• Finn McGovern

An Optimistic Approach to Globalization Amid the Trade and Supply Chain Crisis


By Finn McGovern

 

The Coronavirus-19 pandemic has not been kind to the World. Almost five million people have died, 730,000 of those in the United States. This is nothing short of heartbreaking. In addition to the death toll, the World has taken a significant hit to its economic health as well. The global supply chain is among the most affected. The Ever Given container ship caused a massive traffic jam in the Suez Canal and currently thousands of ships are waiting to dock in a Long Beach, California port. Nonetheless there are already signs of recovery which is why it is important to remain optimistic about the global future.


Karen Dynan, a senior fellow at the Peterson Institute of International Economics forecasts the global economy will grow 5.6 percent in 2021 and another 4.9 percent next year. The United States will also see gradual improvements to the depleted supply chain that could stretch into 2022. The COVID-19 pandemic forced countries to close their borders in hopes of hindering spread of disease but it came with a tradeoff. International trade and supply chains have taken a deep dive. It has taken nearly four quarters post March 2020 to return to pre pandemic levels.


There has been substantial progress amid chaos. Major exporting countries are slowly opening their borders to travel and trade again. The percentage of those fully vaccinated has continued to accelerate in the United States. The passage of a major infrastructure and jobs bill will also add to economic prosperity at home. On the bright side, according to Alessandro Nicita of the U.N. Conference on Trade and Development:


“Global trade has recorded a faster recovery from the recession caused by the pandemic than in the last two trade recessions”


COVID-19, unlike the major financial problems caused by the big players, has had a greater impact on the population at-large. People did not just lose their homes or belongings; they lost their lives or family members. This extremely personal experience brought people closer together amidst increasing polarization. The combination of a fast-track vaccine and relentless courage has expedited the healing process. As I will explore it will not be a simple road ahead. While there will be several gradual gains, an outlook on a normal future will depend on steady success this year.


Currently, the fear of COVID-19 still causes delays in the supply chain. Some employees say the pandemic has affected their working conditions leading to a shortage of workers. President Joe Biden's order to mandate vaccines for federal workers has led some to quit rather than get the shot. This effect has exacerbated the shortage of workers. Also, employee morale has hit an all-time low with many believing they are getting the short end of the stick. A record number of employees have resigned resulting in the ‘Great Resignation’.


Global supply chains are still congested. The Long Beach port accounts for nearly seventeen percent of the trade in the country. It has seen ships waiting an average of over two weeks to unload their cargo. The shortage of workers at the ports and the truck drivers needed to transport the goods has caused massive disruptions. One reason is that truck drivers say the freight companies have taken advantage of them because they do not get paid until the goods reach their destination. Essentially, these drivers are waiting around not getting paid which leads to free labor. Because of the backup, there are fewer drivers making it to the final destination. Truck driving is already a tedious job but due to the harsh conditions, companies are having problems hiring drivers, even though there have been several attempts to entice more with a raise in pay. This domino effect has highlighted the downside to an interconnected world. Experts say the timeline back to normal supply chains will be a waiting game with most speculating a bullish forecast next year.


The good news is that, unlike the 2008 Great Recession, there is a high demand for consumer spending. Given the deceleration of the spread of the COVID-19 virus, people are more likely to visit indoor places such as movie theaters, restaurants, and sporting events. The Holiday season is also fast approaching with discretionary spending rising by eleven percent compared to Quarter 4 of 2020. Consumer spending is also expected to increase seven percent in this quarter. Travel and entertainment spending will offer the biggest increase with a whopping forty percent increase coming this quarter. It is highly likely that the bulk of spending will be online with a thirty percent increase expected since the second quarter of this year.


Another word of advice, if you are Christmas shopping and want your item to arrive before December 25, start doing your shopping now. Changes at the United States Postal Service will also exacerbate the supply chain delay with the Post Office issuing new “service standards”, extending wait times. Other people certainly believe it is beneficial to start shopping early. In a McKinsey study, participants list availability, long lead times in shipping, and unexpected challenges due to COVID-19 as principal reasons why they will start earlier. Despite holiday shopping being more expensive than years past, Deloitte predicts $1.28 to $1.3 trillion in total retail and distribution sales.


Globalization is messy, complex, and often frustrating. It sometimes leads us to shake our heads or even butt a few heads. In reality, globalization has made the country wealthier, leveled the economic playing field, and enabled convenient goods and services to prosper. Protectionism, “the theory or practice of shielding a country's domestic industries from foreign competition by taxing imports” is ultimately the wrong way to go. Globalization has created jobs, competition and fueled economic growth. As the world becomes more and more competitive, protectionist countries will fall behind as their domestic markets max out. They will be forced to outsource to the global markets not just because of the decline in competition but also a decline in quality.


It is extremely hard for those affected by everything over the past year, but I cannot understate the importance of faith. Faith must be an important pillar in the majority Christian nation such as the United States. Things will get better; they will just take time. Anyone over thirty likely remembers how they were affected by the Global Financial Crisis of 2008. It took almost ten years for the economy to come back to pre-recession levels.


If working in a wine and spirits store last summer taught me anything about the supply chain, it is that extremely important to remain patient. This was the first time I consciously thought about the process consumer goods go through to make it to the store. On a good day when there is supply, these things take time. Sometimes it might upset your day if you are not able to buy the latest Hennessy cognac, but that’s life. Soon, COVID-19 will be beyond us and France will start to send a greater supply to the States. Globalization and free trade have their flaws but like capitalism, it is the best solution to an impossible problem.