By Rewert Hoffer
Some have described the COVID-19 pandemic as a death knell to modern globalisation, going so far as to name it as the “1914 moment of the post-Cold War globalised order”. Such comparisons allude to the first era of globalisation which lasted from approximately 1870 until the outbreak of World War I, when the major economic centres in Europe and North America were highly interconnected through trade. To give some perspective of how globalised the world already was: The share of world trade to GDP in 1913 (30%) was only reached again in the early 1970s.
Is COVID thus the equivalent of the assassination of Archduke Franz Ferdinand in our times? Will the pandemic end globalisation as we know it? Yes and no. Globalisation is not dead, but it will shift to new places. Modern globalisation was centred on the North Atlantic since its beginnings in the nineteenth century. This North Atlantic age of globalisation is over now; the new central region of global connectedness will be the vast landmass of Eurasia. However, even if the geographical focal point of globalisation changes, the underlying structural forces resemble its predecessor.
The first era of globalisation
The first age of globalisation was less “global” than transatlantic. Flows of goods, capital, people, and communication were mostly exchanged between Europe and the 'New World'. This first wave of economic integration was driven by innovation and falling transportation costs. The laying of the first functioning submarine cable across the Atlantic in 1866 buttressed the exchange of economic and financial information, while the invention of railways and steamships reduced the average real freight rates by 50% between 1870 and 1913. Paradoxically, world trade increased when many European countries and the US started to pursue protectionist policies and interstate rivalry intensified during this high time of imperialism. This is because technological innovation in transportation, communication and refrigeration, as well as high rates of economic growth in conjunction with high capital mobility and fixed exchange rates, were able to offset the negative effects of protectionism.
Nowadays, we can observe very similar trends that underpin the first era of globalisation—falling transportation costs, innovations in communications technology, and rising geopolitical tensions—only at a different location and with new protagonists.
The transport revolution across Eurasia
The breakdown of political divisions after the end of the Cold War reinforced the geographical realities of a connected Eurasia. The pandemic is accelerating this trend through two channels. First, the second wave of COVID-19 infections largely remains an Atlantic phenomenon, while East Asian governments seem to remain mostly unaffected and are even achieving considerable economic growth rates in 2020. Second, the pandemic has massively lowered the relative costs of overland transportation by rail through Eurasia, thereby setting the trend for increased Eurasian interconnectedness through trade.
Rail transportation between the EU and China increased by two thirds in 2020 relative to the preceding year. There are several reasons for this. First, rail transportation allowed the shipment of a large quantity of goods with limited human interaction during the pandemic. Second, the massive drop in air travel has increased prices for air transportation. Third, while shipment by sea is still cheaper than overland transportation, rail transportation is much faster. Sea shipments from East Asia to Europe take up to fifty days, while transport by rail only takes fifteen.
Pre-existing trends are also amplifying this shift, further increasing connectivity throughout Eurasia. Both the EU’s and China’s pledges to become carbon neutral in the coming decades will increase the demand for rail transportation, the greenest of all transportation modes. Moreover, China’s renewed development plan strategically targeting its Western provinces will gradually shift the centre of economic gravity in China westwards which will further incentivise overland transportation of goods to Europe. Relying more on transportation and energy infrastructure within Eurasia coincides with the goals of the Belt and Road Initiative while simultaneously reducing Beijing’s dependency on crucial sea routes like the Strait of Malacca. In sum, economic, environmental, and geopolitical considerations all reduce the opportunity costs of overland transportation across Eurasia. While COVID-19 gave land transport a strong short-term boost, this trend will intensify in the future and most likely push a dynamic similar to that which unfolded across the Atlantic during the first era of globalisation.
Connectivity and competition
The reduction of transportation costs means that Eurasia, home to five billion people and the source of 65% of global GDP, will be the focal point of globalisation in the future. The symbiotic relationship between China and the US is over. “Chimerica” is no more, as the broader distancing of US-China relations is unlikely to change under President Biden. Relatedly, a unified transatlantic approach towards China is unlikely. Economic incentives and transatlantic disarray further foster the stronger connection between Europe and Asia.
As in the first era of globalisation, Eurasian globalisation will be marked by connectivity and competition alike. Innovations in communications technology such as telegraphy vastly increased connectivity over a century ago, while also being employed to create distinct spheres of influences in the realm of communications. This development seems to repeat itself today in contemporary patterns, with the emerging decoupling of digital infrastructures between the east and west along with ongoing discussions about the geopolitical implications of 5G.
COVID-19 will not end globalisation, but it will shift the centre of global connectivity from the Atlantic to Eurasia. Although future eras of globalisation will be geographically different, they will contain structural parallels to the first era: Eurasian globalisation is similarly characterized by the falling costs of overland transportation and a period when geopolitical tensions have become increasingly entangled. Just as at the turn of the nineteenth century, we might enter into a world that is growing simultaneously more interconnected and more volatile.
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