China International Studies (English)
Attaching Great Importance to New Adjustments of Globalization and Their Impacts
globalization is at an end.
Globalization is a double-edged sword. While bringing benefits, it also creates problems. In fact, anti-globalization trends have always gone handin-hand with the trends that promote globalization. When the problems of globalization become prominent, the influence of anti-globalization forces naturally increases. For example, in recent years, the discussion on the growing gap between rich and poor has become vigorous, and in some countries it has even prompted the emergence of new political forces and triggered fierce social movements. French scholar Thomas Piketty’s monograph critical of wealth polarization, Capital in the Twenty-first Century, has become a bestseller. Critics believe that globalization has led to the massive expansion of capital, with wealth increasingly concentrated in the hands of a few.
On the one hand, criticism of globalization comes from the business community, who have called for reconsideration of enterprises’ business security given the vulnerability and sudden collapse of the globalized international supply chain in the face of the pandemic. On the other hand, criticism also comes from political circles, who have blamed the spread of the epidemic and the growing economic difficulties on their dependence on foreign supply chains brought about by globalization. The development of globalization will definitely change in the future, but in what way exactly?
In terms of its development, globalization rests on four pillars: the first is the open and multilateral trading system, the second is the global nature of the operations and supply chains of enterprises, the third is a growth-oriented open policy by the government, and the fourth is the support from the population and their belief that globalization benefits them.
After the Cold War, globalization accelerated because of the gradual formation of a unified world market. According to the data, trade, investment and supply chains developed rapidly following the end of the Cold War. Yet globalization experienced a major turning point after the 2008 financial crisis. The problems accumulated by globalization have become prominent, triggering further reflection and adjustment. Viewed more broadly, all this has taken place in the context of the major changes in the power balance of
the world economy. The rise of a large number of developing countries represented, in particular, by the rise of China, has posed challenges and changes to the previous structure of global economy.
With the rising power of developing countries, particularly a country the size of China, the United States has begun to withdraw its support for the multilateral system based on the principle of universal openness, and has begun to rebuke the World Trade Organization (WTO) that developed after the Cold War. The common demand by developed countries to change the old rules of multilateral mechanisms has led to an institutional crisis for the multilateral system supporting globalization. The trade ministers of the United States, the European Union and Japan have issued a number of joint statements, proposing a reform of the WTO. The United States directly intervened and hindered the operation of the WTO’S dispute settlement mechanism, and even threatened to withdraw from the organization.
Faced with domestic social problems, such as imbalances in trade and regional development, and public dissatisfaction with wealth distribution, many governments have substantially altered their policies. Developed countries, as the main force in promoting globalization, and particularly the United States, have implemented trade protectionist policies by putting their countries first, and imposed unilateral restrictions on major developing countries and trading partners like China. In fact, not only developed countries, but also some developing countries no longer support universal openness, and pursue a policy of balanced and reciprocal opening-up instead. More and more countries are considering the negative effects of opening up and no longer recognize the liberal credo that “all openness is beneficial.”
The public no longer blindly supports globalization, but is demanding that the government protect employment and guarantee income. Populism has emerged, and become a major political force. This is primarily due to the fact that with the rapid development of globalization, wealth has become increasingly concentrated and now encompasses only a small number of individuals and groups. Large companies have abandoned local production and have built an international supply chain based on cost-benefit analysis.
Some traditional economic zones have turned into declining “rust belts.” Major divisions have emerged among different social groups in the development of globalization, and some groups have become its victims.
Enterprises, especially large ones, are the main promoters and beneficiaries of globalization. After the financial crisis in 2008, and in spite of further reflection and consequent adjustment by governments and society in their policies toward globalization, the business community still basically adhered to the strategy of internationalization. However, due to changes in policies and social orientation, these internationalization strategies and their operating environment have become increasingly restricted.
The impact of the pandemic on globalization has highlighted some of the previous problems, and added many new factors. Most prominent among these has been the effect of the pandemic on corporate strategies and government policies.
In terms of corporate strategies, more attention is now being paid to the security of the supply chain. The damage to the global supply chain from the pandemic resulted from two shock waves. The first wave was at the beginning of the pandemic, when COVID-19 led to the suspension of production in China and disruption of the international supply chain. Given that China is the center of regional and global supply chains, its impact was great. Because of the supply chain’s breakdown, a large number of foreign enterprises that depended on it could no longer continue production. At the same time, in order to stem the spread of the epidemic, other countries also adopted measures to close customs. This resulted in a two-way cutoff of international transactions, and many economic activities therefore came to a full stop. With the easing of the domestic epidemic situation and the resumption of work and production in China, there was once hope that the broken supply chain would be restored. However, the global spread of the epidemic has caused a second wave of impact with even stronger intensity. In particular, the spread of the virus in developed countries with a high degree of globalization has increased the impact on global production, consumption and finance. Countries are implementing stricter blocking measures, market panic has intensified,
financial risks have increased, and many companies are facing big problems. Under such circumstances, companies have begun to seriously reconsider their future business strategies, paying attention not only to costs but also to safety, and even making it a priority.
In terms of government policy, the impact of the huge shock wave has not only endangered the safety of society, life, and employment, but also the overall national security. This has led to new understanding and even a redefinition of globalization among politicians and strategists. The most talked about issue is that globalization has undermined national security. In the event of an outbreak like the current COVID-19, the supply chain would risk breaking down, and the country would face a major economic crisis. Therefore, it is necessary to reduce external dependence and maintain domestic production of all those items considered vital for national security and people’s livelihood. In the United States, some politicians even advocate the implementation of extreme protectionist or well-nigh xenophobic policies.
However, from the perspective of the laws of development, while serious epidemics are hotbeds for extreme thinking and extreme political forces, reason tends to prevail after the crisis. Nonetheless, we must be acutely aware of the important adjustments and changes to globalization and their impacts under the new circumstances, so as to accurately understand the major trends and formulate appropriate solutions.
One of the trends is that for the sake of domestic social and economic balance and national security, governments will pay more attention to protecting and retaining key domestic industries and technologies, and pay more attention to the interests and concerns of its citizens, thus emphasizing internalized support and development. According to reports, the US government will give more support to companies returning to domestic production. The Japanese government has also allocated huge sums of money to provide support and bear the cost for companies willing to relocate to Japan.
However, it is unrealistic for companies to totally transfer their production back to their homeland, or even a great part of it. For most companies participating in globalization, transferring all or part of their
operations abroad is the only option to ensure their survival and development. Globalization has given companies from developed countries the chance to survive and expand, and has given developing countries the opportunity to participate in global production, serving both parties’ interests. Those companies at the upper end of the industrial chain generally benefit more. Now, even if the governments fund the relocation costs, what will happen to future operations? For example, Apple’s production is mostly carried out in other countries, especially the assembly process, which is mainly completed in China and other countries with lower costs. If it is produced in the United States, the high production costs will make its products uncompetitive.
The adjustment of enterprises to the new situation has already begun, and which will be further driven by the impact of the pandemic. Since the 1990s, enterprises have accelerated their global operations. Because of the formation of global supply chains, many large enterprises have implemented a zero-inventory supply system which has greatly reduced costs and accelerated the development of trade and investment. But such a supply chain is also very vulnerable from a sudden accident. For example, the great earthquake and subsequent nuclear accident in Japan disrupted supply chains with both domestic and cross-border implications. The outbreak of COVID-19, which is unusual, widespread, and influential, has prompted many companies to reconsider the layout of their global industrial and supply chains. It is expected that a trend for future adjustments will be to shorten the length of international supply chains and ensure the safety of key links to the greatest extent. In other words, it will be to relocate some core links at home, minimize the distance between links, and concentrate the main supply on a few critical nodes. In the past, some products have had dozens of links in its production chain. Such an arrangement was mainly to reduce costs, but the risks were high. In fact, some adjustments are not primarily due to the epidemic, but to underlying changes in the business environment. For example, as the costs in China rise, many production chains that take China as a low-cost processer will inevitably move to lower-cost countries, but the production chains that take China
as their main sales market will continue to stay, and will expand with the increasing consumption demands in China. Cost is the basic element of corporate efficiency, and enterprises will never abandon the opportunities and platforms to reduce costs, which have been provided by globalization. Therefore, only moderate adjustments will be made to their globalization strategy.
On the other hand, the pandemic also promotes new trends of globalization. For example, the international transactions of public health products related to the epidemic have increased significantly, and network technology has been significantly upgraded and rapidly expanded. The global spread of such fields as online video, online education, online entertainment, and e-commerce has accelerated. The network data industry, which has been spatialized and internationalized, will provide new impetus for the overall process of globalization. The original structure of many industrial chains can be
modified with the help of the internet and big data, making the supply chains more stable and secure.
The sudden and fierce outbreak of COVID-19 caught all countries in the world by surprise. The epidemic is still evolving; when it will end, how it will end, whether it will resurrect, or whether it will break out again with new variants is unknown. Under such circumstances, we have to observe the present and think about the future. Scientific analysis and accurate judgments of the new situation and the changes required are needed in order to formulate new strategies and new measures.
Since the reform and opening-up, thanks to the active participation of governments, enterprises and individuals in the globalization process, China has achieved rapid economic development and benefited from globalization. In its future development, China still needs to support, to be a part of, and to make good use of globalization. Before the outbreak of the epidemic, in the face of the rising protectionism, unilateralism and populism, the Chinese government clearly stated its position of supporting globalization and defending multilateralism, which is very important. However, it should also be noted that the impact of the epidemic on the development of globalization has been significant. Therefore, while supporting globalization in general, we must give due consideration to the new changes. Both government policies and corporate strategies need to keep pace with the times, and keep up with the changes. Of particular concern is that in the United States and other countries, some forces have politicized the impact of globalization and the epidemic, and advocated decoupling from China by reducing dependence on the country, and excluding Chinese companies from participating in the supply chain using national security as a pretext. We must be prepared to meet this challenge.
It should also be emphasized that, given that interconnection and interdependence is already a basic feature of our world both now and in the future, it is impossible for globalization to undergo a fundamental reversal and for the world to return to some form of “tribal” isolationism. Perhaps we cannot return to the original form of globalization, but the new phase of globalization will continue to develop.