Borders are back

How is Corona affecting geopolitical risk all over the world

Good Morning!

Welcome to a new issue of Political Disruption! I hope you’re all healthy at home. This week I talk about how the Coronacrisis is the culmination of two decades of political disruption, re-establishing the importance of political borders for business. After a break (caused by some additional work on my PhD), I’ll be back at least every two weeks.

Enjoy this new issue of Political Disruption!

Hans

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Hans

Border controls between France and Germany (Source: Leonhard Lenz)

The global spread of the Coronavirus has confirmed a long-term trend: borders are back in business. The belief in a ‘flat world’ as coined by NYTimes columnist Thomas Friedman is now clearly as dead as a dodo. To be clear, the world never was flat, not even in the 90s and early 00s, when the idea that globalization was eliminating political borders gained currency in the West. But the combination of trade liberalization and the integration of whole new parts of the world into the liberal economy created that illusion. And firms increasingly acted as if political borders did not exist.

There were earlier cracks into this illusion:

  • 9/11: The attacks on the WTC towers in New York spawned the US War on Terror that not only led to military engagement in Afghanistan, the Middle East, and Africa but was also conducted with other tools. The U.S. used its central role in the global financial system to pressure banks to cut their ties with terrorists (and later ‘rogue’ governments).

  • 2008: This was not only the year of the global financial crisis the created quite some doubts about the global free flow of money, but also the year Russia demonstrated that borders still mattered by invading Georgia.

  • 2011: The Russian invasion of Ukraine confirmed this and was followed by EU, U.S. and Russian economic sanctions, illustrating that the West could also end up at the receiving end of sanctions regimes.

  • 2016-17: The Brexit vote created a new border in Europe and the trade wars that followed the election of Donald Trump further disrupted the global trading system.

  • 2018-2020: New economic conflicts were launched all over the world i.e. an economic blockade of Qatar by its neighbors and South Korea and Japan punishing each other economically in a World War II dispute.

But the disruption of the Coronavirus is on a much bigger scale:

  • Countries all over the world have been closing their borders and the free movement of people in the Schengen zone has (temporarily) ceased to exist.

  • Supply chains have been disrupted because production has been suspended in infected countries. Apple was one of the victims, as was the car industry.

  • Supply chains are also used politically to stop medical supplies to other countries. This happened even between EU countries.

Tarif wars or economic sanctions programs build up slowly and involve only a few countries. The impact of Coronacris is much bigger because it involved countries all over the world and happened very suddenly, increasing the disruptive effect.

The geopolitical effects of the Coronacrisis will mix up with the pre-existing geopolitical tensions and can either exacerbate or appease them:

  • It’s not clear yet what the consequences for Brexit will be. At this moment the British government seems not ready to abolish its (too) tight deadlines, but there will be pressure from two sides to ask for an extension of the transition period. First, the capacity of the government in full Coronacrisis will be severely constrained to deal with another existential question, the UK’s future relationship with the EU. Second, economic pressure to go for a softer Brexit will only mount now that economists forecast that the Covid-19 pandemic will lead to a deeper recession than in 2008-09.

  • At this moment the global pandemic does not seem to take the edge of the US-China trade war. Trump’s constant references to the ‘China’ virus do not suggest a softening of the anti-China rhetoric and strategy.

  • And the consequences of Covid-19 in China themselves seem to be worsened by the US-China trade war. Chad Bown of the PIIE argues that :

    The administration’s tariffs on Chinese medical products may contribute to shortages and higher costs of vital equipment at a time of nationwide health crisis. In the last two years, Trump’s policy has forced China to divert the sales of these products—including protective gear for doctors and nurses and high-tech equipment to monitor patients—from the United States to other markets, and now the US medical establishment faces looming trouble importing these necessities from other countries, which may be hoarding them to meet their own health crises.

In the next issue, I discuss the long-term consequences for the world.

If you have friends, colleagues, parents, children who’d like some extra reading in these lockdown times, send them this issue and let them subscribe.

Stay safe, stay home!

Hans

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