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Cutting loose

COVID-19 deals globalisation a further blow

Globalisation’s image problem may have been further tarnished by the pandemic, but can political leaders use the crisis to reform it for the better and resist the urge to abandon it altogether?

Zhang Qian was a Chinese official and diplomat who served as an imperial envoy to the outside world in the late 2nd century BC during the Han dynasty. He was first dispatched by Emperor Wu in 138 BC to build an alliance with the Yuezhi tribe, as Wu looked to deter raids by the Xiongnu, a powerful nomadic tribe to the north. Captured and enslaved by the Xiongnu, Zhang Qian eventually escaped, returning in 125 BC with news that sophisticated civilisations, rich in unusual products with which China could trade, existed to the west.

Over the next hundred years or so, the world’s first transcontinental network of trade routes sprang up, connecting China and the Far East with the Horn of Africa, the Middle East and eventually Europe. It is today known as the Silk Road in reference to the most important item China exported along its length. In reality, a vast range of other goods, including paper and gunpowder, also began to be widely traded for the first time. With the Silk Road simultaneously leading to the exchange of ideas and technologies, and even helping to spread religion, most notably Buddhism, its development could be said to have marked the beginnings of globalisation.

The world went on to become ever more closely connected over the following two millennia, as transport and communication links steadily improved. However, it was only in the last half century that globalisation really took off. Whereas in 1972 international trade was the equivalent of 27.5 per cent of global GDP, by 2008 its share had more than doubled to 61 per cent.1

Made in China

The process of globalisation wasn’t confined to cross-border flows of goods and services. By the turn of the century, China was beginning to find itself at the heart of increasingly globalised supply chains, having implemented reforms and gradually opened its economy to the rest of the world two decades earlier. Chinese manufacturing had by 2019 risen eightfold in the space of just 15 years.2

Figure 1: China becomes world’s leading manufacturer
China becomes world’s leading manufacturer
Source: World Bank, Federal Reserve Bank of St. Louis, Aviva Investors calculations

Trade liberalisation and the creation of global supply chains were accompanied by a surge in capital flows and foreign direct investment (FDI). Meanwhile, the advent of the internet meant technology, ideas and cultures crossed borders at an ever-faster pace, as did people, whether to work or study, or simply as tourists.

Initially, politicians for the most part, drawing on economic orthodoxy, viewed globalisation positively and were content to let it run its course. However, since one country’s exports are another’s imports, that began to change over a decade ago. The deep economic scarring left by the global financial crisis led to a backlash against ever freer trade as growing numbers of workers in richer nations, who had seen their jobs shipped overseas or wages stagnate, gave voice to their feelings. Suddenly, anti-globalisation sentiment was no longer confined to a disenfranchised group of protesters.

In country after country, sizeable constituencies began to vote for anti-free-trade policies, or candidates that promised to limit them, culminating with the 2016 election of US President Donald Trump. He has initiated several trade wars, pushing America’s tariff rate on imports back to its highest level since 1993.3

“China virus”

With the arrival of COVID-19, globalisation looks to have been dealt a further blow. In 2008, many reckoned the free movement of capital worsened the global financial crisis as the bursting of a US housing market bubble reverberated around the world. Today, the relatively free movement of people is being associated with the rapid spread of what Trump labelled the “China virus”.

‘Let’s blame somebody else’ is a narrative that has gained considerable impetus over the last few years

“‘Let’s blame somebody else’ is a narrative that has gained considerable impetus over the last few years. It predated COVID but I think COVID will accelerate the protectionism and isolationism associated with it,” says Stephen King, senior economic advisor at HSBC, former specialist advisor to the House of Commons Treasury Committee, and author of the 2017 book Grave New World: The End of Globalization, the Return of History.

Globalisation’s image was further tarnished when international supply chains fractured. A lack of cooperation, even among supposed allies, quickly led to shortages of essential products as nation after nation banned various exports. Vietnam prevented shipments of rice, Ukraine the export of alcoholic products used to make disinfectants, while India restricted sales of several key antibiotics and banned exports of generic anti-malaria drug hydroxychloroquine altogether.

People were especially disturbed in the spring, when countries entered cutthroat competition against each other in a desperate race to secure personal protective equipment (PPE) for healthcare workers. One former US official, specialising in disaster response, dubbed the unedifying spectacle: “Lord of the Flies: PPE edition”. No sooner had shortages of PPE been alleviated than nations began vying with one another to secure supplies of future coronavirus vaccines.4

Home bias

World trade, measured as a share of overall economic activity, has been faltering for more than a decade. Perhaps surprisingly, this has had far less to do with the protectionist urges of politicians such as Trump than China’s drive to become self-sufficient, as evidenced by its Made-in-China 2025 plan, initiated in 2015. Having peaked at 64.5 per cent of Chinese GDP in 2006, external trade last year accounted for little more than half that amount (35.7 per cent).

Figure 2: World trade stalls as China turns inwards
World trade stalls as China turns inwards
Source: World Bank

However, with the pandemic aggravating politicians’ protectionist urges, international trade, for so long a bulwark of global economic growth, appears to be under threat.

“Some of the language around building up national champions and strategic industries is a throwback to the 1950s and 1960s. It seems likely we’ll see much more home or regional bias to production going forward,” King says.

Some countries in the West appear to be toying with the idea of reinstating industrial policies

Having largely abandoned them half a century ago in favour of free-market economics, some countries in the West appear to be toying with the idea of reinstating industrial policies. That could involve subsidies and tax incentives for industries deemed of vital national importance.

Somewhat perversely, this could mean it becomes even more important for companies to be well connected around the globe, believes Sir Dominic Asquith of Macro Advisory Partners, a consultancy.

“If you think of just how industrial policy might be changed by COVID, there are likely to be a lot more government contracts being handed out. That will potentially have an impact on where to relocate and what your supply chain will look like,” he says.

Protect your own

It is already clear many politicians now view public health capacity and the sourcing of essential supplies as a national security imperative. The pandemic has led many to conclude they had become too reliant on others for the supply of essential medical equipment. French President Emanuel Macron and German Chancellor Angela Merkel in May called for the European Union to take back control of medicine and vaccine production.5

The fact they had become too dependent on China is especially troubling for many in the West

The fact they had become too dependent on China is especially troubling for many in the West given growing distrust of Beijing. Prior to the pandemic, China made half of the world’s N95 respirator masks, essential for protecting healthcare workers, while it supplied 90 per cent of the thermometers used in US hospitals. It also holds a key position in the global active pharmaceutical ingredients (API) industry, which produces ingredients used in the manufacturing of drugs.

In the UK, which only five years ago was pledging to be China’s best partner in the West, Prime Minister Boris Johnson is said to have instructed officials to draw up plans to reduce the country’s reliance on China for vital medical supplies and other strategic imports.6

In an environment where alliances are uncertain, international cooperation lacking and unemployment skyrocketing, there are signs countries are looking to use the crisis as a pretext for greater protectionism in areas beyond PPE and vital medicines. Once a keen advocate of globalisation, Narendra Modi, India’s prime minister, in May told the nation a new era of economic self-reliance has begun. His advice to Indians: “Buy local.”7

A recent Deutsche Bank survey found 41 per cent of Americans stated they will no longer buy a product labelled ‘Made in China’, while 35 per cent of Chinese said they will boycott products made in the US.

China had already started to lose its manufacturing crown due to rising wages, and as Trump’s tariffs further eroded its competitive advantage. For example, Stanley Black & Decker in 2019 moved production of its Craftsman wrenches back to the US from China, citing the raised cost of imports.8

Supply chain resilience

The virus looks like it might hasten the reconfiguration of global production networks by causing them to be shortened, diverted and in some cases re-shored. Quitting China is not a straightforward decision, however. Since manufacturers are often forced to leave behind intellectual property and tools and moulds, they run the risk of suddenly having a new Chinese competitor on their hands. There is also a danger of being shut out of what for many is an increasingly lucrative market.

Despite such problems, a survey of American multinationals in May 2019 found around 40 per cent were either considering or had relocated manufacturing outside of China.9 A more recent survey suggested 20 per cent thought decoupling of the two economies would be accelerated as a result of COVID-19.10

The virus provided a wake-up call to many firms by highlighting the need for supply chains to be resilient

By highlighting the need for supply chains to be resilient, not just cheap and efficient, the virus provided a wake-up call to many firms. In February 2020, numerous international automakers had to halt production because the supply of parts from China was interrupted; Indian pharmaceutical companies warned output was at risk from disrupted shipments of Chinese ingredients; and Western manufacturers of industrial electronics complained they could not get the Chinese circuit boards they needed.

While some will no doubt follow Stanley Black & Decker’s lead and re-shore production in its entirety, in most cases it seems more likely the virus will speed up plans to adopt what has become known as the ‘China Plus One’11 strategy. It involves continuing to use Chinese suppliers, not least to go on serving the lucrative Chinese market, but also having a second supplier located elsewhere.

In the wake of the outbreak, Microsoft reportedly accelerated plans to shift production of its Surface tablet away from China. Google, having already shifted production of some of its Pixel smartphones to Vietnam in 2019, did likewise.12

Even where companies see no commercial benefit in cutting ties with China, the virus has given governments an excuse to both entice and pressure them to do so. Japan, for instance, in April 2020 earmarked 220 billion yen (US$2.1 billion) to help manufacturers shift production out of the country.13 The same day, White House National Economic Council Director Larry Kudlow said the US should “pay the moving costs” of every American company that wants out of China.14

Cross-border capital flows

Rising flows of trade and the creation of global supply chains were facilitated by a surge in cross-border flows of capital as countries steadily abolished controls, allowing international capital markets to become ever more integrated. Foreign holdings of international capital stood at 25 per cent of global GDP in 1980, having changed little since the turn of the century. However, by 2000 that figure had risen to 110 per cent and by 2007 it exceeded 200 per cent. Once again, the financial crisis stopped that trend in its tracks.15

For instance, whereas trade has been stagnating for a decade, foreign direct investment (FDI) has fallen, as shown in Figure 3. Although this decline is not fully understood as the drivers of FDI are complex and hard to disentangle – for instance, Trump’s tax cuts of 2017 encouraged US companies to repatriate a record amount of cash that was previously held overseas by subsidiaries – the pandemic looks certain to accelerate this trend, at least in the short run.

Figure 3: Foreign direct investment in decline
Foreign direct investment in decline
Source: World Bank

The Organisation for Economic Cooperation and Development in May 2020 forecast FDI flows would plunge more than 30 per cent in 2020, even under the most optimistic scenario, as the pandemic caused companies around the world to hoard cash and scale back investment.16 Looking further ahead, there are signs anti-globalisation sentiment will make it harder for firms to complete cross-border mergers and acquisitions.

The EU is, and will remain, an open market for foreign direct investment. But this openness is not unconditional

“We need to protect our security and economic sovereignty… The EU is, and will remain, an open market for foreign direct investment. But this openness is not unconditional,” European Commission President Ursula von der Leyen said in March 2020. She called on EU governments to protect critical European companies from foreign takeovers or influence.17

Elsewhere, Australia made all foreign takeover proposals subject to up to six months’ scrutiny,18 while Japan tightened rules governing foreign investment in listed companies.19 Capital flows could be depressed in other ways. For example, the US Senate has proposed stiffening regulations that apply to foreign companies listing shares on US exchanges.20

The rapid advance in digital technologies has been integral to globalisation in myriad ways. Whereas it took a thousand years for the invention of paper to spread from China to Europe, with the advent of the internet vast amounts of information and data now cross national borders at the stroke of a keyboard. By allowing companies to interact ever more cheaply and efficiently with far-flung suppliers, that has enabled fragmentation and offshoring of production. And by facilitating ever cheaper cross-border payments, it has helped fuel a surge in e-commerce too.

Tech cold war

However, in recent years the US and China have become deeply embroiled in what has been dubbed a tech cold war as they battle for supremacy in areas such as semiconductors, telecommunications and artificial intelligence. Once again, it looks like the pandemic could hasten this trend.

The fault lines of the global tech cold war look set to emerge dramatically different

“With COVID hardening anti-globalisation sentiment, the fault lines of the global tech cold war look set to emerge dramatically different,” says Deutsche Bank’s global head of technology investment strategy, Apjit Walia.

The world’s reliance on technology-enabled connectivity was thrown into stark relief by the pandemic as employees were forced to work, children to learn, and consumers to shop, online. With technology widely expected to go on playing an ever-bigger part in people’s daily lives and given the growing menace of state-sponsored cybercrime, Walia reckons the technology cold war is set to intensify.

Washington has been steadily ratcheting up pressure on Chinese telecoms equipment maker Huawei, which it has accused of technology theft and sanctions busting. It says the company’s place at the heart of much of the world’s 5G telecoms networks means it is a threat to Western security. It is making it ever harder for Huawei to access the semiconductors it needs to continue operating.

The US assault on China’s technology sector has intensified recently. Towards the end of his presidency, Trump threatened to ban US companies and individuals from undertaking financial transactions with two major Chinese tech champions: ByteDance, which owns the video sharing app TikTok, and WeChat, the messaging platform.


While international migration is nothing new, recent years have seen a sharp rise in the number of people flowing across borders. The United Nations estimated in 2019 there were 272 million people living in a foreign country, up from 153 million in 1990. Furthermore, the rate of increase has been accelerating, with 80 million people having emigrated since 2005, compared with 39 million in the previous 15 years.21

While much of this increase in migration is explained by natural and man-made disasters such as famines, floods, wars and terrorism, globalisation has also played an important role. Indeed, given liberalisation policies associated with it tend to erode the sovereignty and autonomy of nation-states, many would argue migration is an integral part of globalisation.

Images of Western lifestyles relay a potent message about the advantages of living in a richer country

It is beyond doubt that migration has been greatly facilitated by factors such as better communications, the dissemination of information through mass media and improved transport, which lie at the heart of globalisation. The development of global communications networks has meant images of Western lifestyles can be beamed into the most remote villages, relaying a potent message about the advantages of living in a richer country.

Globalisation has led to more highly skilled workers being lured abroad too. Foreign technicians, managers and other workers have often moved with FDI flows and multinational investments, while countries have competed with one another to attract IT professionals from India. As for the health services of countries like Britain, they would struggle to function without doctors and nurses from Africa and Asia.

In the short term, this trend looks set to slow. After all, many countries took emergency measures to stop the spread of the virus by blocking national borders and restricting the internal movement of people, while international air travel has virtually ground to a halt. With unemployment skyrocketing, it would be no surprise to see countries looking to curb immigration further.

However, King says should the pandemic cause widespread and long-lasting economic damage and widen wealth inequality between nations, it will lead to higher migration in the long run as more people are encouraged to look abroad for work.


Economists generally view globalisation favourably. After all, it helped lift billions of people in poorer countries out of poverty, significantly lowered income inequality between nations, provided cheap goods to consumers in richer nations and boosted profits of multinational corporations.

Nonetheless, few would deny it has also had several adverse consequences that for too long went ignored. For a start, it is partly to blame for a massive increase in income inequality within nations, especially richer ones. It has also arguably worsened an even bigger crisis than the pandemic, at least in the long term: man-made climate change.

According to a 2013 report commissioned by the OECD, the sharp rise in industrial production, consumption and energy usage in recent decades has been “nurtured” by globalisation.22

Industrial production, transportation and deforestation are partly linked to accelerated globalisation

“The main sources of CO2 emissions are industrial production, transportation and, more indirectly, deforestation. These three human activities exist independently of globalisation, but their considerable development during the 20th century, and in particular in recent decades, is partly linked to accelerated globalisation,” the report said.

When asked about the lessons to be drawn from the pandemic, Macron recently responded: “It was clear this kind of globalisation was reaching the end of its cycle”.23 If that is true, one of the biggest questions exercising investors’ minds is: What comes next?

King says answering that question is fraught with difficulty given China’s challenge to US hegemony has created an “unstable equilibrium”. While he remains hopeful the two sides can find a way to co-exist more harmoniously by modifying globalisation, it is hard to see that happening at present. US efforts to undermine bodies such as the World Trade Organisation and World Health Organisation are not helping.

“Globalisation, above all else, depends on common rules, values and standards. If the international institutions upholding them are undermined, then it begins to collapse,” he says.

Economic decoupling

Charles Parton, senior associate fellow at the Royal United Services Institute, a defence and security think tank, says it has become increasingly clear the values and political systems of the US and China, far from aligning as leaders in the West once hoped, are diverging. That means their economies will inevitably diverge too.

“What the Americans refer to as decoupling is already happening. It’s being pushed by the speeding up of technology, and the erosion of the distinction between military and civilian technologies,” he says.

He believes unless Xi Jinping’s China changes tack, two competing and, in certain areas, distinct forms of globalisation are likely to eventually emerge, with one set of rules established by the US and its allies and another by China.

An increasingly authoritarian Chinese regime is growing more assertive in challenging Western interests

The danger is that attempts by different countries to bend the rules to better suit their own needs descend into autarky. It already appears governments are treading a tightrope as an increasingly authoritarian Chinese regime grows more assertive in challenging Western interests. China in October banned shipments of coal, Australia’s main export, having already imposed sanctions on barley, beef and wine. Canberra incurred Beijing’s displeasure in April 2020 when it called for an inquiry into the origins of the pandemic.24

Even if autarky is avoided, and globalisation is simply amended in favour of more locally sourced production, it is important to recognise this will still come at a cost. While poorer countries that depend heavily on exports would be worst affected, even richer ones such as the US, with a highly diversified economy, world-leading technology and plentiful natural resources, would almost inevitably suffer.

“Once you start building borders and barriers and begin to cut countries’ economies off from each other, you’re likely to end up with lower growth and a squeeze in living standards,” King says.

Fortunately, there are grounds for optimism that a similar episode to the 1930s, which ultimately led to World War Two, will be averted, and not just because politicians have learnt from history.

Economics and profits still matter

Michael Grady, Aviva Investors’ head of investment strategy and chief economist, says the same economic forces that made it hard for Trump to cut the US’s bilateral trade deficit with China and encourage the re-shoring of production on a large scale, offer countries a strong incentive to avoid taking protectionism too far.

“With the world once again having to deal with a period of economic hardship, governments can ill afford to do anything that damages growth or slaps extra costs on companies. For their part, companies, many strapped for cash, will continue to conduct their affairs in a way that is consistent with maximising profits,” he says.

Companies will continue to conduct their affairs in a way that is consistent with maximising profits

For example, French automotive parts maker Valeo says it has no plans to alter its supply chains even though it was forced to shutter operations in China at the start of the year, a move that had sizeable knock-on effects on European automakers.

“Our final customers and auto parts clients aren’t ready to pay more if our supply chains were relocated… So, if neither of them puts a value on the risk, there is no chance supply chains will be relocated,” chief executive Jacques Aschenbroich said in July 2020.25

Even where companies do shift production out of China, that will take time. “You can’t just flip the switch and go from China to Vietnam and produce the same products,” Rosemary Coates, executive director of the US Reshoring Institute, said in February 2020.26

Grady says globalisation was driven in large part by the idea trade between nations is economically efficient. The pandemic, by exposing the threat to people’s health posed by complex supply chains based on just-in-time production and a single-sourcing model, has highlighted crucial shortcomings with respect to national security and safety.

Re-wiring globalisation for the better

However, it would be wrong to view the pandemic as vindicating those who have been arguing in favour of protectionism. Despite the obvious challenges and dangers globalisation now faces, Grady is optimistic it can be re-wired for the better.

“This is not really a problem with globalisation per se. It turns out we were too reliant on single suppliers, especially in China, for essential equipment. It is legitimate to make security more of a consideration in trade decisions,” he says.

Even if it costs companies money to make their supply chains more resilient, it could make sense over the long run. For some countries, that could mean re-shoring the production of vital healthcare equipment and drugs, even if for the majority a more cost-effective solution will simply be to expand emergency stockpiles.

Re-shoring is unlikely to create as many jobs as politicians hope

While re-shoring of some production may reduce the centrality of China to global manufacturing, it is unlikely to create as many jobs as politicians hope. According to one recent survey, 69 per cent of US manufacturers were looking into bringing production back home, up from 54 per cent in February 2020. However, that appears to be less about patriotism than commercial interests. Of those firms surveyed, 55 per cent were likely or very likely to invest in new artificial intelligence and robotics technologies.27

It is possible to envisage a reformed form of globalisation paying dividends in other ways. Arguably its biggest single shortcoming has been its abject failure to keep carbon emissions under control. Environmental economists have long argued economic decisions all too often failed to allow for the impact of carbon emissions. For them, it made little sense for the US and Europe to be curbing carbon emissions while importing carbon-intensive products such as steel from China and other countries, which were simultaneously increasing their pollution levels fastest by building coal-fired power plants.

If, as part of their efforts to reform globalisation, countries were to agree to harmonise the taxation of carbon emissions, the world could make big strides towards tackling the climate crisis.

Where do we go from here?

While there is no shortage of commentators proclaiming the pandemic has put another nail in globalisation’s coffin, such assertions may be premature.

Globalisation evokes images of massive container ships transporting manufactured goods from Shanghai to Los Angeles or Rotterdam. Even if such shipments have peaked, the quantity and value of data now whizzing between countries shows no sign of slowing.

As firms get used to managing workers remotely, they may see merit in shipping more jobs overseas

Moreover, many companies have now seen the benefits of videoconferencing via Zoom. It is possible that as firms get used to managing workers remotely, they begin to see merit in shipping more jobs overseas.

It is worth bearing in mind globalisation has been under threat before. According to one tale, Romans’ craving for silk was such that by the late Han Dynasty, with China wanting nothing Rome could offer other than gold, the emperor Tiberius issued a decree against the wearing of silk, complaining: “Ladies and their baubles are transferring our money to foreigners.”

In the years that followed his edict, Roman craving for silk continued to increase and with it the price of the fabric. By the late 4th century, the Roman historian Marcellinus Ammianus was reporting that the use of silk, “which was once confined to the nobility, has now spread to all classes without distinction, even to the lowest”.

While reforming globalisation is arguably long overdue, it is to be hoped contemporary leaders looking to wreck it have no more success than Tiberius. As King says, it would be paradoxical if globalisation were now to be threatened by a pandemic that has shown “we are quite closely connected, need to share knowledge and have a series of common standards for dealing with such events”.

How de-globalisation is altering the investment landscape

Globalisation has been in trouble for several years. With the advent of the coronavirus pandemic, the centripetal forces pulling people, companies, and governments apart look to have been given extra momentum.

That threatens to have a big impact on the world of investment. However, determining just how financial markets are likely to react is far from straightforward, not least because some of these trends are likely to take years to play out and will vary in terms of how they impact different nations, sectors and companies.

International trade, for so long a major driver of global economic growth, has been under pressure for some time having plateaued, as a percentage of economic output, during the financial crisis. With protectionism seemingly rising in the wake of the pandemic, it is likely to be further damaged.

Sunil Krishnan, Aviva Investors’ head of multi asset funds, is wary of reading too much into the risk of a further drop in trade. At the same time, he says it is one of several reasons why investors may wish to protect their portfolios against the risk of higher inflation in the longer term, while they also need to be aware of the threat it poses to economic growth.

“Just as the opening up of the world economy led to lower prices and stronger economic growth, it would be natural to expect de-globalisation to do the opposite,” he says.

However, he says while weaker growth may reduce the overall size of the economic pie to be shared between households and companies, the outlook for profits and inflation will crucially depend on “how the remaining pie is divided”, something that is only likely to become apparent over time.

For many companies, the upending of global supply chains has been the most damaging aspect of de-globalisation. Once again, this is a trend that looks likely to accelerate as a result of the pandemic.

Krishnan says it is reasonable to expect companies with the most stretched global supply chains, or whose sales growth depends on reaching from one economic sphere to another, to be the most challenged.

“Major automakers, other industrial groups and technology companies are perhaps the ones with the most thinking to do,” he says.

Credit portfolio manager Chris Higham sees a danger some of the companies forced into restructuring their supply chains will be those that can least afford it.

“Shareholders will not want to see returns falling. If companies can’t pass the cost increases on to customers, which seems plausible given the economic backdrop, the risk is they will try to take on more debt to support shareholder returns,” he says.

That would be especially problematic, Higham says, given the big deterioration in credit fundamentals caused by COVID-19 means many companies’ debt ratios are “already close to, or at, the limit of what is sustainable”.

Giles Parkinson, global equity portfolio manager, says in the wake of a pandemic that caused many supply chains to seize up, companies with flexible and diversified production lines, which have been proven to be resilient, suddenly look more attractive.

Protectionist forces are threatening to impact financial markets in other ways. For instance, one of the defining features of globalisation has been the phenomenal rise in cross-border capital flows since the early 1980s, when financial markets began to be liberalised and opened to international investors.

Since the onset of COVID-19, various countries have tightened the rules regarding cross-border mergers and acquisitions and the listing of foreign companies’ shares on national stock markets.

Krishnan says the internationalisation of capital markets has enabled economic actors to reduce risk. For instance, investors have been able to diversify their portfolios more easily, while those looking to raise capital, most obviously governments, have been able to attract a broader range of investors. Less integrated capital markets would imply more risk, both for those looking to invest and those looking to raise capital.

However, much as this may be an unwelcome trend, it could be a benefit to some. Alistair Way, Aviva Investors’ head of emerging market equities, believes one such winner could be local stock exchanges.

“Hitherto, a lot of big Chinese internet companies like Alibaba and JD.com have just been listed on Nasdaq. With the US tightening listing requirements, they’re now listed in Hong Kong. Over time, we’re expecting liquidity to flow back towards the natural investor base of most of these companies,” he says.


  1. ‘Trade (% of GDP)’, World Bank, 2020
  2. ‘Manufacturing, value added (current US$)’, World Bank, 2020
  3. ‘United States - tariff rate, applied, simple mean, all products’, Trading Economics, 2020
  4. Nahal Toosi, ‘‘Lord of the Flies: PPE Edition’: U.S. cast as culprit in global scrum over coronavirus supplies’, Politico, March 4, 2020
  5. Gerardo Fortuna, ‘Franco-German couple sets eyes on EU health sovereignty’, EURACTIV, May 19, 2020
  6. Oliver Wright and Lucy Fisher, ‘Boris Johnson wants self-sufficiency to end reliance on Chinese imports’, The Times, May 22, 2020
  7. ‘'Vocal for local should become mantra for every Indian': PM Modi’, The Times of India, August 15, 2020
  8. Bob Tita, ‘Stanley to make more craftsman tools in US’, The Wall Street Journal, May 15, 2019
  9. ‘AmCham China and AmCham Shanghai: Joint press release’, AmCham China, May 22, 2019
  10. ‘Supply chain strategies under the impact of COVID-19 of large American companies operating in China’, PwW China, April 2020
  11. ‘Chinese companies move towards “China plus one”’, NHK World-Japan, July 2, 2019
  12. Cheng Ting-Fang and Lauly Li, ‘Google, Microsoft shift production from China faster due to virus’, Nikkei Asia, February 26, 2020
  13. Isabel Reynolds and Emi Urabe, ‘Japan to fund firms to shift production out of China’, Bloomberg, April 9, 2020
  14. Kenneth Rapoza, ‘Kudlow: ‘Pay the moving costs’ of American companies leaving China’, Forbes, April 10, 2020
  15. The pre-2000 figures come from Maurice Obstfeld and Alan M. Taylor, ‘Global capital markets: Integration, crisis and growth’, Cambridge University Press, New York, 2005. The later figures come from an updated and extended version of the dataset constructed in Philip .R. Lane and Glan Maria Milesi-Ferretti, ‘The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004’, Journal of International Economics, 73:2, November (2007), pp, 223-250
  16. ‘OECD policy responses to coronavirus (COVID-19): Foreign direct investment flows in the time of COVID-19’, OECD website, May 4, 2020
  17. ‘Coronavirus: Commission issues guidelines to protect critical European assets and technology in current crisis’, European Commission, March 20, 2020
  18. Jamie Smyth, ‘Australia tightens investment rules on foreign takeovers’, Financial Times, March 30, 2020
  19. Gearoid Reidy and Shoko Oda, ‘Japan moves to limit foreign investment in half of listed firms’, The Japan Times, May 11, 2020
  20. Aime Williams, ‘US Senate passes bill that puts some Chinese listings at risk’, Financial Times, May 20, 2020
  21. ‘World migration report 2020’, International Organization for Migration (IOM), 2019
  22. ‘Economic globalisation - origins and consequences’, OECD, April 2013, chapter 7
  23. Victor Mallett and Roula Khalef, ‘FT Interview: Emmanuel Macron says it is time to think the unthinkable’, Financial Times, April 16, 2020
  24. Su-Lin Tan, ‘China’s ban on Australian coal could be ‘indefinite’ amid heightened political tensions’, South China Morning, Post October 13, 2020
  25. Tara Patel, ‘Valeo CEO says industry will keep China supply chains despite COVID’, Automotive News Europe, July 7, 2020
  26. ‘Rethinking the global supply chain: The COVID-19 pandemic is breaking the back of supply chains around the world’, Business Facilities, May 1, 2020
  27. Cathy Ma, ‘Manufacturer interest in reshoring, hiring, and apprenticeships increasing during COVID-19 pandemic’, Thomas, July 14, 2020

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