Question

Thoughts on globalization beyond 2020 (300 words)

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Coronavirus : How The COVID-19 Pandemic Will Impact The Global Economy | TIME

Influence of coronavirus on supply chains in Latin America

Answer 1

The outbreak of pandemic Covid-19 all over the world has disturbed the political, social, economic, religious and financial structures of the whole world. World’s topmost economies such as the US, China, UK, Germany, France, Italy, Japan and many others are at the verge of collapse. Besides, Stock Markets around the world have been pounded and oil prices have fallen off a cliff.

As Covid-19 has already become a reason for closing the multiple businesses and closure of supermarkets which seems empty nowadays. Therefore, many economists have fear and predicted that the pandemic could lead to inflation. For instance, Bloomberg Economics warns that “full-year GDP growth could fall to zero in a worst-case pandemic scenario”. There are various sectors and economies that seem most vulnerable because of this pandemic, such as, both the demand and supply have been affected by the virus, as a result of depressed activity Foreign Direct Investment flows could fall between 5 to 15 percent. Besides, the most affected sectors have become vulnerable such as tourism and travel-related industries, hotels, restaurants, sports events, consumer electronics, financial markets, transportation, and overload of health systems.

Leaving the effect on commodity prices aside, several direct effects of COVID-19 will impact Latin American economies. One is the interruption of supply chains. This is particularly important for the two largest Latin American economies Brazil and Mexico which import Chinese goods for their manufacturing sectors, especially in automobiles, electronics, and machinery and equipment. As these inputs become less available due to factory closures and disruptions in global trade, manufacturing output of Mexico and Brazil will suffer.

In terms of global value chains, no country in Latin America is as engaged as Mexico. Imports of intermediate goods from China . Overall imports from China are between US$70-80 billion in Mexico, and US$35 billion in Brazil. This means Mexico is more exposed to disruptions in supply chains, as it is more open and exports have a much greater role in its economy.

However, Chile’s currency has depreciated the most as a result of COVID-19. China buys one-third of Chile’s exports 9 percent of GDP so lower economic growth in China means not just lower commodity prices but also lower export volumes for Chile. Brazil also sells about one-third of its exports in China. Argentina, Colombia, Ecuador, and Peru also have significant exposure, but essentially through prices of commodities.

A second effect with particularly severe consequences in Latin America and the Caribbean is the reduction of travel and tourism, including the cruise industry. These services are the leading export activity for a number of countries, especially in the Caribbean. In those cases, the reduction in visitors resulting from travel restrictions and quarantines will have a severe cost in terms of lost economic activity, especially jobs.

In addition to these external channels, cancellation of large events, school closures, and limited social interaction will reduce domestic demand. Recent survey data on the retail sector in Colombia are already suggesting a reduction in expected sales over the next three months. This results from households that become more cautious with their consumption decisions given the risk of contagion and the uncertainty about the economic outlook. The stock market crash also sends a negative signal—even for those who are not equity investors.

COVID-19 poses a challenge to globalization as we know it. In the post-pandemic world, hope for a relative concentration of production to specific locations and nation-states gaining more power as opposed to multinational organizations and corporations.