When asked to describe today’s economy, “globalized” is first term that comes to mind. There’s a multitude of connections between the US and China ranging from goods and capital to ideas and people. The volume and value of those goods and services has been steady increasing, particularly since Bill Clinton formalized the NAFTA agreement in 1993. This week’s swine flu scare presents an interesting conundrum for globalization. One of the key features of globalization is today’s interwoven web of connections between the various global economies.

Good or bad news can move across markets not only in the countries directly affected but also to the rest of the world, potentially becoming exacerbated when a jingoistic or misinformed media becomes involved. What’s particularly pertinent about this global pandemic is its legitimate threat to an interwoven world. Global health authorities believe that the outbreak’s ground zero was Mexico City, and that it began spreading as tourists from the US and Europe began returning home from spring vacation. Just twenty or thirty years ago quarantine probably would have been feasible.

Coincidently with the rise of free trade, the global citizenry have enjoyed at least greater nominal wealth and it’s become easier to cross international borders and it’s tough to retroact to that fact without severe repercussions. The pork industry has been up in arms over the nomenclature “swine flu.” And based on genetic sequencing done on the virus by a plethora of global health agencies, it’s been determined that the origin of the virus is actually a strain of avian flu. That doesn’t mean the virus didn’t jump from pigs to human beings in the first place, but it does mean that swine flu should not be the preferred nomenclature.

 

The buzz word is a major concern since pork means big business to some and a number of countries have banned the import of both live hogs and pork products from affected areas, particularly Mexico. And while pork isn’t one of Mexico’s largest exports, it amounts to hundreds of millions of dollars for the country, of which it can’t afford to lose right now in light of the Mexican government’s costly war on narcotics.

 

Pork is a major export for the US as well, totaling an estimated $4 billion in sales annually. While that’s a tiny fraction of US GDP, the ripple effect from various import bans is fairly impactful. It’s not just on hog farmers but meat processors, feed producers and even grocers will be affected.

 

About the only upside to the scare is that fact that here at home, pork prices should fall as supply does. Meaning, what’s normally exported from the US must now be sold in the US markets so a lot of folks will be eating more of the other white meat.

 

More broadly though, the bans upset the balance of trade and are likely to exacerbate already tense trade relationships and political rationality is a must in today’s world, particularly since there’s already a propensity to turn inward and protectionist when the economy is faltering.

 

And the media is doing its part to flame the fire, but then, the media is whole different problem and while it’s true that the risk of a pandemic is real, the jury is still undecided on the actual effects of this one. However given the patterns of mortality among the areas infected, the major risk is for those who live in areas where medical care is not sufficient.

 

So, from an investment perspective, this entire situation has been blown entirely out of proportion. Really, the greatest interest should be in the flip-flop of Arlen Specter, who’s announced that he’s changing party affiliation, jumping from the GOP to the Democratic side of the aisle.

 

In the long-term, his switch is going to have a much greater impact than any instance of swine flu, assuming this pandemic is more media hype than pestilence.