Three Likely Legacies of Life Post-Coronavirus

The coronavirus is still upon us, and everyone feels somewhat stuck in limbo.

Some states and nations are in better shape than others. Asia is recovering, led by China, the global hub of the new SARS coronavirus. The U.S. is seeing infection rates rise in states that were relatively quiet for much of the outbreak. Brazil and Russia are still struggling to get over the hump.

Every nation spent a fortune on relief for their markets, and on the locals in what may be the first ever Main Street stimulus package during an economic crisis. Tens of millions lost their jobs. Millions more lost income, some of them lost it permanently. And tens of thousands, of course, lost their lives to Covid-19.

When the pandemic is gone, there are at least three things guaranteed the virus would have left behind. So when the virus goes away, these things stay.

They are…

The worldwide rise in public and private debts — perhaps unpayable; accelerated digitization of things like office life and education; and at least a partial reversal of China-led globalization.

Debt Without End. Amen.

The burden of meeting higher levels of public debt will be mitigated by the expected continuation of low interest rates in most countries, says Otaviano Canuto, Principal of the Center for Macroeconomics and Development. However, even governments with a better credit risk rating will face debt accumulation and fresh debt risks — think Russia, India and China companies.

Sovereign debt stress is likely to increase in countries further down the credit rating scale. Ecuador and Argentina are defaulting.

The announcement by the European Central Bank that it will buy another 600 billion in euro bonds, together with the proposal announced on May 27 by the European Commission to create a new European Union recovery fund of 750 billion euros to help the countries most affected by the pandemic, pushed the EU’s debt problems forward.

Increasingly Digital. Increasingly Smart.

The second result of the coronavirus will be the acceleration of digitization in production processes and in the provision of public services.Pre-existing trends in the introduction of new technologies that were already reconfiguring production chains, such as smart factories and just-in-time manufacturing, already had the potential to make manufacturing affordable again in the U.S.

This is going to continue as blue collar manufacturing is seen as a way out of the pandemic economic dungeon. The way to do it is by competing with low income countries on quality, delivery time, and pricing. A new manufacturing is upon us.

“Germany has done well with smart factory technology. China has been adopting smart factories for sometime and are ahead of us,” says James Crean founder and president of CREAN Inc., a staff of 32 employees and a team of about 500 subject matter contract consultants providing smart manufacturing solutions to businesses looking to localize their supply chains.

“The U.S. has defaulted for too long with the unflinching notion that it will always be cheaper to make it in China. The critical changes that are being driven in the economy right now as a result of Covid-19 have already started being implemented in many forward looking companies who see what’s coming,” says Crean. “Those companies know it’s an economic imperative to use this smart factory technology. It’s a national security imperative to produce some things locally. Excessive foreign reliance is a predominant risk for businesses today.”

Digitization processes that took place during the pandemic — from Zoom conference calls, training and entertainment, to the discovery of the importance of cloud computing — have definitively extended into areas that will force a reckoning. Think of the high cost secondary education.

Why is there a $50,000 a year price tag on tuition where many of the core curriculum can be done from a student’s bedroom in their pajamas on a laptop? There’s no need for this anymore.

“There will be a destruction of ‘analogue’ jobs, while jobs and opportunities for entrepreneurship that require digital training will be created,” says Canuto.

Adapting the workforce to this new reality will be among the key challenges in the post-pandemic world.

“This pandemic has opened up a lot of doors for small businesses,” says Alfred Nader, President of OFX of North America, a financial transactions services company.

“A lot of small online sellers realized their market is not just in the U.S. and that all they need to expand is to open a foreign currency account. We are entering a whole new world for industrious entrepreneurs,” Nader says.

Nationalism Vs. Globalization

In January 2017, during the first ever visit of a Chinese leader to the World Economic Forum, Xi Jinping told Davos Man (and Woman) that the biggest barrier to globalization was national populism. He was heralded as the poster boy of free trade.

Lastly, the third post-coronavirus characteristic of the ‘new normal’ is likely to be a setback for those manufacturing across borders, especially for those who have grown to love China.

China-centric globalization has been a hallmark of globalization since the 1990s.

This model, led by multinational corporations and promoted by the multilateral institutions such as the World Trade Organization, has been under attack since then, but it found a leader in President Donald Trump.

For some goods, the old corporate reasons for going to China — efficiency and cost minimization — will get trumped by a national security imperative.

Why is China the only source for things like aspirin? Or chemical inputs used to make Lysol, or simple things like surgical masks. There is no need for this anymore, and many will now consider it a matter of life and death.

“It remains to be seen how far the demarcation lines will extend on what will be considered ‘strategic’ by different countries,” says Canuto. But in terms of the activities they need to re-shore, the U.S. is already on to the subject in Washington.

“There is no way we return to status quo globalization after this crisis,” says Jamie Metzl, a senior fellow with The Atlantic Council. “The U.S. and China are connected to each other because we both play very important roles in the world economy. We will maintain a significant commercial relationship, but the nature of it will be fundamentally changed and it will never go back to what it was.”

The idea is not that China is merely replaced by a host of other low income nations in Asia. Instead, the ida is that businesses will be closer to their end-markets, and closer to home, whether that’s in Mexico or Oklahoma.

The goal for some, including the president, who may not make it to a second term, is for new manufacturing to be set up in the U.S. as a means to get blue collar adults into middle class jobs, sort of like what the auto and defense industries did after World War II. Indeed, Detroit was built on one of those sectors, and thrived socio-economically and culturally. It fell on hard times when that sector buckled.

The coronavirus pandemic could also accentuate a need for policy coordination between countries in many areas, though China watchers say that this has China written all over it. There is no sense in Washington not allowing U.S. tech companies to sell microchips to China, but the South Koreans, Japanese and Taiwanese can. That just kills American market share, and does nothing to pressure China on playing ball the Western way.

Dealing with challenges including future pandemics will still require multilateralism or nation states working together, rather than everyone for themselves.

Still, when issues are localized, such as what to do about education, or what to do about creating good paying jobs with growth opportunities, they do not require national leaders ask first for the permission of Canada’s Justin Trudeau or Germany’s Angela Merkel.

“The lessons of the coronavirus, which has encouraged national solutions, will have to be learned carefully,” says Canuto, who has spent his career inside of the very multilateral institutions that have been called out in numerous complaints (mostly all complaints) about globalization and its discontents.

During the pandemic, the majority of organizations (65%) had to find alternative suppliers for whatever widget it was they were sourcing, mostly out of China, based on a survey by Procurious, a business network for supply chain and procurement professionals.

Some 59% of their respondents believe Fortune 500 companies should reduce globalization and bring manufacturing back home.

“Expect to see seismic strategy changes in the months ahead that fundamentally alter the makeup of global supply chains,” says Tania Seary, founding chairwoman and CEO of Procurious. “For decades, low-cost country sourcing and offshoring was the foundation of global supply chains. The pandemic has many executives considering reducing globalization—and for good reason,” she says, warning that these changes “won’t come easy.”