How the Coronavirus Reshapes the Global Economy Is Our Choice

This is part of a series on the Novel Coronavirus (COVID-19) pandemic.


Having moved from Asia to Europe and the United States, the coronavirus is tearing across peoples and continents at a breathtaking pace. Emerging and low-income countries are likely to see its devastation next. The world economy is coming to a halt. The International Monetary Fund projects a 3 percent decrease of global GDP in 2020—the worst since the Great Depression, and more severe than the Great Recession.[1] GDP is expected to decrease by 5.9 percent in the United States and by 7 percent across the euro area, causing massive unemployment. International trade flows are taking a nosedive; international movements of people have come to a standstill; and capital is being repatriated, called home to safer havens or to where more liquidity is needed or wanted. With almost equal speed, journalists and economists are speculating about implications of the pandemic for globalization and its effects on the integration and interdependence of the global economy.[2] While proclamations of the “death of globalization” are certainly premature, it is worthwhile to ask why such claims arise, and whether and how the coronavirus is likely to transform the global world we know.

By considering international trade, countries’ fiscal and monetary policy responses, and the domestic challenges that defined the globalization debate before the coronavirus, we can get a sense about what to expect from the current crisis—beyond the short-term consequences we already see of output declines, reduced international trade and capital flows, and less international movement of people. The coronavirus is revealing well-known systemic weaknesses and, to some extent, reinforces the fissures already laid bare in the wake of the 2008 financial crisis. If we continue to scapegoat globalization instead of being willing to share more equitably the benefits of technological progress and of globalization, we will fail to bring about the international cooperation we need. In so doing, we will fail to make the current crisis into a watershed moment to improve the governance of our globalized world. The choice is ours.


An international no-man’s-land

Exhibit one of the international response to the pandemic has been soaring demand for medical equipment (masks, ventilators, and the like), coupled with mushrooming export restrictions.[3] At least twenty-four countries, including Germany, France, and the United States, have restricted exports in hopes of securing enough domestic critical supplies. Remarkably, many of the countries taking such actions were willing to do so at the expense of other, often friendly countries; they have breached existing contracts, rerouted output produced in affiliates abroad, or tried to secure solo rights for critical medication. This has been a chilling spectacle. National emergencies warrant decisive action, and export restrictions are certainly not illegal in extraordinary circumstances. Short-sighted responses, however, undercut cooperation and prevent critical supplies from getting to where they are needed most.

The immediate aftermath of the coronavirus outbreak reveals how much of a no-man’s-land the international arena still is, in spite of the World Trade Organization and its somewhat idealized raison d’être: to counteract countries’ worst impulses and establish international rules to guarantee open markets. Even with existing rules about which trade restrictions are allowed and when, the current trading regime crucially hinges on the willingness of the major players to cooperate and obey those rules. Without that willingness, the WTO (like most international organizations) has limited power. This has become especially clear in recent years, as the United States has imposed (or threatened) unilateral tariffs against many countries, and engaged in a tit-for-tat trade war with China.[4] While some of the underlying concerns (intellectual property rights, reciprocal market access, etc.) are legitimate, virtually no attempt has been made to build broader coalitions to work toward reform, seek long-term solutions, and rewrite some of the rules of global trade. Rather, as the recent US-China deal illustrates, the current trade tensions have been largely due to concerns about improving bilateral payoffs and securing short-term political gains.

In response to the crisis, there is talk about the need to shorten international supply lines and to reshore production. This is not new, and is reminiscent of the call by President Trump “to bring manufacturing back.” The (now real) possibility of future pandemics and the uncertain trade policy environment do seem to make domestic production less risky than production overseas. However, reshoring is not a panacea. We know from surveys that it is often a struggle to produce domestically what was offshored before. Qualified workers are often hard to find, matching local intermediate goods are missing, and the expertise to run the factory floor is lacking.[5] This is not surprising. There are real gains associated with the international specialization of production that international trade makes possible. In a globalized world in which resources and technologies are spread unevenly, more and cheaper goods can be produced when each country produces what is most in line with its comparative advantage. This is a straightforward efficiency argument: if each party focuses on what it is relatively best at, “the pie is bigger.” International specialization has helped build advanced economies, and it has lifted millions of people out of poverty in China, India, and other emerging economies. Production closer to home is viable only for a limited set of goods that depend on timely delivery and changing customer preferences (like fashion), or for which automation and technological innovations can replace offshore production (like 3-D printing). Moreover, multinationals dominate international trade. Maintaining multiple lines abroad that diversify risk seems more called for than reshoring and putting all eggs in one basket. To throw away the baby (globalization) with the bathwater (the virus), and dream of a return to autarky is not the answer. In the meantime, at a minimum, stocks of critical supplies and spare parts will be monitored more carefully.


national tools for policy response

While the economic fallout of the coronavirus is reminiscent of the financial crisis that started in 2007–8, it is different in important respects. In the wake of the earlier financial crisis, global and domestic demand dried up. Because of sick workers and social distancing, the coronavirus also directly affects the supply side of the economy. As long as the health risk is real, there are limits to how much governments can stimulate economic activity by creating demand. The economy is on life support until the virus is under control. Until people can gather and go to work again, fiscal policy (including government spending and tax policy) and monetary policy (through central banks) are the main lines of defense. Beyond immediate medical needs, the objective is first and foremost to provide liquidity, in order to keep companies and small businesses afloat so that workers and citizens can continue to support themselves.

Central banks worldwide have taken dramatic action. They have lowered interest rates, in many instances to virtually zero. Similar to responses to the 2007–8 financial crisis, but on a larger scale, they are buying financial assets, including riskier municipal and corporate debt, in order to bring down the cost of borrowing. However, fiscal policy has a key role to play. The ability to borrow at the national level may trump what is possible at the local, company, or individual level. Because of default risks, some of the funding support cannot just take the form of additional debt and loans. It is here that tax holidays, checks to households, regular and beefed-up unemployment benefits, short-term labor support programs, and grants to companies have their place.

Fiscal and monetary policies are, however, primarily national tools, and common benefits can be achieved only with international coordination—not by beggar-thy-neighbor policies. Needless to say, the European Central Bank covers monetary policy of the entire Eurozone area. In many countries, central bank actions are relatively technical, quick to implement, and guided by experts; certainly more so than fiscal policy. To the extent that many central banks try to provide liquidity, their actions reinforce each other across borders, creating a positive externality. In spite of this, a growing asymmetry is making itself felt.[6] Capital is fleeing emerging economies. It is seeking safer havens in advanced economies, or is being repatriated to where liquidity is needed. Emerging economies see their currencies plummet, which raises the cost to service government and corporate debt denominated in foreign currency. Currency and current account crises are looming. In order to alleviate the gyrations in the currency market, central banks are cooperating and providing swap lines. Those swap lines are especially established among a privileged group of advanced economies and key emerging economies, exposing poorer and less creditworthy countries to more risk.[7]

In terms of global cooperation, the predicament of fiscal policy is even more precarious, even though it has the most direct impact. There are significant differences among countries in the room they have for fiscal stimulus, and international fiscal cooperation is a lot harder. Increasing spending and reducing taxes requires new debt that is bound to increase countries’ debt-to-GDP ratio. Consider the European Union (EU). While Germany, with a debt-to-GDP ratio of less than 70 percent, still has ample fiscal space, Italy’s 135 percent or Greece’s 180 percent point to far more vulnerable situations.[8] As the only ambitious experiment in deep cross-country integration and collaboration in the world, the EU must, for its own survival and for the success of the message it sends to its members and to the world, find a convincing, common fiscal response. The extent to which Europe can agree on emergency funding with EU-wide guarantees (not just new national debt) for a heavily hit, high-debt country like Italy will define its future. [9]

Many emerging and developing countries are vulnerable fiscally.[10] Medical infrastructures and safety nets are more fragile, and social distancing is more difficult in their megacities. They also tend to have far less fiscal firepower or fiscal cooperation to fall back on. Many such countries tend to be unable to raise sufficient debt in their own currency, making them dependent on international capital markets. As most countries focus first on their own fiscal position and the needs within their borders, the fear is that bilateral or multilateral fiscal assistance will probably be restricted to (far less expensive) medical assistance. The go-to institution for many countries will hence be the International Monetary Fund and the World Bank, which have limited funds and often strict conditions, or China. Adequate funds for those institutions as well as increased flexibility for debt restructuring, additional assistance, and debt relief are called for. Moreover, the IMF could issue Special Drawing Rights (SDRs), the closest thing we have to creating money at an international level. Its release would most directly benefit emerging and developing countries at the periphery, without increasing their debt levels.[11]

Most importantly, however, and contrary to monetary policy, fiscal policy is subject to a political process driven by parliaments, prime ministers, and presidents. Each country’s fiscal policy is necessarily informed by its specific domestic political context. As long as we do not resolve the social inequities—especially those that have emerged since the Great Recession—and blame them predominantly on globalization, the international cooperation that we can harvest will be limited.


the unfinished reform agenda

Since the financial crisis of 2007–8, growing disparities in income and wealth in the United States, the United Kingdom, and other countries have received much attention.[12] It is well understood that income inequality across the Atlantic is less pronounced than in the United States, where there has been a significant backlash against globalization, and in particular against international trade and migration.[13] Donald Trump was elected president on an outspoken anti-immigration and anti-trade agenda. While there are real gains from globalization, they have been unequally distributed. Exports generate income and wealth, but imports from emerging economies, and in particular from China, have contributed to lower wages and persistent unemployment, especially for low-skilled labor; a contributor to a lesser extent has been (low-skilled labor) migration.[14] International trade and migration are, however, in no way the only—or even the primary—reason for the rising income inequality. Other factors include technological change (higher demand for skill-intensive products), less-progressive taxation, low minimum wages, decreasing unionization, and low upward mobility, which makes your zip code an important determinant of your future success. In this regard, it is telling that the backlash against globalization followed on the heels of the Great Recession, which was in essence a domestic crisis (a credit crunch tied to a housing market crisis) and only indirectly related to the global economy.[15]

The first indications are that the coronavirus, at least in the United States, will emphasize some of the existing societal fault lines.[16] Next to medical staff, the people hit first and hardest are the most vulnerable. Often black and Hispanic, they are lower-skilled workers and their families, people who are active in services and in manufacturing and who cannot work from home. These victims are probably less likely to have insurance. One would expect that they are more likely to face challenges in their ability to stock up on food and supplies in order to quarantine at home, more likely to live in close, multi-family units, and more likely to be illegal immigrants. Many of those affected may also be the least well equipped to homeschool their children.

The ongoing crisis presents itself as an opportunity to address these deeper societal challenges, which cannot be solved by scapegoating globalization. It will require the willingness to share in a world that can be affected by so many (unexpected) events, the gains of economic growth, technological progress, and for that matter, globalization. We need more equal access to education, more universal health care, a better safety net, and a tax code that is more progressive and asks everyone (including multinational corporations) to pay their share. If we do not address the current inequities and write a new social contract, the United States is unlikely to pull its weight and reassume a key role as a partner to better govern the global economy. The international no-man’s-land we are in will persist.

International trade is less controversial in Europe than in the United States.[17] As a matter of fact, Brexit was not a vote against international trade. It is migration, and especially the refugee problem in the wake of the civil war in Syria, that has paralyzed the European Union. Most outspoken in their opposition to migration and the European project are the far-right governments in Poland and Hungary, but criticism is not limited to those countries. Contrary to the hopes of those in Great Britain and EU countries who resent the European Integration and rile against globalization, withdrawal from the EU is unlikely to redress the internal inequities between rural areas and cities, or between low- and high-skilled workers. These problems can be solved only by addressing the underlying causes, as well as redesigning the rules for international migration and supporting refugees. As long as our only response is to blame globalization, instead of addressing the social inequities at the heart of our societies, we will limit how much international cooperation countries are willing to support.


our choice

Crises are not just challenges. They are opportunities to shape and redesign the societies we live in. Fighting the coronavirus will require extraordinary international cooperation. There is no world government or supranational entity to act decisively on the world’s behalf. The governance of the global economy is very much a patchwork of international institutions and informal collaborations dictated by the issues at hand and ultimately by individual nations’ willingness to cooperate.

The coronavirus hits the global economy at a time when globalization is under fire and inequality is a major topic of debate in many countries. If we choose to address the inequities that have been at the forefront since the Great Recession, and in an uncertain world find ways to share the benefits of technological progress and globalization, we may make international cooperation possible and improve its rules. If instead we continue to blame our problems on globalization, we will continue to erode global cooperation without finding common solutions.


Peter Debaere is a Professor of Business Administration at the Darden Graduate Business School at the University of Virginia where he teaches MBAs and Executives. Debaere is an international economist with a PhD from the University of Michigan. His research focuses on international trade, multinationals, and trade policy. In recent years, he has also studied the economics of water, focusing on the international and local (i.e. through water markets) allocation of water, as well as the U.S. water quality measurements, and the socio-economic elements of their availability. He leads the Global Water Initiative that brings together scholars from across UVA. Debaere’s papers have been published in top general interest and field journals such as Journal of Political Economy, American Economic Journal: Applied, the Journal of International Economics, and the Journal of Development Economics. He is also on the advisory board of the Center for German Studies and affiliated with the European Studies Program.


The author of this piece would like to thank Jane Haxby from Darden Publishing and Manuela Achilles, Director of the European Studies Program at UVA for helpful comments and suggestions.




[1] World Economic Outlook, 2020, Chapter 1.

[2] See, among others, Wall Street Journal, March 20, 2020; Forbes, April 3, 2020; Foreign Affairs, March 16, 2020; Foreign Policy, 2020, Spring Issue.

[3] For a detailed description and discussion of the export restrictions since the coronavirus, see Bown, C., 2020, Trump’s Trade Policy Is Hampering the US Fight against COVID-19, Peterson Institute, March 13,; Evenett, Simon, 2020, Sickening Thy Neighbor: Export Restraints and Medical Supplies during A Pandemic, CEPR Vox, March 19,; Bown, C. and S. Keynes, 2020, Coronavirus and Trade Restrictions, Trade Talk 125 (podcast), March 14,

[4] Debaere, P., 2018, Trump Says the WTO Is a Disaster, Darden Business Publishing, case GEM 0152.

[5] Shih, W., 2014, What It Takes to Reshore Manufacturing Successfully, MIT Sloan Management Review, August 7; Tate, W., L. Ellram, T. Schoenherr, and K. Peterson, 2014, Global Competitive Conditions Driving the Manufacturing Location Decision, Business Horizons, 57 (3), 381-390.

[6] Tooze, A., 2020, The Coronavirus Is the Biggest Emerging Markets Crisis Ever, Foreign Policy, March 28,

[7] World Economic Outlook, 2020, Chapter 1.

[8] Eurostat, data for 2018.

[9] Zingales, L., 2020, The EU Must Be Forged in This Crisis or It Will Die, Financial Times, April 5,

[10] Hausmann, R., 2020, Flattening the COVID 19 Curve in Developing Countries, Project Syndicate, March 24,

[11] Reuters, U.S. Stalling Massive IMF Liquidity Boost over Iran, China: Sources, New York Times, April 16,

[12] See, among others, the writings by Thomas Piketty and Emmanuel Saez.

[13] Blanchet, T., L. Chancel, and A. Gethin,  2019, Forty Years of Inequality in Europe: Evidence from Distributional National Accounts, CEPR Vox, April 22,

[14] Autor, D., D. Dorn, and G. Hanson, 2013, The China Syndrome: The Impact of Import Competition on U.S. Labor Markets,American Economic Review, 103(6), 2121-2168. This seminal paper has been replicated for many countries, illustrating the local market impact of increased trade with China. See also Debaere, P., 2018, Labor’s Plight, case GEM 0155, Darden Business Publishing, Charlottesville, VA.

[15] Goldstein, A., 2017, Janesville: An American Story, Simon & Schuster, New York. Debaere, P., Globalization under Fire, EuropeNow, February 2018.

[16] Leonhardt, D., and Y. Serkez, 2020, America Will Struggle after Coronavirus. These Charts Show Why, New York Times, April 10, See also, Surico, P., and A. Galeotti, The Economics of a Pandemic: The Case of Covid-19, London Business School, March 23,

[17] Rodrik, D., 2017, Populism and the Economics of Globalization, NBER Working Paper 23559


Photo: Coronavirus disease COVID-19 infection medical illustration. China pathogen respiratory influenza covid virus cells. New official name for Coronavirus disease named COVID-19 | Shutterstock
Published on April 28, 2020.


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