Covid-19 and resultant disruption of economic activity and trade supply chain will lead to contagion call for boycotting China, taming its economic clouts, maiming its unethical medical and infrastructure diplomacy. Across the globe, some trade expert/economist believes that globalization has been abandoned. With global markets plunging into economic recession, there is a serious but cautious call for either Gated-Globalization or for Re-Globalization.

From North America to Latin America, Europe, Asia, Africa and even in Oceania, nationalist policies are aimed at creating walls with restrictive gates, heralding an era of selective trade policies with selective trade partners. India has also announced the Atam Nirbhar or self-reliant or going indigenous schemes. Economic walls are being created with a definite and clear objective of strengthening and supporting local businesses and promoting self-sufficiency.

For example; India has decided that all procurement up to Rs. 200 will be reserved for domestic industries only. USA has made a clarion call for certain industries being completely indigenous; pharma, aerospace, defence and electronics, being the first and foremost. The EU is seriously exploring the possibility of relocating certain industries to low wages centres in Eastern European countries. Japan has announced a $200 Billion package to fund, shift, structure and sustain the industries from China to either in Japan or elsewhere in the world.

It seems, the world is moving towards Gated Globalization. Gated- Globalization can protect countries from any future economic contagion, natural or man-made but it is advocated that it will be less damaging economically. Quad (Australia, Japan, India and USA) are more vocal about Gated-Globalization and Quad Plus (Israel, Brazil, South Korea and Vietnam) has joined that bandwagon recently. India has domestically taken several measures aimed at discouraging imports, promoting domestic industries, especially MSMEs and encouraging ‘Make in India’ and soliciting industries willing to relocate out of China. In a nutshell, Gated Globalization will discourage free global competition and free movement of capital in a more competitive market, but will move to selective markets for selective trade gains. Re-globalization on the other hand calls for making future investment and industrial expansion in countries which are equally competitive or will be competitive or an attractive consumer markets (Vietnam, Thailand and India) in near future i.e. Re-globalization believes in China +1 strategy, thus trading off the uncertainties which the world economy witnessed during Covid-19 pandemic. Re-globalization is based on positive strategy while Gated Globalization is negatively addressed and its resultant fall-out will not only be Geo-economic, but geopolitical and Geo-strategic.

As a nation, India has to make choices about what can work for India. While Gated Globalization is restrictive and trade distorting as it is the government which will decide with whom to trade with and what kind of investment regime they would like to have with. Gated globalization for any country is not possible as it disallows the market access to the most efficient and effective trade supply chain, providing essential and cost effective inputs, for trade of both capital goods and networked products.

Will India’s pharma and auto supply chain be as efficient and effective without access to vast, competitive and reliable supplies as originating from China?

As a vast, economically differentiated and culturally diverse country, our choices and business are bound to split for example, India’s MSMEs always demand protection from foreign competition, whereas, the more efficient MNCs advocate the open, non-discriminatory and transparent trade policies. Large enterprises in India hate selective trade policies which hinder their trade expansion to newer regions and resultant profitability. Indian consumer also have varied choices vis a vis globalization and gated-globalization, for example, educated, economically independent and urbanized consumers ask for products which are globally bench marked with highest quality standards and competitively prices irrespective where they are produced while semi-urban and rural prefer Indianized and indigenous products as they believe in thriftiness, simplistic living and culturally resonating Indian products, because of much of the work done by organization such as Swadeshi Bharat, Ladgu Udgyog Bharti and other RSS affiliates.

India should carefully and intelligently weigh options as Atam Nirbhar Bharat is for Self –Reliance or Isolation or Gated Globalization with a select group of countries. Challenge the location of production of China vis a vis any other country will not be an easy task as China enjoys around market share in doubt digit in both exports and imports, which no other country of the world has distinction.

China is a global factory and its share in global trade in some sectors exceeds 50% of world trade. China’s role, status and significance in global trade and supply chains have grown ever since it was accepted into the World Trade Organisation in 2001. Multinational as well as global investors want to leverage China as a cost effective producer of goods and tap the global trading opportunities that China offered, both in terms of production and as a source of demand for their products. The Tsunami of Covid-19 is likely to reverse this era of globalization and will reverse it to re-globalization in other countries offering “China Plus One” strategy to overcome future risks associated with trade supply chains..

The ‘Trade War’ with USA, increasing Geo-strategic hegemony with neighbours, rising wages and failing and crumbling investments in Road & Belt Initiatives had already incentivized some nations as well as multinationals to relocate their supply chains away from China to other parts of Asia. For example, the textile sector has already moved to Vietnam, Bangladesh, Sri Lanka and Thailand. Covid-19 pandemic is pushing more firms to relocate, for example leather producing firms want to relocate to Agra, Kanpur and Ranipet (Tamilnadu) as they find India to be more attractive in terms of supply of raw material and labour costs.

The real challenge will be ensuring shifting of China’s Electronic and Electrical heavyweights and ensuring re-globalization of countries like India, Vietnam, Israel, Brazil and Thailand. Re-globalization of key industries to new production centres will ensure a Supply Chain Network that is far less dependent on China and is more diverse. Re-Globalization Strategy will be not without potential challenges, for example; it is far more difficult to shift industries for sectors like automotive sector, pharma and electronics and electrical sector. It will be near impossible for certain, like shipbuilding, plastics, bulk chemicals for use in health and agro industry, metallurgy based industries.

In the above context, Indian policy makers and firms should make the case for regionalised supply chains that are networked, interconnected to China but are not dependent on China. The strategy of Re-globalization of Asia with shifting of industries from China makes a sense for India, not the Gated-globalization at the moment.