Global Economic Recovery and Resilience in a shock-prone system – Challenges and Opportunities for the G20

The advancement of globalization has led to an increase in network flows. This can be seen in the rise and expansion of trade blocs and alliances.  These networks have since encouraged state interdependence and subsequently impacted their domestic economies. Whether informational, physical or financial, these network flows contribute to the global economy. The Group 20 (G20) is one such example that can showcase the network flows and their impact on the global economy. As a group comprising the world's largest economies, it has a huge responsibility of addressing global economic and environmental issues. The global economy, as an interconnected entity, has, since the Great Depression, witnessed tumultuous times. Faced with multiple crises and geopolitical uncertainty, states have, in response, sought cost-effective survival methods that expedite recovery processes. This has subsequently contributed to sustainable economic resilience and facilitated faster recovery. Some of these conversations to explain this phenomenon of economic cycles and consequent state responses populate public discourse.

“While destinations seek to rebuild and recover taking into consideration community aspirations, the pace and scale of transformation can often have ramifications in terms of economic, social, and environmental costs incurred” (Tham and Prayag, 2024: 277). In the context of crisis and uncertainty, not all states have equal capacity to recover simultaneously. Conversely, this leads to diverse approaches to economic resilience and recovery attempts, which may either favour unilateralism or multilateralism. As a group focused on global integration, the former approach presents challenges for the G20 as it goes against the group’s ideology. This becomes increasingly arduous in the instances where such contrasting beliefs are among the group members.

With the rising antimigration and protectionism public discourses, the inception of the Trump Administration has nudged a series of debates on concerns about global economic recovery and resilience. Is global economic integration the answer? Should states still resort to multilateralism in this shock-prone world that is plagued with crises? According to Eichengreen, Park and Shin (2024), economic resilience and recovery are essential in a shock-prone world. Economic resilience, although difficult to explain in the context of global and local economies it can be attributed to the ability of economies to return to ‘normalcy’ after a negative shock – ‘either to return to a pre-existing stable or equilibrium state or to move quickly to a new one’ (Simmie and Martin, 2010: 27). Economic recovery contrastingly, measures how long it takes to return to normalcy. While technology, infrastructural development and public policy have played a significant role in shaping the pace of global economic integration (Mussa, 2000), other independent factors are at play.

In a world where socioeconomic, cultural, and political shifts have resulted from globalisation, it is no surprise that some nations have opted for decoupling and friendshoring as a means of sustaining economic resilience. Extraordinary shocks and events have prompted particular local and global responses, particularly in relation to public policy. Some of these responses have included the halting of aid; alliance formations amongst friendly states with an economic potential; antimigration policies, and withdrawal from long-standing regional agreements. According to Vale and Campanella (2005), forms and mechanisms of resilience, as well as the scale and scope of state response, depend on the source of a disaster. In the hopes of recovery and resilience, some nations have grappled with the idea of considering a deglobalized initiative. In the hope of mitigating shocks, decoupling and friendshoring have become some of the common economic resilience strategies.

Deglobalizing and Resilience

The Great Depression of 2008, COVID-19 lockdowns and geopolitical tensions such as that of Russia-Ukraine trade impacts have since nudged debate around deglobalization. These pressures have motivated for decoupling – which refers to economic interdependency reduction between trading partners (Nguyen, 2024). A good example is the economic relationship between the United States of America (USA) and China. While both are members of the G20 they have contrasting agendas driven by competition. USA played a huge role in China's economic rise due to its heavy investments in the Chinese manufacturing industry. In turn USA was a major product destination. The Chinese economic rise and technological advancements posed concerns over their potential impact on the USA. Under Donald Trump’s administration campaign in 2015, decoupling efforts gained momentum as concerns grew around national security. Over the years, the USA has made additional decisions, all seemingly geared towards unilateralism and potential deglobalization.

Recently, the decisions by the United States of America (USA) to pull out from the World Health Organization, Paris Agreement, halt aid and impose trade barriers have had significant effects on the global economy. Additionally, The USA has also revoked the Just Energy Transition partnerships (JETP) with South Africa, Indonesia and Vietnam aimed towards decarbonisation commitments. The JETP was seen as an opportunity for skills development and electrification. It also contributed to global integration. As a country affected by electrical shortages and largely dependent on electricity generated by coal, the withdrawal of the USA serves as a reminder to the world that sustainability remains a precarious exercise. Most countries, including South Africa, are already plagued with unemployment and poverty. Opportunities geared towards alleviating these pressures are essential; however, the constant changes brought about by geopolitical tensions, political will, crises and disasters, amongst others, have contributed to significant economic shock waves. These economic shocks either paralyze or slow down economic development. The USA’s withdrawals from funding have broader implications for economic stability. Many global development programs were dependent on USAID funding. Disruptions of these programs led to many job losses. Although there are notable economic uncertainties, modern capitalism still finds ways to exploit the situation. In the USA example, we see how foreign policy shifts have come to prioritize domestic policy over global affairs. While efforts have been centred around social economic recovery and possible resilience, these shifts are in favour of unilateralist ideals.

An alternative approach - Collective Resilience

Despite this, however, the G20 South African Presidency is still committed to a collaborative exercise that reaffirms the values of justice and solidarity. Although the Trump administration’s imposition of tariffs, trade barriers and rescinded aid introduces significant challenges, instead of lamenting the negative impacts, this period serves as an opportunity for reconceptualized transformative strategies. This may take a more decentralized approach that reduces the dependency on single states. This may be observed in the ‘friend-shoring’ instances that have come into effect. Friendshoring refers to the strategic and purposeful geopolitical alignment or realignment with trading partners (Kalvelage and Tups, 2024). It draws on the idea of countries souring economic inputs from countries with similar values. These friendly ties among states necessitate peace and allow for the enhancement and sharing of knowledge, fostering stronger trade partnerships. This, in turn, reduces economic vulnerabilities and contributes to a shared economic resilience.  Recently, geopolitics has largely influenced the spatial organisation of global production networks (GPNs). The overlapping impacts of crises such as the COVID-19 pandemic and other crises, for example, the Ukraine war, has led to the reconfiguration of these GPNs.

The Ukraine war, for example, has led to a polarised response, with some countries supporting Ukraine and others supporting Russia. This global divide has necessitated new geographies shaped around GPNs to surface. In the Russia-Ukraine example, Germany had considered rejecting natural gas imports from Russia and had opted to attain green hydrogen from other countries such as Namibia. Additionally, in an effort to reduce overreliance on the USA soyabean import, China also sought out alternatives through friendshoring. As the largest soyabean consumer and importer of soyabeans, the USA and Brazil had been the sources of exports. This caused overreliance on the two countries which put China in a vulnerable position. As a result, China has shifted from soyabean producers based in Latin America and considered Tanzania as a primary producer of this commodity. Essentially, China has, through its friendly ties, sought an alternative supply chain for its soyabean needs.

Recommendations and Conclusion

Despite the various crises and uncertainties plaguing local and global economies, nations have sought ways of either recovery or resilience. While some states may recover faster than others, states still find ways of remaining economically resilient. Recently this has included decoupling and friendshoring. Decoupling feeds off from the idea of deglobality as a means to survive economic shocks whereas friendshoring draws on strategic alignment with states with economic potential. The two, while contrastingly different, serve as desperate means of weathering the shockwaves. The danger, however, for friendshoring is its likely ability to coerce and weaponize interdependence allies for strategic advantages. Although the G20 is centred around the ideals of solidarity, inclusion and equality, these economic resilience strategies, despite seemingly geared towards future economic recovery enhancement, still pose concerns. Friendshoring, although built on the idea of collective resilience may not always serve the host countries’ needs.  It is with this the G20 should encourage effective friendshoring, which emphasizes:

• Diversification – in order to avoid future decoupling, which may lead to economic fragmentation and potential geopolitical tensions.

• Collaborative policies – in order to ensure mutual developments and standardized regulations, thereby reducing bureaucratic issues and subsequent supply chain interruptions 

• Infrastructural development – in the host countries for an enhanced supply chain capability.

References

Eichengreen, B., Park, D. and Shin, K., 2024. Economic resilience: Why some countries recover more robustly than others from shocks. Economic Modelling, 136, p.106748.

Kalvelage, L. and Tups, G., 2024. Friendshoring in global production networks: state-orchestrated coupling amid geopolitical uncertainty. ZFW–Advances in Economic Geography, 68(3-4), pp.151-166.

Mussa, M., 2000. Factors driving global economic integration. Global economic integration: Opportunities and challenges, pp.9-55.

Nguyen, Z., The Effects of Decoupling and its Implication for Business Executives and Enterprises. In MEB—22nd International Conference on Management, Enterprise, Benchmarking. Proceedings II.(MEB 2024) (p. 123).

Simmie, J. and Martin, R., 2010. The economic resilience of regions: towards an evolutionary approach. Cambridge journal of regions, economy and society, 3(1), pp.27-43.

Tham, A. and Prayag, G., 2024. Disaster capitalism, resilience, and tourism. Journal of Hospitality and Tourism Management, 60, pp.277-279.

Vale, l.J. & Campanella, T.J. (eds.), (2005), The Resilient City: How Modern Cities Recover from Disaster. Oxford, Oxford University Press.

Thelma Nyarhi is a Researcher at the Democracy Development Program (DDP) and writes in her own capacity.