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

Building a lazy ETF portfolio in 2026

What are the best ways to build a simple portfolio from scratch? I’ve addressed this issue before but think it’s worth revisiting given markets and the world have since changed, throwing up new challenges and things to consider.

Meg on SMSFs: First glimpse of revised Division 296 tax

Treasury has released draft legislation for a new version of the controversial $3 million super tax. It's a significant improvement on the original proposal but there are some stings in the tail.

Ray Dalio on 2025’s real story, Trump, and what’s next

The renowned investor says 2025’s real story wasn’t AI or US stocks but the shift away from American assets and a collapse in the value of money. And he outlines how to best position portfolios for what’s ahead.

10 fearless forecasts for 2026

The predictions include dividends will outstrip growth as a source of Australian equity returns, US market performance will be underwhelming, while US government bonds will beat gold.

13 million spare bedrooms: Rethinking Australia’s housing shortfall

We don’t have a housing shortage; we have housing misallocation. This explores why so many bedrooms go unused, what’s been tried before, and five things to unlock housing capacity – no new building required.

10 things I learned about dementia and care homes from close range

My mother developed dementia before eventually dying in June last year. She was in three aged care homes before finding the right one. Here is what I learned along the way.

Latest Updates

Taxation

Is there a better way to reform the CGT discount?

The capital gains tax discount is under review, but debate should go beyond its size. Its original purpose, design flaws and distortions suggest Australia could adopt a better, more targeted approach.

Property

It's okay if house prices drop

The assumption that falling house prices are electorally fatal has shaped policy for decades. Evidence from upzoning suggests affordability can improve without reducing overall housing wealth.

Investment strategies

Investment bonds for intergenerational wealth transfer

Investment bonds can be a versatile and a tax-effective option for building wealth for longer-term investment goals. They can also be used as an estate planning tool, enabling the smooth transfer of wealth to younger generations.

Investment strategies

Why switching to income may make sense in 2026

Investors are jumpy as valuations continue to rise and income investing may provide a respite. In a challenging market for income investing AML offers their top picks.

Interviews

Retiring Schroders boss on lessons he’s learned, industry changes, and the market outlook

CEO Simon Doyle is retiring after 38 years in the finance industry. In an interview with James Gruber, he shares the three main lessons he’s learned, and where he sees opportunities and risks in markets today.

Investment strategies

How US midterm elections affect the markets

Investors may overlook the US midterms amid global events, but they could still impact markets. History shows markets react during midterm years, with increased volatility and lower returns. Will this year be any different?

Investing

Does increasing geopolitical risk lead to higher equity market returns?

Increasing geopolitical tensions has investors on edge but one study shows evidence of a war premium for equity markets.

Sponsors

Alliances

© 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.