Paul Taylor, a contributing editor at POLITICO, writes the “Europe At Large” column.
PARIS — If the coronavirus doesn’t break the world economy, then some of the cures being dreamed up by politicians and activists in Europe and North America may finish the job.
Listen to the public debate in France or the United States, for example, and you could be forgiven for thinking that globalization caused the COVID-19 pandemic — and that deglobalization, reshoring production, prohibitions on foreign investment and trade protectionism are the remedy.
Stir in a heaped tablespoonful of anti-capitalism in the French version, a dollop of environmental piety in many European recipes, and a pinch of xenophobia (or a heaped tablespoonful if you are Donald Trump) and you have a sure-fire vaccine against economic recovery.
To be sure, the coronavirus pandemic has exposed how vulnerable advanced Western economies are to global supply chains, just as the 1970s energy crisis revealed our dependency on Middle East oil. When China sneezed, the world caught a cold — more like double pneumonia.
“Deglobalization is a painful and inefficient process” — Pascal Lamy, former head of the WTO
But to believe that the answer is to make everything from steel to paracetamol at home, to decouple technologically and industrially from China, to manufacture our own face masks and become self-sufficient in respirators, is to succumb to coronavirus-induced magical thinking.
Who would pay the price of protective clothing, ventilators or aspirin manufactured by French workers earning a €1,539-a-month minimum wage and working 35 hours a week? The consumer? The taxpayer?
Such voodoo pandenomics infects not only radicals of the nationalist far right or the Marxist far left but mainstream politicians whose weather vanes are attuned to shifts in conventional wisdom. Take French Economy Minister Bruno Le Maire — a center-right Gaullist turned Macronian centrist. Since the pandemic struck, his mantra has been: “We should reduce our dependence on great powers such as China.”
Le Maire has primed his mandarins to scrutinize the supply chains of French industry in search of “strategic vulnerabilities” in everything from batteries to active medical ingredients. The snag is that the French are prone to see every sector as “strategic.”
Remember the outcry back in 2005 when there were rumors that U.S. soft drink giant PepsiCo might bid for French yoghurt-maker Danone? That prompted then-Prime Minister Dominique de Villepin to vow to defend “French national interests.”
‘Painful process’
The question is where you draw the line between resilience and autarky, in a world where interdependence has been a source of prosperity for most (but certainly not all) of us for more than three decades.
Tapping manufacturers around the world for goods and supplies “is efficient and cheap,” said Pascal Lamy, the ex-European commissioner and former World Trade Organization chief. “Deglobalization is a painful and inefficient process.”
It clearly makes sense to diversify suppliers and ensure adequate stockpiles of crucial supplies, as we did after the energy crisis of the 1970s by mandating strategic oil reserves of at least three months’ consumption.
It’s also smart to have contingency plans to produce some essential goods domestically in an emergency. If you rely on just-in-time mask deliveries from a single country, then you will be in trouble when that economy goes offline just as the whole world is crying out for masks.
But we can never anticipate all potential emergencies. If we stockpile respirators, we will look daft if the next global health crisis targets the central nervous system or, like HIV/AIDS, the immune system.
French Economy Minister Bruno Le Maire | Pool photo by Thomas Coex/AFP via Getty Images
For a limited number of truly strategic technologies, notably those required for defense and secure communications, reshoring and investment protection may indeed make sense. EU governments should focus on agreeing on a common definition of these “crown jewels” and giving the European Commission the power to block foreign takeovers in those circumscribed domains, rather than each country declaring its own national favorites “strategic” based on opaque political or business interests.
And let’s be honest: We will still need to import the raw materials to make elastic for our masks, just as we will remain dependent on imports of key “strategic” minerals such as uranium, titanium and lithium from authoritarian and unstable states. So stockpiling supplies, redundancy in networks and multiple suppliers offer the best protection.
“The absence of stocks isn’t a problem of globalization. It’s a problem of capitalism, because keeping stocks is expensive,” notes Lamy, who has long argued for a rules-based system to “harness” globalization.
Globalization bonus
There would be a high cost to taking the wrecking ball to global value chains in the name of European sovereignty.
Let’s take a step back. How do countries like France and Germany pay for the public health care and social welfare benefits that have proved so valuable during the coronavirus crisis? Our high-wage, high-tax European economies rely on exports to sustain their standard of living.
France supplies the world with aircraft, satellites, arms, power stations, cruiseliners, luxury goods and gourmet food and wines, and profits from tens of millions of tourists each year. Germany is the world export champion in cars, industrial machinery and chemicals. Both have big pharmaceutical sectors. Their just-in-time supply chains depend on components made in lower-wage countries.
Does anyone believe the Chinese would buy as many Airbus planes and helicopters, nuclear power plants, Hermès handbags, or Audi and Mercedes cars if they were to be muscled out of the global economy?
Shipping containers at the port of Hamburg | Stuart Franklin/Getty Images
Thanks to international trade, French and other European households enjoy an annual boost to their standard of living equivalent to at least an extra month of the minimum wage.
Bank of France researchers calculated that the average household saved something like €1,000 a year in 2014 by importing goods from developing countries, compared with what it would have cost them to buy similar items from domestic sources in 1994.
A 2013 study by the CEPII economic research institute put the savings from offshoring production even higher — at between €1,200 and €3,600 per household per year.
Sadly, data like this cuts little ice in a country with a tradition of state economic dirigisme dating back to Le Maire’s distant predecessor, Jean-Baptiste Colbert, the 17th-century minister to King Louis XIV who ruled at a time when silkworms, glass and tobacco were considered strategic.
Perhaps pandenomics will melt away in the sunshine of deconfinement.
If not … well, if you liked physical confinement, you’ll love deglobalized economic confinement.