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The coronavirus lays bare the terrible dangers of globalization without adequate safeguards, but it hardly summons its demise.
The benefits from the international exchange of goods, capital, technology and people are too compelling. The real challenge is to manage these processes more effectively and harden domestic defenses against pandemics.
After World War II, freer international commerce institutions ushered in a golden age of capitalism—freer international commerce propelled mutually reinforcing peace and prosperity among historic adversaries and opportunities for developing nations to raise millions from poverty.
The coronavirus reveals global supply chains drawn too taunt by just-in-time manufacturing and excessive adherence to lowest price sourcing. German auto makers must idle workers if components factories in Italy and Spain close, Apple AAPL, +2.38% can’t make nearly enough iPhones if China shuts down, and we are perilously dependent on China for many active ingredients in drugs and other medical supplies.
The threats posed by coronavirus are hardly new — flu pandemics swept the United States in 1957, 1968 and 2009.
In 1957, the United States did not practice much social distancing, most schools remained open and little was done to limit workplace interactions. The virus killed 100,000 Americans out of a population of 177 million but had a small impact on the economy.
During the 1918 Spanish flu, St. Louis and Los Angeles responded more quickly and suffered less than Philadelphia and San Francisco. Perhaps in 1957, those experiences were not yet well enough documented by historians, and health authorities leaned too much on partially effective vaccines.
China, after initially denying the coronavirus, took and continues to take stronger measures than Italy, New York and other states. U.S. citizens were slow to respond to voluntary measures — despite clear potential benefits.
Consequently, our national experience is more like Italy than China, and as many as 240,000 deaths out of a population of 331 million could result.
Still, business closures, work-at-home and social distancing could push U.S. unemployment to 20% and reduce GDP by as much as $5 trillion.
America has both suffered the loss of life of a significantly unbridled pandemic and taken an economic hit that rivals China — where loss of life appears to be less.
Americans are mastering strategies that better permit virtual workplaces, less commuting and fewer business trips, and accelerate the shift to online commerce. Some industries will come back smaller—airlines and hotels—and many restaurants and retailers will close permanently.
General economic activity will not quickly recover to levels achieved just prior to the pandemic, and unemployment will not fall to 3.5% any time soon.
In addition to retooling displaced workers, businesses will harden supply chains — diversify international sources for components but not necessarily bring much manufacturing back to America. Western governments will seek greater national self-sufficiency in critical health-care products. All that will come at some cost in lost efficiency and growth.
Those adjustments are more urgent, because China’s newly urbanized populations continue traditional practices such as live wild animal markets or sloppy lab practices may generate more transnational pathogens. And Western commercial and scientific relationships cannot be adequately terminated without large economic dislocations voters are not likely to accept.
Chinese authorities moved aggressively in Wuhan and surrounding communities to keep individuals in their homes by dispatching armies of low-level enforcers and using mobile phone data to run down those who slipped lockdowns. Even suspected cases and many healthy individuals with close contact to confirmed cases were sent to special quarantine facilities. And Beijing essentially closed the country to foreign visitors.
The idea that President Donald Trump would quarantine the New York metro area drew strong protests from state officials. Now we face months of the virus spreading out and running its arc in virtually every corner of the country even as we try to restart economies where it has peaked.
By the time we are done, China may be able to boast to the world that its authoritarian government accomplished both fewer lost lives and less economic losses than the United States, Italy and several other European nations.
China may move the curve—lessened the tradeoff between public health and sustaining prosperity. Now, America must respond by building stronger pandemic containment mechanisms—albeit those that are publicly accountable and not subject to abuse—or our democracy will simply not measure up to the challenges of globalization.
