Deglobalization or Re-Globalization? Asia May Be Diverging From the U.S.
The threat of continued economic disruption as a result of the pandemic looms large over the coming winter months. In the world’s hardest hit regions, and the United States in particular, there is a growing sense that until a vaccine is widely available, prospects for any sense of normalcy in daily life is unlikely. It’s a sentiment that contrasts sharply with that in East Asia, which despite being where the coronavirus originated, governments have been far more successful in keeping the pandemic’s spread at bay. With infection rates in Northeast Asia never being as severe as they have been in much of the rest of the world, the countries have been able to focus much more on dealing with the economic upheaval resulting from the global health crisis, including supply chain disruptions.
From the early days of COVID-19’s spread this year, it became all too apparent that countries were often heavily dependent on China for critical medical supplies which in turn made them vulnerable to the production as well as export policies of Beijing. The imposition of export restrictions on personal protection equipment as well as pharmaceuticals was hardly limited to China. Just as most countries shut down their borders by March in an attempt to stave off the pandemic, nearly 90 nations worldwide imposed restrictions on exports in an effort to prevent critical goods including foods and drugs from going outside of their own borders.
Heightened interest in bringing back production of critical goods including medical goods such as surgical masks and ventilators is expected to continue, even after a vaccine becomes widely available, given the growing recognition of the risks of pandemic outbreaks in the future. The focus on becoming less dependent on imports and beefing up domestic production capabilities has certainly been shared by both Republicans and Democrats in the United States. What’s more, there is growing wariness even among countries that are close to Washington that the United States will be increasingly focused on ramping up domestic production which in turn would hurt demand for exports. The expectation is that in an attempt to enhance domestic resilience, there would be bipartisan support to increase protectionist measures in the name of enhancing national security.
In fact, COVID has only accelerated efforts that had already been underway to move out of China and relocate outside of the Chinese borders.
At the same time, the pandemic has made the vulnerabilities of existing global supply chains clear, whereby their seeming strengths have actually turned out to be vulnerabilities when borders are abruptly shut down. Certainly, the focus on low inventories and just-in-time production is only effective when materials are sourced and production is orchestrated seamlessly so that the goods are shipped out as precisely planned. Coupled with concerns about depending too heavily on China as a manufacturing base, the move to push companies to restructure their supply chains is hardly surprising. In fact, COVID has only accelerated efforts that had already been underway to move out of China and relocate outside of the Chinese borders.
That is certainly the case for Japan, which has allocated $2.2 billion as part of its overall corona stimulus package to help Japanese companies leave China and either return to Japan or relocate to Southeast Asia. Although the sum is relatively small, 87 companies including car part makers and drug manufacturers have already taken advantage of the aid package and more financial assistance may be offered in the future in order to step up the exodus from China.
At the same time, there are moves amongst countries facing similar challenges of coming to depend too heavily on China and seeking ways to break that chain. Australia, Japan, and India had shared their concerns about striking a balance in their economic dependence on China, the pandemic has accelerated the drive for the three countries to work more closely together to push back against Beijing’s economic dominance. In September, they announced the launch of a Trilateral Supply Chain Resilience Initiative that would do exactly that. A launch of the plan is expected next year, and whilst details have yet to be unveiled, the initiative is expected to offer a plan that would be an alternative to China’s control of supplies that are deemed critical for key sectors including but not solely focused on healthcare. The expectation is that the deal will eventually be open to other countries that are similarly concerned about over-dependence on supply chains based in China.
Washington’s absence is striking, given that the United States undoubtedly shares concerns about over-dependence on supply chains based in China as much as the three other countries.
What is striking though is that the United States is not part of the trilateral. The launch of the trilateral supply chain initiative coincides with plans to increase cooperation among the Quad, namely the United States, Japan, Australia, and India, to ensure regional security. Granted, the supply chain initiative is a direct response to keep Delhi committed to regional trade rules despite India’s decision not to join the RCEP trade agreement. Nevertheless, Washington’s absence is striking, given that the United States undoubtedly shares concerns about over-dependence on supply chains based in China as much as the three other countries.
Yet there are certainly growing concerns that the lessons Washington has learned from the pandemic may be somewhat different from that learned by other countries, namely that the United States may very well focus on building up domestic resilience and invest further in building up domestic production capacity in what may be described a step towards deglobalization. In Asia, however, the lesson learned will be more about re-globalization, that is to say a continued commitment to global markets but weaning off from Chinese dependence.
Follow Shihoko Goto, deputy director for geoeconomics and senior associate for Northeast Asia, on Twitter @GotoEastAsia.
The views expressed are the author's alone, and do not represent the views of the U.S. Government or the Wilson Center. Copyright 2020, Asia Program. All rights reserved.
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