Pandemic — Comparative Advantage and “Less Globalized” Globalization
The covid has brought people’s lives huge changes: jobs, lifestyle, traveling. The economy of the world, especially, is largely shocked by the unexpected pandemic. One of the topics being raised is the production supply chain. In the current society, due to the development of globalization, the production supply chain of different countries are going global too: resource supplied by certain countries, rough machining in others, assembling in another. During the pandemic, however, the travel ban has largely restricted the transportation of products between different countries, which made plenty of countries whose markets rely on the global supply chain run short of products: from daily grocery to important medical commodities. After experiencing the pandemic when resources are hard to reach, some people claim globalization is not a sustainable track, and countries should build up one’s own supply chain. However, a single country should not consider fully putting the supplemental process in their own country because it’s unnecessary simply to deal with the situation of a pandemic since a global supply chain offers businesses a chance to operate under the comparative advantages, but seek a more optimized supply chain instead.
In the current world, trading and global supply chain are enabling countries to produce efficiently and trade with each other: countries with the lowest technology level but got plenty of resources become the resource supplier, countries with relatively low wages but developing technology become the world’s factories who are in charge of the rough processing or the final assembling, while the developed countries with cutting edge technology produce chips and luxury commodities. To understand the efficiency and meaning of this system, let’s first clarify a term. In economics, there is a term called comparative advantage. When a producer produces the product at the lost cost among others, we’d say this producer has a comparative advantage over others. While most producers are producing at their comparative advantage, we reach the most efficient way of production. Take the production of iPhone in the modern society as an example: the Middle East will provide resources like iron, diamond, and petroleum that is needed in the production of the iPhone, and then the body of the iPhone and chips are separately produced in America and China, and the phone is finally sold in the U.S. market. By using this system, the Apple companies are using the abundant resource in the Middle east, cheap labor in China, and high technology in the U.S. which build a cheap and efficient supply chain that follows the comparative advantages of the three countries. As more and more businesses and countries start to follow the comparative advantage rule and seek cheaper production cooperation with other countries, countries form stronger and stronger interconnection with each other and finally find their own place in the global supply chain. In other words, countries in the current world maintain strong reliance on others on the supply of their own product.
However, the came of the sudden pandemic has broken everything. All of the sudden, the plane is no longer flying, the port is no longer working, everyone is forced to be isolated in their home. The pandemic is like a beast arriving at the land, and everything is surrounded by a cloud of fear. The production, especially, is hugely impacted by the pandemic. Take the American medical industry as an example, “ 72 percent of the facilities producing pharmaceutical ingredients for U.S. consumption are located abroad……97 percent for antibiotics”. During the pandemic, due to the decrease of transportation, those resources become inaccessible and made a big shock on the whole American medical industry which is an especially important industry during the pandemic period. Under this situation, people start to raise the concept of “go national” and a more insulated supply chain rather than that around the globe. By finding out “The coronavirus crisis may be global, but the responses have so far been national,” people find the problem is finally fallen back to the countries themselves and the global connection between different countries broke when facing the extreme problem. In other words, a complete national supply chain seems to be the only solution for people in every country to fight against the pandemic.
Have to admit, the national supply chain offers some benefits, especially during the pandemic. In situations like pandemics, the national supply chain plays an important role in sustaining the living of all people in the nation without experiencing a shortage of life-sustaining resources, especially medicine. Just like what is mentioned previously, the American medical industry is largely relying on production in other countries and trading worldwide. In this way, when the trading is cut by the situations like pandemics, the whole industry will face a huge shortage in supply. After experiencing the shortage of crucial products and industry, the country and citizens in the country will gain a sense of fear to the shortage of resources, and even take the action of what is predicted by David Faris: “…people might be willing to exchange some economic efficiency for nationalist objectives like maintaining control of production cycles….” In other words, the national supply chain does make a good solution to the shortage of products and fear from people regarding the pandemic, and that people have the incentive to practice it.
On the other hand, when the real national supply chain is built, some problems still need to be solved. The first is the resources. The world resources are unevenly distributed among different countries. The typical example is petroleum. Petroleum is a natural resource that is crucial in the production of some most basic daily products like plastic and gasoline. However, not every country has this resource. If a national supply chain needed to be built, while the country has these resources can build up the manufacturing line successfully, what about other countries, how can they access this resource without trading with others? Impossible! The other point is the job market. According to the statistics from Fox News, trading, tourism, and production provide a total of 2.6 million jobs. If the countries are eliminating all their foreign production and stopping their trading, how can they deal with people who lose jobs due to their actions? No Way! What is more, there is already a relatively complete supply chain in the current world, and the whole production process is set up and spread around the globe. Is it necessary for a country to build up the supply chain totally by itself? Needless to do so!
And even though the current world under corona-virus seems to left a great fear on people’s hearts, the comparative advantage still exists. It’s always an undeniable fact that efficiency and profit are the final goals that all businesses and countries pursue on the way to economic development. Just like what is said by Willy C. Shih in Harvard Business Review, “Consumers will continue to want low prices (especially in a recession), and firms won’t be able to charge more just because they manufacture in higher-cost home markets. The competition will ensure that.” In other words, consumers are still attracted by cheap products, and producers will not agree to produce in a high-cost way at the price of losing consumers. In this way, solely producing domestically or continuing toward globalization seems not to be the perfect solution in the post-pandemic society. Businesses and countries should reexamine themselves whether they are operating under the most efficient mode or find out the way that is practical under both normal and emergency situations. The question remains to the business: go back to globalization, go domestic, or transform into a new mode?
The pandemic, in my opinion, offers businesses a chance to reexamine themselves and the whole global supply chain. After the pandemic, people found that when transportation is limited, the supply chain around the globe is disrupted. On the other hand, businesses still need to operate in a advantageous mode. In this way, here’s what countries and businesses should do. Start by examining the vulnerability of the industry to the cut of the supply chain; and the level of importance of that industry under the emergency situation. For industries like medicine or basic grocery which is crucial for people’s survival, it’s necessary for the country to move most of the industry back in the nation or set up a backup supply domestically. While for other industries, the country can cooperate with businesses in the adjacent countries that can form a sustainable supply of certain products among these countries depending on the comparative advantage of those several countries themselves as a backup plan or as the new supply chain. In this way, businesses in this cooperation can all maintain a stable supply with a still relatively low price of their products. This bilateral or multilateral cooperation between businesses in different countries is already existed or initiated like the EU and the recent “silk road” in China.
In the post-pandemic period, globalization will continue, inarguably. After the baptism of the pandemic, people found the potential drawback of the current globalization when the supply chain is broken by unexpected situations. So even though globalization will continue, the way of globalization will become less “globalized” by countries and businesses focusing on both multilateral and globalized to create a more stable and proficient supply chain that can enable the profit of both business and consumers in the market even under the extreme situations.
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