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The world in 2021 and the cost of deglobalising world-trade – From our Beijing Director

By Alfred Montufar-Helu, Beijing Director

Event recap: The World in 2021

Last Thursday we held our first event in Beijing in 2021, where our China Director Mattie Bekink joined us virtually to present the key takeaways of the flagship publication The World in 2021. This is the 36th edition of an annual series which compiles predictions on some of the world’s most pressing issues for the year ahead.

In case you were not able to attend the event, below are the key trends to watch in 2021:

i) The pandemic and the fight for a vaccine. Now that a number of Covid-19 vaccines have been approved for production, the question is how many doses can be produced, distributed and administered effectively across and within countries. Most of the current and future stock of vaccines have already been bought by developed economies, while the developing world (especially less developed nations) are depending on efforts such as COVAX. It will take months at best, and maybe years, to vaccinate the whole world. . . which means we are nowhere near a ‘return to normal’

ii) The pandemic and the economy. The full economic damage of the pandemic has yet to become apparent as support measures are still in place across countries. Once this support is withdrawn many companies that are in life-support will not survive, and unemployment will rise. As the whole world won’t be vaccinated at the same time, local outbreaks and clampdowns will come and go. This means that different regions, countries, and industries will recover at different rates.

iii) The crumbling of the post-war rules-based order continues. This year is likely to see increased geopolitical uncertainty, with changes at the top of the three largest developed economies, i.e. Trump and Abe have already stepped down and Merkel will do so this year. With Biden in the White House, the question is whether he will be able to put ‘Humpty Dumpty’ together again after the actions the Trump administration took which undermined the rules-based international system. For instance, while rejoining the Paris Agreement is relatively easy, restarting the Iran nuclear deal will be much more difficult

iv) Increasing US-China tensions. Biden will look to rebuild bridges with US allies and partners, but there will be no return to the halcyon days of the US-China relationship. Rather, Biden and his team will try to establish a common front with like-minded nations on issues like IP and tech to face China in a more competent manner than during the Trump administration

v) Companies are on the front line. While companies have traditionally stayed away from conflicts between governments, they are now being caught in the crossfire, with many of them being targeted by authorities as a way of retaliation – this is the case for a number of Chinese tech firms whose name we do not need to mention here. As well as pressure from above, companies are also facing pressure from below to take a stand on issues such as climate change, ESG and social justice given increasing expectations from employees, customers and society at large

vi) Tech-celeration: the pandemic has sped up existing trends in many areas. But how much will stick? In facing the disruption caused by Covid-19, we saw an acceleration of the digitalisation of the economy and the adoption of many technological behaviors, which helped ensure a degree of business and life continuity. Yet, as the world continues emerging from the ‘covid-era’ it is difficult to say whether these changes will remain in place or not

vii) A less footloose world. Not only are international and domestic travel down and not likely to recover, but the patterns of travel have also changed. The longer-term outlook for business travel is especially murky, in particular internal business travel (i.e. visiting different offices within the same company), which will be harder to justify as companies focus on cutting costs and shift to remote collaboration tools. The problem is that business travel has traditionally accounted for a disproportionate fraction of profits for airlines and hotels, thus subsidizing cheaper travel. Without it, long-haul trips will become more expensive. As a result, people are likely to prefer domestic travel, impacting negatively the travel and hospitality industries, as well as the universities which rely heavily on foreign students

viii) Turning the crisis into a climate opportunity. Governments are putting in place large green stimulus packages, which will advance the development of environmentally-friendly industries, cut emissions, and create jobs in areas that are beneficial for combating climate change. At the same time, China has pledged it will become ‘carbon neutral’ by 2060, which is likely to put pressure on other nations to make similar bold pledges at this year’s COP26 in Glasgow

ix) The year of déjà vu. In many ways, 2021 will feel like ‘2020 take two,’ with lots of the things and events that were expected to happen last year having been moved to this year. This includes the 2020 Olympics, which will not change its name, and neither will the articles and memorabilia that were already manufactured for it

x) A wake-up call for other foreseeable threats. Those who had warned that the next great disaster would be a pandemic, but were not treated seriously by authorities, have been vindicated. Going forward, policymakers are likely to be more receptive to the recommendations of academics and experts with respect to how to address and prepare against other risks, such as climate change and nuclear terrorism. And with many of the predictions by analysts and future gazers having missed the target due to the impact of the pandemic we are also likely to see more humility from them

EIU insights: The cost of de-globalising world trade

Whether you believe or not that the world is de-globalising, this is one of the most consequential topics of our time, and as such front of mind for companies’ management. The EIU has recently released a white paper highlighting the potential economic losses resulting from de-globalisation across three main scenarios:

  • Full decoupling: a trade rift between China and the US (and its Five Eyes allies) would create a significant drag on global economic growth, resulting in a cumulative loss of US$52.8trn over the next decade
  • Local necessities: security concerns triumph over economic efficiency, with capable countries taking measures, including tariffs, to decrease supply chain risk and boost self-sufficiency in essential goods. The cumulative loss to global GDP in 2021-30 amounts to US$8.4trn
  • Shorter runways: The pandemic causes even more disruptions to supply chains and increases the cost of trade between countries. The total hit to global GDP in this scenario is US$17.2trn over the next decade

You can access the white paper by copying this link in your browser: https://eiuperspectives.economist.com/economic-development/cost-de-globalising-world-trade-economic-scenarios-worlds-turn-inwards

Upcoming events

Balancing Innovation and Regulation: China’s Actions to Tame Big Tech

When: 1 February 2021, 8:30am – 9:30am
Format: Online
Event details and RSVP: https://corporatenetwork.glueup.com/event/live-stream-balancing-innovation-and-regulation-31536/

The Economist Corporate Network’s Asia Business Outlook Survey (ABOS) 2021

When: March 2021
Format: Offline
Event details and RSVP: Please contact us for more details.