The fading dream of globalisation
The “happy globalisation… of the 1990s [is] well and truly over”, says Marie Charrel in Le Monde. At last month’s World Economic Forum in Davos the globe’s economic elites were “haunted by doubt” and anxiety as the post-Cold War economic model crumbles. “The United States has declared technological war on China by drastically limiting its exports of electronic chips” and the world’s major trading blocs are pushing to “re-regionalise” supply chains. The vision of a world where businesses trade effortlessly across borders is fading. International trade as a percentage of world GDP peaked at 61% in 2008, but it has stagnated over the past decade.
Yet “globalisation is changing, rather than dying”, says Martin Wolf in the Financial Times. In recent years governments and businesses have become more aware of the risks of “extended supply chains” and technology transfer to potentially hostile powers. But while trade in goods has flatlined relative to output since the 2008 financial crisis, “global flows are now being led by intangibles, services, and human skills”. Flows of services, international students, and intellectual property grew about twice as fast as trade in goods in 2010-2019, according to a report by consultants McKinsey. Data flows grew at nearly 50% per year.
Protectionism is on the rise
Statistics showing broad continuity in trade and investment patterns have led some to conclude that all this discussion of deglobalisation is little more than “feverish talk”, says Adam Tooze, also in the Financial Times. Yet “if you take
Washington seriously it is hard to avoid the conclusion that… the US is bent on revising the world economic system”. Politicians on both sides of the country’s political divide agree on the need to “confront China” and are putting in place vast subsidies to bring production back onshore.
The Biden administration plans to lavish $465bn on domestic green energy, electric cars and semiconductors as part of its Inflation Reduction Act and other programmes, says The Economist. Washington’s short-sightedness has unleashed a “dangerous spiral into protectionism worldwide” that is evident everywhere from Korea and India to Europe and Latin America. The open post-war trading system is out and “an era of zerosum thinking has begun”.
This push to “reindustrialise” the West will be expensive. “Replicating the cumulative investments of firms in the global tech-hardware, green-energy and battery industries would cost $3.1trn$4.6trn (3.2%-4.8% of global GDP).” That will stoke inflation and make it harder to wean the world off fossil fuels.
The eye-watering costs of decoupling mean that “a wholesale reorganisation of global supply chains is unlikely”, says Capital Economics. Thus the fracturing between the major trade blocs will be concentrated in strategic industries such as batteries, biotechnology, and high-end engineering. “There are no compelling geopolitical reasons why the US or Europe should stop importing the majority of consumer goods from China.”