Coronavirus – Economic Issues

Globalisation 2.0 after Covid-19


From UPSC perspective, the following things are important :

Prelims level: Various economies of the world and their share in the world economy.

Mains level: Paper 3- Impact of pandemic on globalisation.

The article discusses the future of the Globalisation after Covid-19. Globalisation 2.0 which has been dominated by China will see several changes in the post-pandemic world. Investment decisions and Global Value Chains would undergo a paradigm shift. The article is concluded by expressing the hope that pandemic doesn’t end  Globalisation 2.0 but it will certainly usher in the new rules of capitalism.

Globalisation 2.0 and issues with the flow of labour

  • What is Globalisation 2.0? In strictly economic terms, globalisation is about the free movement of capital, goods and labour across national borders.
  • Globalisation 2.0 began in the early 1980s and has lasted for four decades.
  • Under the 2.0 phenomenon, the labour flows were never as free as the movements of capital and goods.
  • This is because one does not necessarily see who produced the goods or capital coming into the borders.
  • But migrants are distinguishable, one can directly observe how ethnically, racially, religiously different they are from the mainstream.

Rise of right-wing politics in the US and UK due to labour flows

  • Labour flows is a major reason for triggering right-wing politics of nativism in present times.
  • Donald Trump directed his political campaign against non-white immigrants, especially Hispanics and Muslims.
  • He criticised businessmen who, in search of lower costs, had made China the destination of their accumulated investments, transferring jobs away from America’s industrial heartland.
  • Thus, his policies to levy higher tariffs to curtail freer trade. These policies made sure that the American corporations bring capital back to the US.
  • In Europe, a similar politics has been led by the UK, though less vociferously.

How China has benefited from Globalisation 2.0?

  • In 1980, China was the 48th largest economy in the world: with GDPs at roughly $200 billion, Indian and Chinese economies were similar in size.
  • In 2018, China, with a GDP of $13.6 trillion, was the second-largest economy in the world, behind the US ($20.5 trillion). But far ahead of Japan ($4.9 trillion), Germany ($4.0 trillion), Britain ($2.8 trillion), France ($2.8 trillion) and India ($2.7 trillion).
  • Not only in terms of GDP, but China had also become the largest trading nation in the world by 2018:
  • Exports: worth $2.5 trillion, substantially ahead of the US ($1.6 trillion).
  • FDI in China: In 2018, China attracted over $203 billion worth of net FDI, much more than India ($42 billion), and second only to the US ($258 billion).

Is COVID-19 a sign of ending Globalisation 2.0?

  • Despite the pure economic logic of how easy it is to manufacture at scale in China, the global leader today are more concerned about the political overtones.
  • Given all the doubts about how China handled the information about the origins of the virus in Wuhan, anger against China in world capitals is evident.
  • Such anger can have impact on the rules of globalisation.
  • Strict regulation of labour laws: We can expect labour flows will now be more strictly regulated than before.
  • Political risks in investment decisions: Western investors will also have to factor in political risks in their investment decision-making.
  • National security concern: New concerns like what if China threatens supply disruptions for critical materials.
  • Instead of chasing lower labour costs, investors will either bring capital back to domestic shores or geographically restructure their supply chains.
  • To summarize it, Globalisation will not end, but it will be pushed into greater retreat. Thus, changing the rules of the BIG game of capitalism.

A question based on the impact of the pandemic on the global trade, issues associated with and opportunities for India could be asked in the Mains Paper 3.

Also the Idea of Globalisation is important from the aspect of paper 1 and Essay. “Globalisation’ vs ‘Nationalism’ was one of the topic in Essay paper in 2009.


For the foreseeable future, economic efficiency, the cornerstone of market-based systems, will not be high on priority. Politics will drive new economic policies, not market-based rationality.

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