During the pandemic, many countries experienced substantial disruptions to trade. So how have certain nations managed to remain resilient?
The most resilient and responsive economies were those with high gross national income (GNI), strong globalization (SOCG and ECOG), well-prepared healthcare systems, and strong logistics infrastructures. Lax government response (GOV) helped minimize heavy fatalities (DEATHS). Finally, fsQCA examined sufficiency for trade resilience.
1. Globalization
Globalization refers to the movement of goods, services, technology and information between nations facilitated by free trade policies. Over time, globalization has caused more international business transactions to take place than ever before and enabled multinational companies to gain an edge through economies of scale.
Consumers in economies open to globalization have access to an impressive variety of goods from around the globe, such as food, electronics, entertainment and other luxury items that would otherwise be hard or impossible to access without this global flow of resources.
People living in countries that embrace globalization can travel quickly and affordably to experience cultures they would not normally get to witness or participate in. While this can be immensely enriching for humanity, it also threatens national identity and culture by creating globalized societies which clash with traditional ideals within certain communities. This issue often arises with modern industrialization as global culture sometimes conflicts with traditional ideals that exist locally.
2. Supply Chains
Supply chains are fundamental to the success of many businesses, and any disruptions to them could have devastating repercussions for their profits.
Disruptions to economic processes may also have far-reaching economic repercussions, impacting companies that rely on low-cost manufacturing hubs in Southeast Asia for supply. And consumers may experience delays for goods previously available to them.
The COVID-19 pandemic illustrates how international trade can provide economies exposed to supply chain shocks with some resilience. A highly globalized trading world ensures that efficient factories close to demand can ship more cost-efficiently, thus decreasing shipping expenses and shipping times. Furthermore, studies have found that trade makes economies more diversified and resistant against supply shocks.
3. Trade War
Trade wars can set an ominous precedent that threatens the global economy and undermine the Sustainable Development Goal of doubling least-developed countries’ share of world exports by 2020, which forms the cornerstone of these Goals.
Initial forecasts of a double-digit decline in global trade during the pandemic did not materialize, and international trade volumes have recovered quickly since late 2020.
But the trade landscape remains significantly altered. Relationships are evolving into an East versus West dynamic with China and Russia competing against each other and the potential emergence of an “ostensibly neutral nations” bloc as third bloc members. These developments are altering corporate supply chains significantly with many companies increasingly diversifying global investment and trading relationships to offset possible diminishments to economic globalization and trade openness that had marked most of post-Cold War period; BCG predicts this shift will last at least 10 years with serious impacts for companies and their supply chains.
4. Protectionist Sentiment
Political ideology can have a strong relationship to trade policy preferences, making it essential to understand why some individuals favor protectionism over others. According to Kaltenthaler et al., those aligned with an economically left-wing ideology tend to favor protectionism because they believe government must play an active role in ensuring incomes are distributed fairly among workers.
Many other policies could also be considered protectionist, including developing countries’ attempts to impose stringent labor and environmental standards on foreign imports and developed nations’ efforts to limit entry to their markets with stringent certification procedures. Redistributive efforts might even be confused with protectionist sentiment depending on their context.
Even with its difficulties, globalization remains far from over. Companies should prepare for increased risks and uncertainties over time by keeping supply chains flexible, being wary of beggar-thy-neighbor behavior, maintaining confidence in international trading systems, and working against protectionism.