Impact of the coronavirus pandemic on de-globalization

Abstract

In this chapter, we argue that the economic devastation caused by the coronavirus pandemic has forced governments to attach a higher weight to social welfare over other political objectives in determining trade policies. We make this point by looking at the pandemic package announced by the Indian government during the initial stages of the coronavirus episode. We then analyse this argument in the context of an extended version of the protection for sale model to conjecture about the possible short-run and long-run implications of the pandemic on globalization and its reverse. In our framework, in the short run governments are free to choose unilateral tariff levels according to the changed circumstances. In the long run, these unilateral tariff levels are set by a process of bargaining with trading partners. Three factors emerge as important in determining the future course of globalization: the continued importance given to social welfare, the extent of labour intensity of the import-competing sector and the relative bargaining power of the country. In general, countries attaching more importance to social welfare will reduce tariffs and ease out of the de-globalization process if they have a relatively capital-intensive import-competing sector and low bargaining power in trade negotiations. However, countries with labour-intensive import-competing sectors and some bargaining power in trade negotiations may increase tariffs and further contribute to the de-globalization process. The analysis also gives some rationale to the Indian government’s self-reliance slogan during the announcement of the pandemic economic package and its relative inaction in actual policy front. © 2022 selection and editorial matter, Rajib Bhattacharyya, Ananya Ghosh Dastidar and Soumyen Sikdar;individual chapters, the contributors.