in this crisis. We should be grateful that it exists. And in the interests of our global social and economic immune system, we must ensure that globalisation does not now suffer irreparable damage. The better we succeed in doing this, the more resilient we will remain and the easier it will be for us to pick up speed again after the crisis.

John Pearson is DHL Express Global CEO