At the India-EU summit in early May, French President Emmanuel Macron declared, “India does not need to listen to lectures from anyone about vaccine supplies. India has exported a lot for humanity to many countries.” The sentiment was shared by most of the European leaders who took part in the extraordinary summit that saw Prime Minister Narendra Modi interacting with all 27 EU national leaders as well as presidents of the European Council and the European Commission. The EU leaders expressed their full solidarity with India at a time when the country is battling a treacherous second wave of the COVID-19 pandemic. Ahead of the summit, EU member states had mobilised more than €100 million worth of emergency medical equipment in support of India’s battle.
It may be difficult to comprehend at this moment of distress, but if not for India’s earnest global engagement over the past few years—and, its proactive assistance to many nations during the first wave of COVID-19—it would not have been possible to swiftly mobilise such remarkable amounts of global resources for India’s battle with the pandemic. From western nations to India’s partners in the Middle East and the Indo-Pacific, so many nations have rallied behind India.
If not for India’s earnest global engagement over the past few years—and, its proactive assistance to many nations during the first wave of COVID-19—it would not have been possible to swiftly mobilise such remarkable amounts of global resources for India’s battle with the pandemic
Some commentators have trumpeted the “end” of globalization in the wake of rising protectionism over the last half decade, the sudden economic stops wrought by COVID-19, and the corollary disruptions of supply chain activity around the world.
The truth, though, is that for companies and investors involved in the exchange, transmission, and sale of goods, services, technology and finance, globalization is anything but dead. Granted, the landscape has dramatically shifted since the 1990s, and executives will need to be nimble and agile in navigating the new environment, which is currently in a state of flux.
Indeed, more recent developments in the global trade environment including green frameworks, digital protocols and regional partnerships offer a glimpse not of the demise of globalization, but rather, of what global trade may look like in the post-COVID-19 era.
Globalization and its “discontents”
Globalization is defined as the process by which technology and the information and communication technology (ICT) revolution of the 1990s enabled faster transaction times and processes for exchanges of currency, capital, information, innovation, goods and people around the world.
These transmissions of commerce have been facilitated by norms, laws, regimes and treaties governing trade, such as the World Trade Organization at the global level and agreements such as ASEAN at the regional level. At a national level, the creation of free-trade zones further facilitated the ease of trade: for example, a shipping container can move through a seamless logistics corridor in the United Arab Emirates from the Port of Jebel Ali to the Dubai International Airport within four hours.
In financial services, hubs such as the City of London and latterly Singapore have attracted leading talent from across the globe to investment banking, trading, fintech and asset and wealth management, with executives and their teams using these hubs to penetrate the “spokes” of business in the EMEA (Europe, Middle East, Africa) and south/southeast Asian regions.
Unfortunately, the very same global interconnectedness that facilitated wealth creation and economic opportunities also had a dark side that manifested throughout the 1990s and 2000s. Global and transnational risks such as international terrorism (such as the attacks of 9/11), environmental degradation, cyber-attacks, pandemics, human trafficking and financial instability and financial crises ricocheted across the globe. Such risks might pop up in one jurisdiction and by the very same conduits that fostered the “bright side” of globalization easily spread across geographies.
Today, we might say we are dealing with a different shade of discontent within societies— particularly pronounced within advanced economies—for which the process of globalization is often blamed: rising domestic income inequality. While global trade has lifted billions of people out of poverty and sharply reduced inequality at a global level (such as that between China and the West, and southeast Asia and the West), income, wealth and opportunity inequality have been steadily rising within countries such as the United States, the United Kingdom and Italy. Clearly, the benefits of globalization have not been shared by all. Yet, the globalization of labour markets is but one of a number of contributing factor to rising inequality within these societies since the 1980s.
Value of world services exports by category (USD Billions) (Image: World Trade Organisation)
Nevertheless, some leaders have found it both palatable as well as politically convenient to point the finger of blame at other countries. Rising income generation and economic advancement in Japan, for example, became a target of ire within certain circles in the United States during the late 1980s and early 1990s. More recently, some activist politicians and commentators have pointed to the economic gains made by certain groups (such as immigrant workers) as a clear causal factor for the erosion of the domestic middle class.
Rising economic nativism has taken various forms within the last few years and has in some cases been accelerated in the wake of the COVID-19 pandemic. Regardless of the underlying causes of domestic inequality and social anxiety, politicians have acted out against trade in the following ways:
Ructions against goods. In recent years, some countries have focused on the balance of trade in goods (or the imbalance) as a way to reduce imports or to onshore production. Tariffs became the policy tool of choice as a way of addressing such imbalances, but when implemented, have had mixed results. Data shows that efforts to boost domestic production of goods and services comes at a cost: quite literally, for the governments, companies and consumers.
Restrictions on mobility. Responses to the angst felt against global trade have not been limited to goods or volume of merchandise. States have also moved to restrict immigration, vowing to protect domestic workers from a perceived disadvantage. It is important to note that curtailing mobility also comes at a cost—during COVID-19 restrictions, a sharp reduction in migrant agricultural workers within OECD countries has contributed to a sharp rise in food prices, which have reached a six year high.
Tech bifurcation. Although countries, companies and individuals are importing and exporting more services than ever before, a bifurcation has developed between the United States and China regarding certain aspects of trade in technology. Indeed, the situation has been referred to this as a “technological Cold War” between the “two greatest powers” in the world.
While some European countries have also passed legislation to restrict inbound investment in specific targets or sectors, the EU-China Comprehensive Agreement on Investment (CAI)—signed at the end of 2020—was designed to improve laws and practices for mutual investment between China and the EU, at a federal level. Although currently on hold, the negotiations did demonstrate a willingness for both sides to convene in order to potentially step up the level of investments within their respective economies.
Three emerging paths forward
Within a turbulent geopolitical context, the shape of a post-COVID-19 trade landscape is becoming clearer, particularly regarding the digital, green and regional spaces.
The digital realm
A multilateral framework is… the need of the hour to avoid any more trade wars that the pandemic-stricken world economy cannot bear.
Data protection and securing user privacy in the digitized world has been a major issue of cross-border friction. But here we are seeing concrete efforts being made. To this end, the EU General Data Protection has offered a common template that has even inspired the California Consumer Privacy Act.
This is not to say that all contentious issues have been resolved. One complicated issue has been the taxation of digital services. Although there has been an attempt by the OECD to devise a framework for digital taxation, a multilateral solution has not evolved so far. Against this backdrop, the United Kingdom, France, India and Italy among other countries have started levying taxation on digital services, with the United States taking subsequent action under Section 301 of its trade law. A multilateral framework is, therefore, the need of the hour to avoid any more trade wars that the pandemic-stricken world economy cannot bear.
The fact that there is some early convergence on contentious issues is a positive dynamic and suggests that even though an overarching framework governing the digital realm is elusive so far, consumer interest will be the guiding force in determining the nature of regulation.
The green space
Increasingly, at least in the developed world, “going green” is the new industrial and growth strategy.
Climate action is the base on which economic policies of the twenty-first century are likely to be formulated—increasingly, at least in the developed world, “going green” is the new industrial and growth strategy.
To be sure, there are challenges. Recent discussions on the EU’s carbon border adjustment mechanism, essentially an emissions-related import tariff, are the first sign of movement towards a global “carbon club”, shutting out exports from countries that may not comply. But the current moment presents a historical opportunity for cooperation. As climate commitments strengthen across the globe, economies of scale have led to rapidly falling costs for green energy and technology.
A region-based approach
As efforts are underway at reforming the global trading system, regional or bilateral agreements are helpful in providing building blocks for greater cohesion.
While many Western countries have been contending with populist movements in the years leading up to COVID-19, and then resurgent strokes of economic nativism in the wake the pandemic, countries in Asia signed the largest trade agreement in history—the Regional Comprehensive Economic Partnership (RCEP) in November 2020.
Effectively, RCEP incorporates some rich income Asian countries within the ASEAN community; and in a historic step, it is the first framework to include China, Japan and South Korea together within a trade agreement. While some commentators argue that RCEP is less comprehensive than other deals such as the Trans-Pacific Partnership agreement, the convening of RCEP signatories signals Asia’s continued commitment to connect “multiple factory floors” at a regional as well as a global level.
The cementing of RCEP—with the participation of some of the fastest growing economies in the world—raises the question: do regional trade agreements help or hinder the global trading landscape? With variegated standards on data privacy, green and carbon, and with countries at various stages of economic growth and employment, a global architecture might be elusive. It can therefore be argued that as efforts are underway at reforming the global trading system, regional or bilateral agreements are helpful in providing building blocks for greater cohesion.
Reaping the benefits of a global division of labour and capital
Even though the global trading architecture has taken severe knocks from both populism and the pandemic, nearly one-third of the world’s population and one-third of global GDP have recently been incorporated in a historic trade agreement.
And even amidst the “great lockdown” of 2020, the contraction of global trade in goods was less than half of that of the trough of 2009, in the wake of the global financial crisis. Moreover, an asynchronous regional recovery from COVID-19 has meant that many companies have been able to make up for the loss demand in one region (such as Europe) by the growth in demand in another region (such as China). And uneven sectoral activity, such as the working-from-home dynamic, is propelling demand for critical goods such as semiconductor chips, which is propping up export markets for countries such as South Korea. The growth of the electric vehicle industry and the commitments by governments to “build back greener” are also contributing to cross-border flows of metals and materials.
Nevertheless, as policy-makers set their priorities on rebuilding their societies, the lure—or mystique—of self-sufficiency remains strong. Indeed, the COVID-19 pandemic has caused severe losses to income for both advanced as well as emerging economies—the former experiencing a loss of 11% of income of 2019 levels, and the latter nearly double, at 20%. Yet, the way out of economic desolation is not via isolation, or constructing a fortress nation.
The way out of economic desolation is not via isolation, or constructing a fortress nation.
The way out of economic desolation is not via isolation, or constructing a fortress nation.
Laudably, within some advanced economies, COVID-19 relief measures have catalyzed the implementation of policies, including those designed to address housing affordability and access to childcare, that are meant to combat systemic income inequality. As countries transition from relief to recovery, and policy-makers weigh up prospects for bolstering domestic employment, it goes without saying that demand for many jobs within tradeable services is implicitly connected with the viability of export markets.
Thus, the ability to underpin and renew export ties with dialogue—such as that recently conducted between the US and the EU—is integral to sustainable domestic growth. Additionally, in the realm of non-tradable services, creative policies to incentivize corporate and private investment in reskilling, upskilling and learning for working are absolutely critical – in essence, segueing from investing in fixed capital to human capital. Amplifying competitiveness and improving productivity in both tradable and non-tradable sectors can also be enhanced by infrastructure spending and investment, in hard and soft sectors.
In the realm of non-tradable services, creative policies to incentivize corporate and private investment in reskilling, upskilling and learning for working are absolutely critical – in essence, segueing from investing in fixed capital to human capital.
In the realm of non-tradable services, creative policies to incentivize corporate and private investment in reskilling, upskilling and learning for working are absolutely critical – in essence, segueing from investing in fixed capital to human capital.
As countries increase investment in non-defense related R&D in sectors such as biotech and electric transport, it is important to consider that innovation is implicitly tied to immigration. In the United States, this has been the case throughout the 19th and 20th centuries, and with immigration as one causal factor of the blossoming of cutting-edge technology businesses and the growth of entrepreneurship in the country. Thus, data shows that the vitality of human capital is inherently cross-border and reliant on immigration. Recognizing this is a requisite component of any industrial, or rather, post-industrial policy, for advanced economies and for emerging and developing economies that are shifting from old to new economic growth.
In the wake of rising protectionism over the last half decade, the sudden economic stops wrought by COVID-19, the corollary disruptions of supply chain activity, and shocks to supply and demand, commentators from across the globe have trumpeted the ‘end’ of globalisation. Indeed, even predating the populist movements in the UK—culminating in the Brexit referendum—and in the US, resulting in the Trump era of tariffs and US withdrawal from trade agreements—some economists had forecasted a plateauing and eventual tapering of globalisation. With the shift from the old to the new economy—that is, growth in services activity and employment—experienced by many advanced economies (including the US, the UK, and the Netherlands), less goods—or volume of merchandise—are being moved around the world.
This carries with it certain implications, as the manufacturing and industrial eras associated with the production of goods have significantly boosted national incomes within domestic borders. Additionally, competitive export of these goods to foreign markets has further contributed to both domestic as well as global economic growth. Looking beyond goods, cross-border exchanges of services (such as travel, IT, and legal and professional services), as well as flows of finance, and exchanges of human capital have been integral components of the globalised business landscape, critical for building business, profit, and generating returns.
With the future of trade hanging in the balance, what’s in store for corporate executives and investors? For many businesses—even those with a predominantly domestic sales base—have often relied upon the process of globalisation in order to create wealth, ultimately translating into boosting economic growth and employment. Will ongoing trade tensions—as well as reactions by governments to onshore production in the wake of the COVID-19 pandemic—actually prove to be the end of the multi-decade process of globalisation as we know it?
Since the second wave of COVID-19 engulfed India, there has been an outpouring of support from nations around the world. Help came from all directions. Rich nations including the US, UK, Germany, and Australia; developing and emerging markets like Mexico, Indonesia, and Bangladesh; and even smaller nations like Mauritius, Kuwait and Bahrain have rushed emergency supplies to India. Partner countries have responded to India’s humanitarian need with whatever they could muster, from oxygen concentrators and liquid oxygen to Remdesivir.
An embattled India sought help and gratefully accepted what it got. This assistance came with a sense of camaraderie—with confidence, eagerness, and without prejudice. The tone and tenor of aid being offered is markedly different from ‘north to south’, ‘rich to poor’, ‘developed to developing’, or ‘conditions-based’ grants of the past. It is also qualitatively different from the all-round aid India received in the 1960s or 1970s. This time, India was short of only essentially two commodities—oxygen and specific medicines like Remdesivir. As such, its requests were focused and purposeful.
India’s strategic position in international relations
Why did the world respond so expeditiously? One reason is India’s emerging salience in global affairs. India today is a strategic partner to many nations. It is a dependable stakeholder in the Indo-Pacific, a dynamic market-based emerging economy with a direct bearing on geoeconomics, and a core member of the club of democracies. How India responds and recovers will be a test for emerging arrangements on economic interdependence, regional security, artificial intelligence, reforming multilateralism, and trade negotiations. India, despite its low per capita income is too strategic to fail—or even to be put out of action for too long.
As Australia sent support, it spoke of India as a key partner in the Quad in vaccine production. The Australian government emphasised the criticality of helping India recover quickly, for its production capacity is important for the world to fight COVID. The United States’ move to waive IP protection for COVID-19 vaccines, its willingness to negotiate at the WTO, and its delivery of raw materials required for India to make millions of vaccine doses showed that shoring up India’s domestic manufacturing capacity is a key motivation for external assistance. A similar perspective came from the India-EU Summit. It highlighted cooperation on “resilient medical supply chains, vaccines, and the Active Pharmaceutical Ingredients (APIs)” as central to the joint fight against COVID.
India’s significance in global politics cannot be gauged from data alone. It is still a developing country by any economic measure. Yet, when seen as a member of the G20, a founding member of the Quad, an invitee to the G7, a member of the alliance of 10 ‘like-minded’ democracies (D10), a member of the Global Partnership on Artificial Intelligence, the chair of BRICS in 2021, an elected member of the United Nations Security Council for 2021-22—India’s aggregate strategic, geopolitical, and geoeconomic weight and influence matters.
There is also recognition and gratitude for the 66.3 million vaccines India shipped as bilateral aid, contracts, and through the WHO-led COVAX to other nations, before the second wave hit India. True, this approach is being questioned by some today. But if we step away from the polemics of the moment, it is important to recognise this as a sign of India’s commitment to good global citizenship. This will offer little solace for those who have lost loved ones or are currently suffering because of the devastating second wave; there are understandable questions about the way in which the second wave has been handled, and illustrations of where the state (and society) could have done better. Even so, that does not mean we start interrogating the very basis of global citizenship and solidarity—the same sense of unity that has come to India’s assistance today. Without friends abroad, our situation would surely be worse.
The speed and scale of global support could very well be attributed to India’s active and effective foreign engagements. It demonstrates how Indian diplomacy punches above its weight on the international stage and can mobilise help when needed. India today is understood more comprehensively around the world. Its actions and policy positions on global affairs are more pronounced and appreciated.
To be sure, India is not the only nation to which aid is being provided. The total assistance to India by the US is worth nearly US $100 million, of more than a billion dollars in contributions made so far including to GAVI. But support to India is one of the largest. Similarly, the EU has pledged €2.47 billion for supporting vaccines to developing and low-income nations. Global civil society has raised its voice in support of India in unison. The fact that even progressive critics of India in the US polity have rallied to India’s cause—and discovered common ground with it on issues of vaccine IP and access—is an acknowledgment of the uniqueness of the pandemic moment, the goodwill for India in its entirety, and the contribution of India to global causes.
A developing side story in this journey of Indian diplomacy has been paradiplomacy. Take, for instance, the role of business chambers. The Federation of Indian Chambers of Commerce & Industry (FICCI) is working with its German counterpart, Bundesverband mittelständische Wirtschaft (BVMW)—an association of the German Mittelstand—on oxygen concentrators. The US industry-led Global Task Force is working with the US-India Business Council and the US-India Strategic Partnership Forum on ventilators and concentrators. Danish companies such as Maersk have directly supported India with oxygen concentrators and medicines.
Similarly, California sent oxygen generation units and the German state of Baden-Wuttermberg sent oxygen equipment to Maharashtra, with which it has sister-city agreements. This demonstrates that paradiplomacy by subnational governments in India has come of age. Japan specifically directed its aid to India’s Northeast, aligning COVID support with existing regional interests. Bhutan sent oxygen to India through neighbouring Assam. Gujarat, Kerala, Karnataka, and Andhra Pradesh, among others, have all put global economic and diaspora networks to use. Indian businesses, professionals, and students remain the best roving ambassadors for their mother country and, in some cases, their home states. The Indian diaspora in Qatar for instance, has sent direct support. Indian business corporations have stepped in and sourced key equipment from foreign countries where they have operations. For the first time, perhaps, India’s aggregate calling abroad is larger than the piecemeal efforts that have been deployed by it in the past.
The way forward: Continuing with good global citizenship
All this is comforting for an India in whose wellbeing nations around the world are invested. What we need now is for India to fulfil the goals it must embrace. The pharmacy of the world has to live up to its promise as a vaccine source for not just itself, but also its neighbours and the Global South. Without India being vaccinated and without Indian vaccine capacity being widely available, the world will not be able to defeat COVID-19. As many have repeated over the past year, “No one is safe until everyone is.”
The international community has done what it can for India. It is time for us to return the favour—jab-by-jab. For that we need to heal as a country, build capacity to cater to each Indian, and plan for the needs of many outside who count on us. Even if the natural impulse is to look inwards and only provide for one’s own, the way forward is continuing with good global citizenship, not curtailing it. The Prime Minister has often spoken of the potential of India’s scale, speed, and size. In the coming six months, one-sixth of humanity has to put these attributes to use. There is no scope for failure and the outcomes will be scrutinised by many.
As the Health Ministry prepares its plan to vaccinate the entire adult population by December, this is the also the time to plan how much we can deliver to the world. The numbers, in terms of vaccine doses being produced, need to be rethought to take into account the imperative of assisting those countries who require India’s manufacturing capabilities to safeguard them from the devastating impact of the pandemic. Research indicates that COVID-19 is likely to become a seasonal phenomenon like the common flu, in which case, India must invest in the production of booster shots that may be administered regularly. As the treacherous virus mutates, experts are of the opinion that it might potentially mutate into a form that evades existing vaccine immunity. To prepare for such a scenario should it arise, research and development efforts should also be directed towards responding to potentially more lethal variants. As we race towards the immunisation of the world against the novel coronavirus, vaccines will be the most important global products, servicing the world’s needs.
For India to continue being a responsible global actor that plays a central and vital role in the mission to vaccinate the world against COVID-19, India needs to build the capability and capacity at home first. The intensity of the second wave may not have entirely been within our control; but what we do next will be. So, we must ramp up production, vaccinate our population, and then embark on the essential task of making the world safe for all, and not just the rich. The success of India in saving lives—at home and abroad—in the coming months and years, will rest on its vaccine capability that needs greater heft and rapid investments.
In this episode of The Director’s Chair, Michael Fullilove speaks with Dr Samir Saran, President of the Observer Research Foundation (ORF), a leading Indian think tank.
Michael and Samir talk about India’s devastating second wave of COVID, the time it will take for India to recover from the crisis, and what the pandemic means for US-China relations. Samir speaks about his own experiences with the virus and analyses how the crisis may affect India’s position in the world.
Samir Saran 