Corona, the Economy and Deglobalization

Professor Peter van Bergeijk discussed the impact of the corona pandemic on international trade and investment. Based on key economic and epidemic principles he develops "Coronanomics" (including a discussion of supply and demand effects, regulation and policy interventions; international value chains, and trade uncertainty) and provides key data and stylized facts (including a guide to data sources and their interpretation): China has been able to contain and the same seems true for South Korea. The top in the number of patients occurs after about 4 weeks. The virus spreads and as it does the epicenter of the pandemic shifts toward Europe and then probably the US. This generates a cycle in the number of worldwide patients. His conclusion is that the economic impact of this pandemic is severe but not catastrophic as with ebola or HIV/Aids. Next he discussed the economic context in which the corona virus is hitting the world economy; that is a phase of deepening deglobalization that started during the financial crisis in 2008/9 has been strengthened by Brexit and Make American Great Again policies. Four importan lessons: The policy and scientific communities were prepared for a pandemic. Pandemics cannot be prevented, they can be managed to some extent The assessment is still very preliminary; we first need data The economic impact of the corona virus is not catastrophic even when the costs of policy measures are higher than expected Economic corona shocks are going to cascade until group immunity at the world level is sufficient The corona virus increases the ‘marginal cost of intensified globalization’ (the curve shifts up) and the optimal level of globalization is reduced The main conlusions are: We will see cascading trade shocks. Trade uncertainty will increase and reduce international specialization. Deglobalization will deepen, also when the virus disappears If we can keep our heads cool and implement trustworthy, sustainable and transparent policies, this crisis is manageable If irrationality, denial and fake statistics get the overhand this may develop into another global financial crisis – even though the real economy impact is manageable You can help! Stay calm, stay safe.