Globalisation is in retreat. The Covid-19 pandemic has reduced trust between nations, and has triggered a desire to shorten supply chains and to re-shore production across the world: no-one wants to be at the mercy of disruptions to essential trade if there is another wave of the pandemic. As physical distancing has become the norm within countries, we are seeing a trend for national distancing between countries. Increased mistrust has characterised international discourse in recent years, and this has been intensified by the fallout from the Covid-19 pandemic. An isolationist White House under President Trump since 2016 is a key reason for the current state of affairs. With “tough on China” a feature of both the Biden and Trump presidential election campaign rhetoric (albeit with differing points of emphasis), it is difficult to believe that frosty relations will improve in the short term. At the same time there has been a growing challenge to the liberal Western world view, especially by a determinedly nationalistic China. This has led to a growing resentment in the West towards foreigners having access to a system which they do not fully respect. News stories surrounding the provision of Personal Protection Equipment helped to frame this problem. In the event of a crisis, which nation’s interest would a foreign investor in a PPE production facility seek to prioritise? Would the home or host sovereign have first call on the factory’s output? The global financial system is also feeling the cold wind of nationalism, and international capital flows are coming under spotlight. This represents quite a change in sentiment, as cross-border investment flows have traditionally been seen as a positive aspect of globalisation. For the period 1950 to 2000 the vast majority of these flows came from developed nations and went to emerging nations. The Pax Americana liberal capitalist order was in the ascendency and provided comfort. Western rules facilitated access for western nations, and at the same time recipient nations viewed these rules with respect and thought them worth emulating. Since the turn of the century we have seen a growth in capital moving in the opposite direction: from the emerging world to developed nations. These flows have coincided with the emergence of China, especially after the country secured membership of the World Trade Organisation (WTO) in 2001, and the growing importance of hydrocarbon wealth particularly amongst Middle Eastern nations. The drift towards national distancing, and the resulting pressure to dismantle the existing liberal framework of international investment is unfortunate because investment flows under a well-constructed regime benefit both the investor and the recipient nation. The risk to investors of expropriation and the risk to recipient nations of an erosion of national sovereignty were believed to be outweighed by the benefits of cooperation. Today there is pressure to monitor investing across national borders in a manner that we have not seen since 2006-2008. That was a period when there were concerns in Europe over the intentions of the Russian gas monopoly Gazprom, whilst in the US the senate actually blocked the planned sale of port facilities to an Abu Dhabi based company. Sensitivity will apply (as it did in the mid-2000s) to investments in fields such as energy and transportation, but also to infrastructure investments such as water, and technology. Moreover, in the current climate it is unlikely that a state-owned investment vehicle will be able to achieve a better overall assessment than that of the sovereign nation that owns it. This will make it difficult for the China Investment Corporation (CIC) to be viewed more favourably than Huawei, despite the fact that CIC is a recognised SWF with an established institutional architecture. Regulators may fear that in a situation of stress both CIC and Huawei would become equally answerable to Beijing. The US response to the COVID-19 pandemic by the US has been to focus firstly on itself. This has left doors open for China to fill gaps, and build influence. It is unlikely that the US will be able to isolate China, whose use of both soft and hard power may result in lasting changes to the geopolitical landscape. Developing nations may not be in a position to refuse help from China when there is no competing US offer. The US should wake up to the fact that the new normal after the pandemic may be more than just washing hands and working from home
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