Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 358

Four huge categories of change after the pandemic

In 1930, 1,028 economists signed a letter to Herbert Hoover urging the US president to veto a bill that would raise tariffs once it became law. Hoover refused and the US raised taxes on about 20,000 imports and intensified a trade war that caused world trade to plunge nearly 70% from 1929 to 1934.

The uniform complaint of the economists was that higher tariffs clashed with a key tenet of classical economics, the law of comparative advantage. The theory from the 19th century postulates that everyone is better off when, first, people and countries specialise in what they are most efficient at and, second, they engage in trade to acquire the rest.

The trade war of the 1930s, in effect, reaffirmed the law’s validity. The global order post-World War II was designed so the law could operate unimpeded. It’s not a stretch to say the prosperity flowing from the globalisation of the past four decades is thanks to how this law in practice meant efficiency was prized above all.

Not anymore. The coronavirus showed the law overlooked national security. The theory ignores trade’s role in influencing the balance of power between countries and made no allowance for protecting populations during disruptions to trade from, say, pandemics.

Westerners confronting their mortality were alarmed to discover that vital health supplies depend on a rival; namely, China. They were surprised that just-in-time global logistical networks producing essentials failed. They now expect governments to ensure self-sufficiency in key items. Companies know they need to hold more inventory and strengthen supply lines.

Steps against globalisation are just some of the changes heralded by coronavirus’s psychological effects, when mood shifts change human behaviour. If the virus did anything, it created a mass anxiety that has upended the complacency, even arrogance, that progress is society’s default condition. Now a gloomy, wounded and cautious public, grieving over what has been lost, peers into a poorer, less secure and probably harsher future.

Four major categories of change

The deteriorating mood will bring changes that can be grouped into four categories.

The first is new trends. This includes the partial retreat of globalisation. It covers higher personal sanitation standards, the rise of telemedicine, improved health facilities and wider health coverage. ‘Social distancing’ will endure. Essential workers have won new-found respect and the definition has widened to include service labour. Remote working will be more popular (but not remote schooling). Populations might save a higher percentage of their (shrinking) income. Business might be less confident about investing. Investors might worry more about preserving capital. Governments will relook at biosecurity, cybersecurity and the safeguards around utilities.

The second category is the hastening of trends. This group features the shift to the safer online world, notably the boost to virtual communications, cashless payments and online food delivery, shopping, entertainment and gambling. It covers the psychological shifts damaging the relationship between Beijing and Washington that is moving from rivalry towards hostility.

The third grouping covers the ebbing of old ways. The US’s view that it is the world’s proper hegemon appears to have cracked. So too has frictionless international travel, cheap flights, the popularity of cruise ships, and business models dependent on spontaneous and close human contact such as bars, cinemas and professional sports.

The fourth category gathers possible transformations. A greater role for government in society, the rise of the surveillance state and renewed status for experts are included here. Other possible outcomes are demands to address inequality stirring politics, reduced legal immigration and a lower priority for climate change. An uptick in intergenerational resentment appears likely as the young will bear most of the costs in fighting covid-19. Respect for global bodies is under question. Even if only some of these changes endure, covid-19’s psychological legacy is likely to drive profound and durable changes, especially if the virus lingers.

Many things won’t change

The likely effects of covid-19 look tame compared with history’s greatest pandemics. It’s hard to categorise things neatly into four groupings and to distinguish between anxiety over covid-19’s health and economic effects because they are intermingled. Many changes stemming from covid-19 will meet resistance. Some psychological effects, such as the effect on family life, mental health and religious belief, are too intangible to be discussed here.

The biggest disclaimer in analysing the psychological effects of covid-19 is the trap of thinking that initial reactions will prove lasting. Many might not. But enough surely will. People are likely to recall for a while yet the shock at how vulnerable the coronavirus made them feel emotionally, intellectually, economically, financially and politically. Consider that we have entered an age of vincibility – as was the case in the 1930s.

 

Michael Collins is an Investment Specialist at Magellan Asset Management, a sponsor of Firstlinks. This article is for general information purposes only, not investment advice. For the full version of this article and to view sources, go to: https://www.magellangroup.com.au/insights/.

For more articles and papers from Magellan, please click here.

 

  •   13 May 2020
  •      
  •   

 

Leave a Comment:

RELATED ARTICLES

Australia's baby boom filling some of the immigration losses

Most Australians live better than the Rockefellers

Four steps to resurrecting Australia

banner

Most viewed in recent weeks

Does your will qualify for the discretionary testamentary trust exemption?

Treasury has confirmed the exemption many families were hoping for. But buried in the fine print are two conditions that could leave some wills on the wrong side of the exemption, despite years of careful planning.

Are you making these SMSF mistakes?

After four decades advising investors, there are a few common mistakes I've seen SMSF investors make. From holding too much cash and chasing yield to overtrading and trusting tips. Are these errors costing you?

Lithium's latest drop and what it means for ASX investors

Lithium's latest sell-off has punished ASX miners as prices remain hostage to shifting expectations. The key challenge is navigating a market prone to extreme volatility despite a strong case for the long-term demand outlook.

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Retirement spending is not one-size-fits-all

New data challenges the idea that Australians are underspending their super. The bigger issue may be helping retirees navigate complexity, make confident decisions and use their savings to support security, wellbeing and choice.

The missing link in the CGT debate

A little-noticed consequence of Labor’s tax changes could have implications well beyond investors’ tax bills. The issue raises bigger questions about incentives, capital allocation and the drivers of long-term economic growth.

Latest Updates

Planning

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Superannuation

How much super should you have?

Average super balances are one of the most misleading benchmarks. They ignore your goals, spending and future needs, creating a false sense of security. Here is how I calculate exactly where I need to be at every decade.

Retirement

Retiring from work is easy, retiring into life is harder

Most people spend decades planning how to retire. Far fewer plan for what comes next. The biggest retirement challenge isn't always financial, and it often catches even the most prepared retirees completely off guard.

Shares

Right asset class, wrong index: the trap in Australian small caps

Most Australian portfolios are concentrated in large caps, with relatively little exposure to smaller companies. But what if the biggest risk isn't the economy, interest rates or valuations? For many, the risk is hidden in plain sight.

Property

Are these assets the missing piece in Australian portfolios?

Many investors remain concentrated in shares, cash and property. Despite their popularity among institutional investors, real assets remain underrepresented in many SMSF portfolios. Could they be the missing piece?

Investment strategies

The biggest risk that buy-and-hold investors ignore

Investors spend decades learning how to stay invested, yet few have a plan for getting out. When a financial goal has a hard deadline, a worked example shows why a fixed derisking schedule should outrank buy-and-hold discipline.

Investment strategies

How passive investing is driving the decline of active fund alpha

Why have active managers struggled as passive investing has surged? Research suggests that flows into index funds and ETFs are creating structural headwinds, penalising the stock-picking strategies that once generated alpha.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.