The Economist March 19th 2022 Finance & economics 65identified the dilemma: “If you open the
window for fresh air, you have to expect
some flies to blow in.”
Another, bigger worry relates to power.
Being part of global supply chains means
being vulnerable to sanctions. This was
clear from an early stage. In 1989 China
faced sanctions after the crackdown in Tia
nanmen Square. The next year America
placed Cuba, El Salvador, Jordan, Kenya,
Romania and Yemen under sanctions for
various infractions. Several rounds of
Western sanctions on Russia, first in 2014
and then again today, bring the message
home still more forcefully.
Already there is evidence of a crude de
coupling. In 2014 America banned Huawei,
a Chinese tech firm, from bidding on
American government contracts. In 2018
Mr Trump started a trade war with China,
with the goal of forcing it to make changes
to what America said were “unfair trade
practices”, including the theft of intellectu
al property. fdi flows between China and
America are now just $5bn a year, down
from nearly $30bn five years ago.
Recent policy announcements and
trade deals shed some light on the probable
direction of globalisation as the world’s
most powerful democracies and autocra
cies turn away from each other. Countries
are signing smaller, regional trade deals in
stead; democracies are banding together,
as are autocracies; and many countries are
also seeking greater selfreliance.
Begin with regional trade deals, the
number of which is booming. In 2020 Chi
na signed an agreement with 14 other
Asian countries, mostly nondemocracies.
In that year the asean group of SouthEast
Asian countries became China’s biggest
trading partner, replacing the eu. In Africa,
meanwhile, most countries have ratified
the African Continental Free Trade Area.
Countries with shared political systems
are also coming closer. The CoRe Partner
ship, an agreement between America and
Japan, launched last year and is designed
to promote cooperation in new technol
ogies from mobile networks to biotech.
The useu Trade and Technology Council,
the pointed ambition of which is to pro
mote “the spread of democratic, market
oriented values”, is working on climate
change and strengthening supply chains.
Autocracies are also forming their own
blocs. The stock of longterm investment
from the autocratic world into China rose
by over a fifth in 2020, even as the amount
of investment from autocracies into Amer
ica barely budged. Saudi Arabia is report
edly mulling selling oil to China in yuan,
rather than dollars. Longterm investment
from autocracies into increasingly illiberal
India rose by 29% in 2020.
Large countries in particular, mean
while, are also turning inward. A big focus
of President Joe Biden’s administration, for
instance, is “supplychain resilience”,
which in part involves efforts to encourage
domestic production. China’s turn in 2020
towards a “dual circulation” strategy in
cludes an attempt to rely less on global
suppliers. It wants to release its rivals’ grip
on “chokehold” industries, such as chip
making equipment, which it fears could be
used to strangle its rise. India, too, has
turned towards selfreliance.
Many of these efforts could come at a
price. Autocracies are notoriously prone to
pursuing their own selfinterests, rather
than banding together. History shows that
withdrawing from global trade and invest
ment networks carries huge costs. In 1808
America came close to autarky as a result of
a selfimposed embargo on international
shipping. Research by Douglas Irwin of
DartmouthCollegesuggeststhattheban
costabout8%ofAmerica’sgrossnational
product.Morerecently,manystudieshavefound that it was primarily American firms
that paid for Mr Trump’s tariffs. Brexit has
slowed growth and investment in Britain.
Russia’s attempt at selfreliance, by
pursuing import substitution on a large
scale, building up foreignexchange re
serves and developing parallel technologi
cal networks, shows just how hard it is to
cut yourself off from the global economy.
Sanctions by the West rendered much of its
reserves useless overnight (see Button
wood). The economy was struggling even
before the war, and has since gone off a
cliff. Unemployment is likely to soar as for
eign firms leave the country.
The risk, though, is that countries draw
the opposite lesson from Russia: that less
integration, rather than more, is the best
way to protect themselves from economic
pain.Theworldwouldbecomemorefrac
tured and mutually suspicious—not to
mentionpoorerthanit couldhavebeen. nCovid-19inChinaA deep ditch
W
hen china’s government said on
March 5th that it would aim for eco
nomic growth of 5.5% this year, the target
looked demanding. Now it looks almost
fanciful. On March 14th China recorded
5,370 new cases of covid19. That would be
a negligible number in many countries.
But in China it is an intolerable threat to its
cherished zerocovid policy. The bulk of
the cases are in the northeastern provinceof Jilin, which has gone into a full lock
down. But lockdowns of varying severity
have also been imposed in Shanghai and
Shenzhen, two cities that account for more
than 16% of China’s exports.
In Shanghai, anyone wanting to leave
the city has to show a negative result on a
nucleicacid test taken in the previous 48
hours. Parks and entertainment venues
have been closed. Entire blocks of flats are
locked down if anyone living in them is
suspected of exposure to the virus.
The restrictions in Shenzhen go fur
ther. People have been allowed to stock up
on groceries, but must now hunker down
for a week while they undergo three
rounds of compulsory tests. Everyone
must work from home or not at all, unless
they help supply essential goods and ser
vicesto the city, or to Hong Kong next door.
The lockdowns pose an obvious threat
to the world’s supply chains. Shenzhen
(the name of which can be translated
loosely as “deep ditch”) accounts for al
most 16% of China’s hightech exports.
Foxconn, which makes iPhones for Apple,
has suspended operations at its plants in
the area for at least the first half of the
week, according to Reuters. Other links in
the tech supply chain have also paused
production. And the wholesale electronics
markets in the Huaqiangbei neighbour
hood, landmarks of “lowend globalisa
tion”, bustle no more.H ONG KONG
Will China’s lockdowns add to strains on global supply chains?Zero covid, zero tolerance