The Big Picture: COVID-19 Helps Kill Globalization

If you’ve read my previous columns, globalization was in trouble even before the pandemic. The decades-long open system of trade that dominated the world economy has been damaged by the financial crisis and—more recently—the Sino-American trade war. Now, COVID-19 has added a third-body blow to globalization.

The number of passengers at major airports dropped by 97% year-on-year. Lockdowns have sealed borders and created havoc to commerce. Over 20% of transpacific container ships have been canceled in May. As some economies reopen, global movement and free trade will be far from normal. Travel is already being politicized; witness the opening of Europe to the exclusion of Americans. This will create even more bias and entrenchment toward self-reliance. The global wave of looking inward by major governments well before the pandemic will only be reinforced by COVID-19.

Consider what’s happening to the flow of people from one region to another. The Trump administration has suspended immigration, arguing that jobs should go to Americans instead. Many of the people coming from abroad were serving a critical need for tech companies where they simply couldn’t find Americans to fill those positions. Other countries are likely to follow America’s lead. On May 12, Narendra Modi, India’s prime minister, announced to the nation that a new era of self-reliance has begun. The recent border skirmish between China and India, which led to the death of 20 Indian soldiers and unknown Chinese casualties, will clearly hamper any trade between the two nations. India has already banned numerous items coming from China, reinforcing the notion of self-reliance.

While China hawks in Washington talk of plans that would see medicines, microchips, and other sensitive products be made in America again, the Japanese government has earmarked billions in their COVID-19 stimulus as subsidies to help firms move high-value production back home from China. The European Union is talking about creating a fund to buy stakes in firms with the goal of “strategic autonomy.” On May 12, a Chinese spokesman announced a ban of many beef imports from Australia citing reasons of food-safety, but almost in the same breath, condemned Australia’s “erroneous words and deeds” in calling for an international probe into the origins of COVID-19.

The flow of capital is also suffering. Multinational firms will likely cut their cross-border investment by one-third this year. Chinese venture-capital investment in America has dropped to a level 60% below what it was two years ago. America has instructed its main federal pension fund to stop buying Chinese shares. Countries representing close to 60% of world GDP have tightened their rules on foreign investment. Trade will suffer as countries abandon the idea that firms and goods are treated equally regardless of where they come from. And the push to bring supply chains back home in the name of resilience is accelerating.

However, there is one major underlying factor that continues to persist, which was one of the fundamental reasons the world embraced globalization: the indisputable truth about demographics and how the aging population of most developed countries over the long haul will need to rely on a global community to continue the lifestyle to which they have become accustomed.

Case in point, roughly half of Japan’s coffins are made in China. It’s an interesting example of globalization, China-style. It doesn’t always involve globe-spanning supply chains. Since the country embraced capitalism more than 30 years ago, China’s astonishing growth has also been driven by an intensely localized variety of globalization in which a specific export sector is dominated by a single Chinese city or county.

The coffin-makers of Zhuangzhai, a small city of 100,000 people in the eastern province of Shangdong, is a case in point. Between them, Zhuangzhai’s three main manufacturers export 740,000 coffins annually, almost all of them to Japan. Yunlong, the largest firm in Zhuangzhai, began making complete coffins for export in 2000, as labor costs in an aging Japan soared to 10 or 20 times those found in Zhuangzhai. Yunlong is unfazed by talk of the rich world decoupling from China. Some Japanese clients tried sourcing coffins in Vietnam and Indonesia, but they found that workers in Southeast Asia lacked “discipline,” so they returned to Shandong. Demography is a bigger worry. It is not just Zhuangzhai’s workers who are aging. With more than one in four Japanese over the age of 65, coffin sales are brisk. China’s hyper-local version of globalization may prove surprisingly resilient in the face of decoupling. 

These three body-blows have wounded the open system of trade. A trading system with an unstable web of national controls won’t necessarily be more humane or safer. The developed countries will find life to be more expensive and less free, while the developing world will find it harder to catch up. The way to make supply chains more resilient is to diversify them and not to domesticate them, which concentrates risk and forfeits economies of scale. Just like a human fighting a virus, the more diverse germs you’re exposed to, the more robust your immunity to fight off threats. Diversification is critical to sustained security against all sorts of threats. It’s the same reason a savvy investor diversifies their stock portfolio.

For our part, we’ve been working hard on diversifying our supply chain to ensure we provide a robust and reliable global sourcing solution to our customers. Given the current state of the PCB industry and today’s economic and political climate, I suspect this particular supply chain isn’t going to be domesticated anytime soon. We must find ways to make the existing supply chain more resilient while being smart about diversification. A fractured world living in homogenous silos will make solving global problems much harder, let alone finding a vaccine and engineering a global economic recovery.

Mehul J. Davé is CEO and chairman of Entelechy Global Inc. and chairman of Linkage Technologies Inc.

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2020

The Big Picture: COVID-19 Helps Kill Globalization

07-13-2020

Globalization was in trouble even before the pandemic. The decades-long open system of trade that dominated the world economy has been damaged by the financial crisis and—more recently—the Sino-American trade war. Mehul Davé explains how COVID-19 has added a third-body blow to globalization.

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The Big Picture: Globalization—The Onset of COVID-19

04-20-2020

In Mehul Davé's last column, he spoke to the challenges of tariffs and alternate sources for PCBs and the larger divide between the U.S. and China, potentially leading to far broader implications for U.S.-led vs. China-led technologies. The world has changed dramatically since then. Mehul explores how the COVID-19 outbreak has impacted the rollout of 5G and relations between the U.S. and China.

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The Big Picture: Globalization—Tariffs and Alternate Sources

01-09-2020

The new year is upon us, so Mehul Davé started thinking about the main challenges his company and customers are facing as we enter 2020: tariffs and finding alternate sources for PCBs. Mehul shares his thoughts.

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2019

The Big Picture: Globalization—What Happened?

07-16-2019

Cheap products and services from places like China and India are good, but giving up the position of being the top dog doesn't sit well with most people—especially when you have leaders around the world reminiscing about the past and wanting to make XYZ great again or something similar.

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Can Do in CAM Outsourcing: CAM Engineering— Building Redundancy in Critical Areas

01-22-2019

Many believe that outsourcing is wrong because it takes away from local jobs. That may be the case if this industry can find the talent level at a cost that they can afford, but this is not the case in North America or Europe.

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2018

‘Can Do’ in CAM Outsourcing: Improving Quality in CAM Engineering

09-19-2018

In this series, Mehul J. Davé, CEO of Entelechy Global Inc., will address six ways in which a company can significantly benefit from outsourcing their front-end CAM work.

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CAM Engineering—Reducing Costs

06-12-2018

While having on-demand capacity, improved automation, and fast turn-around are critical to any front-end engineering operation, achieving those goals with a cost-effective solution is imperative. Electronics are constantly under cost-reduction pressures. Functionality, capability, and complexity increase while costs decrease.

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2017

CAM Engineering—Fast Turn-Around

09-11-2017

Time-to-market has been the mantra for every successful technology company. The best among them have strong and integrated supply chains that march to the drum of the OEMs and EMS providers that bring that technology to market. A big part of that success, especially in North America and Europe, is the ability for PCB manufacturers to turn around complex PCBs very quickly. The hallmark of PCB production in these higher-tech, higher-cost regions is flexibility and responsiveness.

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2016

CAM Engineering – Automation

12-19-2016

As volume production in PCB has shifted significantly to Asia, manufacturers in Europe and North America have been focusing on high technology, quick-turn, prototype, and lower-volume production.

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A Case for Outsourcing CAM Engineering

04-29-2016

In the West, outsourcing is sometimes considered taboo and many believe it is one of the causes for shifting our manufacturing base to the East—specifically China and other lower cost Asian countries. In this series of columns, I will make a case in support of CAM outsourcing—especially for North American and Western European printed circuit board manufacturers.

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