Ukraine War: A Turning Point for Globalization?

on August 4, 2023
By Sarah Neumann


Globalization is a multifaceted phenomenon that refers to the increasing interconnectedness and integration of different regions and peoples across various dimensions, such as trade, investment, migration, culture, technology, and information. Globalization has been a dominant trend in the world economy since the end of the Second World War, but it has also faced many challenges and disruptions along the way.

The recent war in Ukraine is one of those disruptions that has profound implications for globalization and its future trajectory. The war has not only caused human suffering and economic damage in Ukraine and its neighboring countries, but also triggered wider geopolitical tensions and conflicts that have undermined global cooperation and trust. Moreover, the war has exposed the vulnerability and fragility of global supply chains that rely on foreign inputs, markets, and transport networks.

How will the war in Ukraine affect globalization in the medium to long run? Will it lead to a reversal or a reshaping of global integration? What are the consequences for development and cooperation? These are difficult questions to answer, as they depend on many factors and uncertainties. However, some possible scenarios can be sketched out based on current trends and evidence.

One scenario is that the war in Ukraine will accelerate de-globalization, or a decline in global integration. This scenario is based on the assumption that geopolitical risks will outweigh economic benefits as drivers of globalization. Under this scenario, countries will prioritize their national security interests over their trade interests, leading to a fragmentation of global markets along political lines. Trade barriers will increase as countries impose sanctions, tariffs, quotas, or other restrictions on their rivals or potential threats. Global supply chains will be disrupted or reconfigured to reduce dependence on foreign sources or markets. Countries will also seek to diversify their trade partners or develop their domestic capabilities to enhance their self-reliance.

This scenario would have negative consequences for development and cooperation. De-globalization would reduce global efficiency gains from specialization and comparative advantage. It would also reduce global welfare gains from lower prices, higher quality, and greater variety of goods and services. De-globalization would hurt developing countries more than developed countries, as they rely more on trade for their growth, employment, income, and poverty reduction. De-globalization would also undermine global institutions and norms that facilitate cooperation on common challenges such as climate change, public health, human rights, or peace.

Another scenario is that the war in Ukraine will reshape globalization rather than reverse it. This scenario is based on the assumption that economic benefits will still matter as drivers of globalization despite geopolitical risks. Under this scenario, countries will adapt to changing circumstances by adjusting their trade strategies and policies. Trade barriers will not increase significantly, but trade patterns will change as countries seek new opportunities or niches. Global supply chains will not be disrupted, but diversified or optimized to balance efficiency and security. Countries will also pursue regional or plurilateral integration agreements that are more flexible and inclusive than global ones.

This scenario would have mixed consequences for development and cooperation. Reshaping globalization would preserve some of the benefits of global integration, but also create some challenges and trade-offs. It would allow countries to exploit their comparative advantages and access new markets, but also expose them to more competition and volatility. It would enable countries to diversify their trade partners and sources, but also increase their complexity and coordination costs. It would foster regional or plurilateral cooperation on some issues, but also create fragmentation or exclusion on others.

The war in Ukraine has also revealed the vulnerability and complexity of global trade. The war in Ukraine has disrupted global supply chains and markets, especially for commodities such as food and energy. For example, Russia is one of the largest exporters of wheat and natural gas in the world, and its exports have been affected by Western sanctions and transport bottlenecks. This has created shortages and price spikes in some regions, such as Europe and Asia. Moreover, the war in Ukraine has increased global uncertainty and volatility, which have negative impacts on investment, consumption, and growth.

The war in Ukraine has also raised questions about the relationship between globalization and security. Liberalism is a theory of international relations that argues that globalization promotes peace and security by increasing interdependence, cooperation, and democracy among countries. However, this theory has been challenged by recent events that show that globalization can also create conflicts and threats. For example, Mark Galeotti argues in his book that globalization has enabled countries to use their economic, technological, or informational advantages as weapons against their rivals or adversaries. He calls this phenomenon “weaponized interdependence” and suggests that it leads to more frequent and protracted wars.

The war in Ukraine does not necessarily mean the end of globalization or the return of a Cold War scenario. Rather, it means that globalization is changing and evolving in response to new challenges and opportunities. Globalization is not a uniform or linear process, but a diverse and dynamic one that varies across different dimensions, regions, sectors, and actors. Some aspects of globalization may decline or stagnate, such as trade in goods or multilateral agreements. But other aspects of globalization may continue or increase, such as trade in services or digital flows. Moreover, some regions may pursue deeper integration or cooperation within their own blocs or groups, such as the European Union or the Regional Comprehensive Economic Partnership.

The war in Ukraine is a critical juncture for globalization, but its outcome and impact are not predetermined. They depend on how countries adapt to changing circumstances and what policies they adopt to manage their trade relations. The challenge for policymakers is to find ways to harness the benefits of globalization while minimizing its risks. This requires balancing efficiency and security, openness and sovereignty, cooperation and competition in a changing global environment.”

Sarah Neumann is a political scientist and freelance writer who specializes in international relations, security studies, and Middle East politics. She holds a PhD in Political Science from Humboldt University of Berlin, where she wrote her dissertation on the role of regional powers in the Syrian conflict. She is a regular contributor to various media outlets like Eurasia Review. She also teaches courses on international relations and Middle East politics at Humboldt University of Berlin and other academic institutions.

 

THE LIBERTARIAN VIEW

Globalization, Not Globalism: Free Trade Versus Destructive Statist Ideology – OpEd

 January 5, 2023  

By MISES

By Connor O’Keeffe*

After the 2008 financial crisis, calls rang out across establishment publications and the executive offices of Wall Street that we were witnessing the death of globalization. The calls grew louder and more numerous after Brexit, the election of Donald Trump, the pandemic, and Russia’s invasion of Ukraine. Yet the data appears to dispute this narrative. Global trade hit a record $28.5 trillion last year with projections to grow in 2023. The pace, however, is expected to slow. The reason for this is less a problem with globalization itself and more the historic setbacks that globalism has faced.

Before continuing, it is important to define some terms. Globalization occurs when societies around the world begin to interact and integrate economically and politically. The intercontinental trade experienced during the Age of Sail and via the Silk Road are early examples of globalization. Globalization really took off after World War II and received a recent boost with the widespread adoption of the internet. Importantly, globalization in common discourse includes both the voluntary economic activities between peoples of different nations and the involuntary geopolitical activities of governments.

In contrast, Ian Bremmer defines globalism as an ideology that calls for top-down trade liberalization and global integration backed by a unipolar power. Statists believe that market exchange between people is literally impossible without government; only when a group claims a legal monopoly on violence and then builds infrastructure, provides security, documents property titles, and serves as the final arbiter of disputes can a market come into existence. Globalism is the application of this perspective to international trade. Globalists believe that top-down global governance enforced and secured by a unipolar superpower enables globalization.

But, like statists on a more local scale, the globalist view is logically and historically flawed. Global trade was well underway before the first major attempt at global governance, the League of Nations, in 1919. The league’s stated aim was to ensure peace and justice for all nations of the world through collective security. Falling apart at the outset of World War II, it failed miserably. But globalism as an ideology found its footing after the war. Europe was devastated. This left the US and the USSR as the only two countries with the ability to exert power globally.

So began the fastest era of globalization in history. Trade exploded as people moved on from the war. The globalist project also got off the ground with the founding of the United Nations and the World Bank. Globalism was limited only by the ideological differences between the two superpowers. The USSR wanted to support revolutions while the US aimed for top-down trade liberalization—which drove the recent allies apart and plunged the world into the Cold War.

In the United States, the neoliberals and neoconservatives dominated the political mainstream through their shared mission to bring markets and democracy to the world at gunpoint and financed by US taxpayers. Fortunately for them, the rate at which their interventions at home and abroad were wrecking US society was slower than that of the Soviets. The abolition of prices and private property eventually led to the collapse of the USSR in the early 1990s. With its main adversary defeated, the United States had achieved one of the central tenets of globalism, unipolarity.\

From the outset, the US establishment gorged itself on its new globe-spanning influence. Through new international organizations like the World Trade Organization, “free trade” agreements were introduced. Some ran for hundreds of pages, yet all free trade really requires is an absence of policy. The United States sailed its navy around the world’s oceans promising to secure shipping lanes like a global highway patrolman. Through the promise of US military security and the bankrolling of international governance organizations, US taxpayers were forced to subsidize global trade.

As Murray Rothbard highlights in Man, Economy, and State with Power and Market, there is no such thing as international trade in a truly free market. Nations would still exist, but they would be pockets of culture instead of economic units. Any state restrictions on trade between people based on location are a violation of their liberty and a cost to society. Most free-market economists understand this and advocate against state restrictions accordingly. But subsidies to international trade are also antithetical to the free market. The proper free-market position is the complete absence of policy on both sides. No restrictions and no subsidies. Let people freely choose who they do business with. There should be no hand on either end of the scale.

Economic integration was far from the only focus of the US regime during its unipolar moment. Too many people had gained wealth, power, and status during the Cold War as part of the US war-making class. Despite the USSR’s total collapse, the last thing the United States wanted to do was declare victory and give up its privileged position. Instead, the United States scrambled to find a new enemy to justify the continuation of those privileges. Their eyes settled on the Middle East where they would, in time, launch eight unessential wars that killed any notion of a “rules-based international order.” US unipolarity proved Albert Jay Nock correct; governments are only as peaceful as they are weak.

This institutional desire for war would sow the seeds of destruction for the United States’ unipolar moment. As the United States eviscerated any notion that it stood for a rules-based order through its adventurism in the Middle East, tension was brewing in Eastern Europe and East Asia. To the doubtless joy of weapons companies and foreign policy elites, the Russian and Chinese governments were transformed back into the United States’ enemies.

The Russian invasion of Ukraine in February was a huge win for the US war machine, but it also represented an enormous step backward for globalism. The Russians seceded from the global order the United States had led for three decades. The West’s reaction, grounded in strict sanctions and forced economic divestment, deepened the rift in the global system.

What the future holds is anyone’s guess, but the globalist dream of a singular system of global governance is surely wrecked for the near future as the Russo-Chinese bloc breaks away. There will be pain because so many connections between nations are controlled by governments; however, a significant degree of globalization is still valued by the world’s consumers. The data contradicts any idea that globalization is reversing. It is only slowing as governments attempt to drag consumers along on their quest to divest from the other side.

Despite the claims that globalization is dead, international trade is alive and well. But the drive toward an interconnected world is slowing down as the ideology of globalism experiences its biggest setback in decades. The statist conflation of unipolar global governance and international trade explains where these claims are coming from and why they are flawed.

*About the author: Connor O’Keeffe is a writer and video producer at the Mises Institute. He has a masters in economics and a bachelors in geology.

Source: This article was published by the MISES Institute

MISES

The Mises Institute, founded in 1982, teaches the scholarship of Austrian economics, freedom, and peace. The liberal intellectual tradition of Ludwig von Mises (1881-1973) and Murray N. Rothbard (1926-1995) guides us. Accordingly, the Mises Institute seeks a profound and radical shift in the intellectual climate: away from statism and toward a private property order. The Mises Institute encourages critical historical research, and stands against political correctness.

Getting deglobalization right

Joseph E. Stiglitz

June 03, 2022 


The World Economic Forum’s first meeting in more than two years was markedly different from the many previous Davos conferences that I have attended since 1995. It was not just that the bright snow and clear skies of January were replaced by bare ski slopes and a gloomy May drizzle. Rather, it was that a forum traditionally committed to championing globalization was primarily concerned with globalization’s failures: broken supply chains, food- and energy-price inflation, and an intellectual-property (IP) regime that left billions without COVID-19 vaccines just so that a few drug companies could earn billions in extra profits.

Among the proposed responses to these problems are to “reshore” or “friend-shore” production and to enact “industrial policies to increase country capacities to produce.” Gone are the days when everyone seemed to be working for a world without borders; suddenly, everyone recognizes that at least some national borders are key to economic development and security.

For one-time advocates of unfettered globalization, this volte face has resulted in cognitive dissonance, because the new suite of policy proposals implies that longstanding rules of the international trading system will be bent or broken. Unable to reconcile friend-shoring with the principle of free and non-discriminatory trade, most of the business and political leaders at Davos resorted to platitudes. There was little soul searching about how and why things have gone so wrong, or about the flawed, hyper-optimistic reasoning that prevailed during globalization’s heyday.

Of course, the problem is not just globalization. Our entire market economy has shown a lack of resilience. We essentially built cars without spare tires – knocking a few dollars off the price today while paying little mind to future exigencies. Just-in-time inventory systems were marvelous innovations as long as the economy faced only minor perturbations; but they were a disaster in the face of COVID-19 shutdowns, creating supply-shortage cascades (such as when a dearth of microchips led to a dearth of new cars).

As I warned in my 2006 book, Making Globalization Work, markets do a terrible job of “pricing” risk (for the same reason that they don’t price carbon dioxide emissions). Consider Germany, which chose to make its economy dependent on gas deliveries from Russia, an obviously unreliable trading partner. Now, it is facing consequences that were both predictable and predicted.

As Adam Smith recognized in the eighteenth century, capitalism is not a self-sustaining system, because there is a natural tendency toward monopoly. However, since US President Ronald Reagan and British Prime Minister Margaret Thatcher ushered in an era of “deregulation,” increasing market concentration has become the norm, and not just in high-profile sectors like e-commerce and social media. The disastrous shortage of baby formula in the United States this spring was itself the result of monopolization. After Abbott was forced to suspend production over safety concerns, Americans soon realized that just one company accounts for almost half of the US supply.

The political ramifications of globalization’s failures were also on full display at Davos this year. When Russia invaded Ukraine, the Kremlin was immediately and almost universally condemned. But three months later, emerging markets and developing countries (EMDCs) have adopted more ambiguous positions. Many point to America’s hypocrisy in demanding accountability for Russia’s aggression, even though it invaded Iraq under false pretenses in 2003.

EMDCs also emphasize the more recent history of vaccine nationalism by Europe and the US, which has been sustained through World Trade Organization IP provisions that were foisted on them 30 years ago. And it is EMDCs that are now bearing the brunt of higher food and energy prices. Combined with historical injustices, these recent developments have discredited Western advocacy of democracy and international rule of law.

To be sure, many countries that refuse to support America’s defense of democracy are not democratic anyway. But other countries are, and America’s standing to lead that fight has been undermined by its own failures – from systemic racism and the Trump administration’s flirtation with authoritarians to the Republican Party’s persistent attempts to suppress voting and divert attention from the January 6, 2021, insurrection at the US Capitol.

The best way forward for the US would be to show greater solidarity with EMDCs by helping them to manage the surging costs of food and energy. This could be done by reallocating rich countries’ special drawing rights (the International Monetary Fund’s reserve asset), and by supporting a strong COVID-19 IP waiver at the WTO.

Moreover, high food and energy prices are likely to cause debt crises in many poor countries, further compounding the tragic inequities of the pandemic. If the US and Europe want to show real global leadership, they will stop siding with the big banks and creditors that enticed countries to take on more debt than they could bear.

After four decades of championing globalization, it is clear that the Davos crowd mismanaged things. It promised prosperity for developed and developing countries alike. But while corporate giants in the Global North grew rich, processes that could have made everyone better off instead made enemies everywhere. “Trickle-down economics,” the claim that enriching the wealthy would automatically benefit all, was a swindle – an idea that had neither theory nor evidence behind it.

This year’s Davos meeting was a missed opportunity. It could have been an occasion for serious reflection on the decisions and policies that brought the world to where it is today. Now that globalization has peaked, we can only hope that we do better at managing its decline than we did at managing its rise.

Copyright: Project Syndicate


JOSEPH E. STIGLITZ is the winner of the 2001 Nobel Memorial Prize in Economic Sciences. His most recent book is Globalization and its Discontents Revisited: Anti-Globalization in the Era of Trump.

Does Germany need to rethink globalization?

Timothy Rooks Berlin

DW
22 hours ago

The current interconnected global economic system just isn't working, some economists say. They are calling for a recalculation of globalization, and what it means to be wealthy, independent, and secure.

As sand has gotten in the wheels of global markets, governments and businesses need to navigate what this means, according to Moritz Schularick

 MSC/dpa/picture alliance


Globalization has had a rough time lately. Worldwide, just-in-time supply chains suffered under stiff tariffs. COVID-19 shutdowns and travel restrictions caused further distress. Now, the war in Ukraine and sanctions on Russian companies are making matters even worse. Inflation and price increases have made energy and food more expensive. Ordinary customers, especially the poor, are suffering.

Is the world order falling apart? Is the status quo even worth saving? The world is changing, and our understanding of globalization must change, too, according to Moritz Schularick, president of Germany's Kiel Institute for the World Economy.

The focus of globalization can no longer be on squeezing the greatest possible profit from global value chains. It must also take into account "their reliability and their political implications," he wrote in a publication accompanying a discussion organized by the Federal Chancellor Helmut Schmidt Foundation (BKHS). "It will be a new world economic order compared to what we have been used to for the last 30 years, and it will challenge us."

In other words, while still enjoying many of the benefits of globalization, countries must avoid becoming too dependent on — or vulnerable to — trading with countries that are not close friends, something that Russia's war in Ukraine has shown a spotlight on.

For Moritz Schularick the main question is: How secure and independent do we want to be?

Michael Zapf/BKHS

Remaking globalization, from a German point of view

Germany, in particular, made three big bets that are not paying off as planned, says Schularick: continued growth through Chinese trade, cheap energy from Russia, and minimal defense spending under America's protective umbrella.

All three of these are coming back to haunt Europe's biggest economy now, he argues. Still, there is room for hope as Germany has great potential to improve in many areas. Importantly, it must look forward, not backward.

The lecture on December 4 at the Museum of Communication Berlin brought together a big audience to talk about the complicated issue. Schularick, who is also a professor of economics, led the discussion that focused on renewable energy, China, and closer European business integration.

Looking for solutions among problems

The time for cheap Russian gas is over. Germany and the rest of Europe must concentrate on building up renewable energy capabilities. In the meantime, new, non-Russian sources of energy must be secured to keep things running. Not only will this be better for the environment, as COP28 delegates in Dubai are currently discussing. Clean energy is also often local energy.

More complicated is Germany's relationship with China. Schularick encourages government officials to take a closer look at their foreign and security policies. They should be clearer about who are friends and who are not.

China poses a great challenge, not so much because it is so strong, but because its economy has weakened under a number of setbacks. This means fewer Chinese companies buying high-tech German exports. It also means China will likely turn to its own manufacturers as a way to grow and export its way to out of problems. This will make it a direct competitor to Germany, says Schularick. For German companies doing business in China "the fat years are over."

To counter this, Germany and the rest of the EU need to come together. This includes more digitalization, and strengthening the European Banking Union. The internal European market also needs to be liberalized and allowed to grow faster. It is a huge market, it just needs to be put to better use.

Reinventing globalization means talking about renewable energy, China and closer European integration

 Michael Zapf/BKHS

A to-do list closer to home

A single business, or even a whole branch of industry, can't make much headway alone. To make a real difference, businesses need to work with governments to plan for success, says Schularick.

This is a timely warning as many estimates about Germany's 2024 gross domestic product (GDP) growth come in at under 1%. But how can people be convinced about the need for radical change?

"I think we need a better network between academia and politics," Schularick told DW, "especially for these global issues." Precisely here he sees Berlin lagging behind locations like London, Paris, or Washington. Germany has many rules to avoid crisis, but is not prepared with crisis management skills to deal when a crisis actually arises, he says.

"We have to build up this intellectual infrastructure in Berlin, with think tanks, with media, with research and science, so that we can better anticipate what is happening in the world in the future."

Global security versus economic efficiency

This may seem a bit abstract. More concretely, a reorganization of globalization could mean having or bringing home some manufacturing production capacity to ensure supplies. It could also mean leaving behind some energy-intensive industries.

For companies, it means diversification in terms of where to produce and sell goods or services, while also securing sources of raw materials. These are all big changes that would upend decades of interdependence.

Still, Schularick is hopeful. Over the past two decades, globalization delivered on economic progress, and though it could have done better, many people enjoyed its benefits.

Yet, the world is not more peaceful or stable than 20 years ago. And it is this failure that needs rebalancing. In the future, there will have to be a tradeoff between efficiency and security. The question is: "What price are we willing to pay for less efficiency?"

Edited by Kristie Pladson

Will geopolitical tensions end globalization? 02:40


Timothy Rooks One of DW's business reporters, Timothy Rooks is based in Berlin.

The Beginning Of The End Of Globalization


Editor OilPrice.com
Sat, March 26, 2022

There is an eternal debate among various experts as to when globalization actually started; whether it was with the Silk Road, the Vikings, Columbus's voyage, or even before then, with the earliest human migratory routes.

Now, it’s no longer relevant when it started. Instead, the new question is whether Russian President Vladimir Putin will end it.

Russia’s war on Ukraine and the Western sanctions that necessarily followed, could have a lasting impact on globalization, a process that regardless of when the first seeds were planted, really became entrenched a few decades ago.

Globalization was under attack on some level prior to Putin’s invasion of Ukraine. Most significantly, the global pandemic let us all see very clearly the vulnerabilities, especially with supply chains and our dependence on their global nature.

Now, everyone is desperately calling for “independence”, whether it is of energy or other resources.

In Q2 2020, at the dramatic start of the pandemic, global trade was down 18.5%, compared to the same period the previous year.

Since then, the global economy has started to recover, only to be hit again by a war on the European continent–a war that could shake the balance of power.

Larry Fink, CEO of BlackRock, the world's largest asset manager, thinks we are now seeing the beginning of the end of globalization.

In a letter to shareholders, Fink wrote that Russia's "decoupling from the global economy" following its assault on Ukraine has caused governments and companies to examine their reliance on other nations.

"The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades," Fink wrote.

For its part, BlackRock, which oversees more than $10 trillion, has already suspended the purchase of any Russian securities in its active or index portfolios.

Oaktree Capital Management founder Howard Marks shares Fink’s opinion, even if his take is less dramatic. He is warning investors that countries are going to start a major push to return to localized sourcing.

“Rather than the cheapest, easiest and greenest sources, there’ll probably be more of a premium on the safest and surest,” Marks said.

St. Louis Federal Reserve President James Bullard seems something similar. The direct macroeconomic effects on the US economy from Russia's invasion are not that large, Bullard says, but “Russia's war will mean less globalization, more fragmentation around the world.”

Aside from oil and gas, Russia is one of the world's largest suppliers of metals. Currently, governments and large corporations that imposed sanctions on Russia are now scrambling to obtain alternative supplies. Supplies in turn are tightening, resulting in dramatic upward price swings and costs that are passed on to consumers.

The pandemic, along with geopolitical tensions with China and a US-China trade battle, had already driven many businesses to explore bringing their operations and relevant input materials closer to home, including some attempts to reverse the outsourcing of manufacturing.

Inter-dependence, however, is so great and so entrenched, that it will take just as long to undo globalization as it took to build it in the first place–unless it’s simply forced apart by war.

Semiconductors, which are undergoing a supply squeeze amid soaring demand, are a case in point. For two years the American auto industry has been suffering from this shortage and dependence on Asia hasn’t been sufficiently addressed, with efforts just now getting underway to secure domestic supply.

Now, Intel, the largest chipmaker in the United States, has announced (only recently) that it will spend $20 billion to build two semiconductor factories at home, but they won’t begin production until 2025.

Several automakers and battery manufacturers are also planning to make dozens of new electric vehicle battery factories in the United States within the next five years.

Similar announcements have been made recently in the solar and biotech industries.

Three decades ago, the US produced about 37% of the world's semiconductors, compared to 12 percent nowadays. Profit got in the way of strategic planning here. Cheap costs were chosen over independence, and that is the sacrifice of globalization.

By Michael Kern via Safehaven.com

Globalization Faces a Bend-But-Won’t-Break Crisis on Coronavirus

Shawn Donnan Bloomberg March 6, 2020

(Bloomberg) -- Globalization is going through its biggest stress test since the 2008 global financial crisis and its aftermath. But if you want to understand why the forces of economic integration may be more resilient than many think, consider the centerpiece of a fancy new kitchen.

When executives from Middleby Corp., the kitchen equipment maker behind the commercial-grade Viking and Aga stoves, reported earnings last month, they joined the growing chorus of business people warning of supply chain disruptions in China that would hit its first-quarter profits.

Middleby also offered a curious upside twist. The supply stresses it had suffered over the past two years thanks to President Donald Trump’s tariff war on China had actually prepped the company for the new crisis in a way that meant it would be able to limit the damage.

“I'm telling you, within days of the virus being announced I knew exactly what components were going to be affected and had a tactical plan on addressing it,” David Brewer, the chief operations officer, told analysts.

On that same earnings call, executives from the Elgin, Illinois-based company celebrated the opening of a new factory in China late last year that would help it grow revenue from the Chinese market and elsewhere in Asia. For the first time, overseas revenues topped $1 billion in 2019, or more than a third of total net sales for the year, they added.

Globalization — the increasingly barrier-free flow of goods, services and people across national boundaries — has spent the past four years weathering a political assault that has left companies bruised and battered and the multilateral guardians of the global economy weakened. But it is the epidemiological attack now unfolding that appears set to be even more corrosive.

For all the pronounced angst over Trump’s tariffs over the past two years, the coronavirus outbreak has taken just weeks to emerge as a potentially bigger threat to 21st century globalization than trade wars. Economists at Allianz have calculated that the outbreak and efforts to contain it will cost the world $320 billion a quarter in lost exports of goods and services, or more each quarter than the annual cost of the U.S.-China trade war.

It’s not an overstatement to say the integration that has come to define commerce in the past 40 years is under the biggest assault since the financial meltdown more a decade ago or the Sept. 11 attacks before that. There will be an ugly quarter or two for the global trade in goods and services that is rightly prompting fears of new recessions in major economies and concerns about whether policy makers are up to the challenge of tackling it — or even have the appropriate tools.

But it’s also not wrong to say that some of the key traits of globalization look more battle-tested and robust than ever before. Or that focusing on the trade in physical goods as a manifestation of globalization also means missing other elements such as the dependence on overseas revenues of U.S.-listed companies, or the flows of data and ideas that are likely to endure even in a pandemic.

Which might explain why Apple’s Tim Cook said he expected only minor tweaks to supply and production when asked about longer-term disruptions on Fox Business Network last week. “We’re talking about adjusting some knobs, not some sort of wholesale, fundamental change,” he said.

There is no doubt critics of globalization and China are seizing on the outbreak and raising anew concerns about an over-dependence on China for everything from antibiotics and face masks to paint pigments.

“Globalization had gotten out of control,” Wilbur Ross, the U.S. Commerce secretary, offered in a Feb. 6 speech at the Oxford Union in which he defended the Trump administration’s assault on global trade in part by complaining that it now “takes 200 suppliers in 43 countries on six continents to make an iPhone.”

American tariffs have undoubtedly accelerated an existing trend of shifting production toward local or regional production. But it’s been well-documented that the beneficiaries have been places like Vietnam, Mexico or Eastern Europe rather than the U.S. And in many cases, even if the final assembly location of products shifts, Chinese components or a Chinese parent company remain part of the equation.

Reactions like Cook’s are driven in part by the reality that as a result of longer trends ranging from rising factory wages in China to consumer demands for customization and the relentless march of automation, there has been a slow adjustment underway in global supply chains for more than a decade now. If Apple’s iPhone is the often touted example of the complexity of international supply chains, it turns out its launch in 2007 may actually have marked their peak.

According to World Bank research published last year, trade associated with global supply chains has actually been falling as a share of global commerce since the 2008 financial crisis. Trade in components has stalled since the crisis, the bank’s economists found, and actually fell between 2011 and 2014, partly because of China’s increasing domestic production of many parts.

But Caroline Freund, who oversees the World Bank’s work on trade and investment, says it would be wrong to read that as a sign of de-globalization.

“While supply chains have stopped expanding there is no evidence that they have been shortening,” she says. And, she adds, it’s not clear that even the shock emerging from the coronavirus outbreak in China will change that.

“The shock would have to be big enough – and the likelihood of future shocks big enough – that you would want to change your production structure. And it’s not clear that it is at this point,” Freund says.

The bet companies have made on those supply chains is vast. At least 51,000 companies around the world have one or more tier 1 supplier in the affected regions of China, according to Dun & Bradstreet. A further five million global firms, the consultancy calculates, have at least one second-tier supplier in the affected area of China, including 938 of the Fortune 1,000.

Vasco Carvalho, a Cambridge University economist who studied the last major supply-chain shock to hit the global economy — the 2011 earthquake and tsunami in Japan that took key suppliers for the auto industry out of circulation for a time — says the impact of the coronavirus seems likely to be far more consequential.

It also, he argues, illustrates the difficult choices companies now face between potentially fragile global supply chains and the higher costs of producing closer to home in what is likely to be an era of many more disruptions.

“We are entering a more uncertain world and in order to adapt to that uncertainty, some scaling back seems likely,” he says. “I don’t have any apocalyptic view on this. I just think either you accept fragility or costs go up.”

The short-term cost in lost production appears likely to outstrip that of the tariffs introduced in the past two years, says Kyle Handley, a University of Michigan economist who with colleagues at the Census Bureau and Federal Reserve Board has enumerated the costs of those tariffs on American companies.

That is mainly because it will again illustrate how hard it is to shift supply chains out of China for many components, amplified this time by a shortage of supply due to shutdown of factories that the virus caused — rather than simply higher costs, Handley says. Moreover, this time companies around the world are joining American firms that sought to find alternative suppliers to get around the tariffs over the past two years.

Since the 2011 disaster in Japan, which was accompanied that year by floods in Thailand that also wreaked havoc with supply chains, many multinational companies have learned how to cope better with disasters and other threats to production by diversifying production sites, for example.

And there is an argument made by some that the coronavirus may end up making the case for more — not less — globalization whether it relates to production or revenues, or as a result of unintended consequences. Just as the trade wars of the past two years have caused some companies to rethink their reliance on China, some in the tech world have begun talking quietly about a de-Americanization of their production to reduce political risk.

Indeed, after the Japanese earthquake, one documented effect was a decision by domestic automakers and other companies to move some production offshore as a hedge against future disasters.

Any diversification of supply chains away from China is unlikely to lead to a consolidation of production in a single country. In some ways jolts like the tariffs and coronavirus have created an impetus to broaden global supply chains to many more countries to make them shock-proof rather than re-nationalize them.

“We don’t know where the next hurricane and tsunami and deadly disease will originate,” Handley says.

Globalization is a force that has had an up-and-down history going back more than 2,000 years. But the production lines that companies have built up around the world in recent decades are also less movable than many think.

“Supply chains are physical things like bridges, factories, ships, railway lines,” says Robin Brooks, chief economist at the Institute of International Finance. “Those things take a long time to disrupt and the virus and work stoppages we are currently seeing aren’t disrupting those.”

The Emerging New World Economy

BY RICHARD D. WOLFF

 APRIL 17, 2023
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Photograph Source: cogdogblog – CC0

The emerging new always both frightens and inspires the fading old. History is that unity of opposites. Sharp-edged rejections of what is new clash with enthusiastic celebrations of it. The old gets pushed away even as bitter denials of that reality surge. The emerging new world economy displays just such contradictions. Four major developments can illustrate them and underscore their interactions.

First, the neoliberal globalizing paradigm is now the old. Economic nationalism is the new. It is another reversal of their previous positions. Driven by its celebrated profit motive, capitalism in its old centers (western Europe, North America, and Japan) invested increasingly elsewhere: where labor power was far cheaper; markets were growing faster; ecological constraints were weak or absent; and governments better facilitated rapid accumulation of capital. Those investments brought big profits back into capitalism’s old centers, whose stock markets boomed and thus their income and wealth inequalities widened (since the richest Americans own the great bulk of securities). Even faster was the economic growth unleashed after the 1960s in what quickly became capitalism’s new centers (China, India, and Brazil). That growth was further enhanced by the arrival of the capital relocated from the old centers. Capitalism’s dynamic had earlier moved its production center from England to the European continent, then on to North America and Japan. That same profit-driven dynamic took it to mainland Asia and beyond during the end of the 20th and beginning of the 21st centuries.

Neoliberal globalization in theory and practice both reflected and justified this relocation of capitalism. It celebrated the profits and growth brought to both private and state-owned/operated enterprises around the world. It downplayed or ignored the other sides of globalization: (1) growing income and wealth inequalities inside most countries; (2) the shift of production from old to new centers of capitalism; and (3) faster growth of output and markets in new centers than old centers. These changes shook the old centers’ societies. Middle classes there atrophied and shrank as good jobs moved increasingly to capitalism’s new centers. The old centers’ employer classes used their power and wealth to maintain their social positions. Indeed, they got richer by harvesting the greater profits rolling in from the new centers.

However, neoliberal globalization proved disastrous for most employees in capitalism’s old centers. In the latter, the employer class not only grabbed rising profits, but also offloaded the costs of the decline of capitalism’s old centers onto employees. Tax cuts for business and the wealthy, stagnant or declining real wages (abetted by immigration), “austerity” reductions of public services, and neglect of infrastructure produced widening inequality. Working classes across the capitalist West were shocked out of the delusion that neoliberal globalization was the best policy for them too. Rising labor militancy across the U.S., like mass uprisings in France and Greece and left political shifts across the Global South, entail rejections of neoliberal globalization and its political and ideological leaders. Beyond that, capitalism itself is being shaken, questioned, and challenged. In new ways, projects for going beyond capitalism are again on the historical agenda despite the status quo’s efforts to pretend otherwise.

Second, over recent decades, the intensifying problems of neoliberal globalization forced capitalism to make adjustments. As neoliberal globalization lost mass support in capitalism’s old centers, governments took on powers and made more economic interventions to sustain the capitalist system. In short, economic nationalism rose to replace neoliberalism. Instead of the old laissez-faire ideology and policies, nationalist capitalism rationalized the state’s expanding power. In capitalism’s new centers, enhanced state power produced economic development that markedly outgrew the old centers. The new centers’ recipe was to create a system in which a large sector of private enterprises (owned and operated by private individuals) coexisted with a large sector of state enterprises owned by the state and operated by its officials. Instead of a mostly private capitalist system (like that of the U.S. or UK) or a mostly state capitalist system (like that of the USSR), places like China and India produced hybrids. Strong national governments presided over coexisting large private and state sectors to maximize economic growth.

Both private and state enterprises and their coexistence deserve the label “capitalist.” That is because both organize around the relationship of employers and employees. In both private and state enterprises/systems, a small employer minority dominates and controls a large employee majority. After all, slavery also often displayed coexisting private and state enterprises that shared the defining master-slave relationship. Likewise, feudalism had private and state enterprises with the same lord-serf relationship. Capitalism does not disappear when it displays coexisting private and state enterprises organized around the same employer-employee relationship. Thus we do not conflate state capitalism with socialism. In the latter, a different, noncapitalist economic system displaces the employer-employee organization of workplaces in favor of a democratic workplace community organization as in worker cooperatives. The transition to socialism in that sense is also a possible outcome of the turmoil today surrounding the formation of a new world economy.

The state-private hybrid in China achieves remarkably high and enduring GDP and real-wage growth rates that have continued now over the last 30 years. That success deeply influences economic nationalisms everywhere to move toward that hybrid as a model. Even in the U.S., competition with China becomes the go-to excuse for massive governmental interventions. Tariff wars—that raised domestic taxes—could be enthusiastically endorsed by politicians who otherwise preached laissez-faire ideology. The same applied to government-run trade wars, government targeting of specific corporations for punishment or bans, government subsidies to whole industries as so many anti-China economic ploys.

Third, over recent decades, the U.S. empire peaked and began its decline. It thus follows every other empire’s (Greek, Roman, Persian, and British) classic pattern of birth, evolution, decline, and death. The U.S. empire emerged from and replaced the British Empire over the last century and especially after World War II. Earlier, in 1776 and again in 1812, the British Empire tried and failed militarily to prevent or stop an independent U.S. capitalism from developing. After those failures, Britain took a different path in its relations with the U.S. After many more wars in its colonies and with competing colonialisms across the 19th and 20th centuries, Britain’s empire is now gone.

The question is whether the U.S. has learned or even can learn the key lesson of Britain’s imperial decline. Or will it keep trying military means, ever more desperately and dangerously, to hold on to a global hegemonic position that relentlessly declines? After all, the U.S. wars in Korea, Vietnam, Afghanistan, and Iraq were all lost. China has now replaced the U.S. as the major peacemaker in the Middle East. The days of the U.S. dollar as the supreme global currency are numbered. U.S. supremacy in high-tech industries must already be shared with China’s high-tech industries. Even major U.S. corporate CEOs such as Apple’s Tim Cook and the U.S. Chamber of Commerce want the profits of more trade and investment flows between the U.S. and China. They look with dismay at the Biden administration’s rising politically driven hostilities directed at China.

Fourth, the U.S. empire’s decline raises the question of what comes next as the decline deepens. Is China the emerging new hegemon? Will it inherit the empire mantle from the U.S. as the U.S. took it from Britain? Or will some multinational new world order emerge and shape a new world economy? The most interesting possibility and perhaps the likeliest is that China and the entire BRICS (Brazil, Russia, India, China, and South Africa) grouping of nations will undertake the construction and maintenance of a new world economy. The war in Ukraine has already enhanced the prospects of such an outcome by strengthening the BRICS alliance. Many other countries have applied or will soon apply for entry into the BRICS framework. Together, they have the population, resources, productive capacity, connections, and accumulated solidarity to be a new pole for world economic development. Were they to play that role, the remaining parts of the world from Australia and New Zealand to Africa, Europe, and South America would have to rethink their foreign economic and political policies. Their economic futures depend in part on how they navigate the contest between old and new world economic organizations. Those futures likewise depend on how critics and victims of both neoliberal/globalizing capitalism and nationalist capitalism interact inside all nations.

This article was produced by Economy for All, a project of the Independent Media Institute.

Richard Wolff is the author of Capitalism Hits the Fan and Capitalism’s Crisis Deepens. He is founder of Democracy at Work.

America’s Global Dominance Is Ending: What Comes Next?

Globalization within a multipolar order will increasingly favour regional autonomy and a struggle to define a new balance of power.

Daniel Araya
October 5, 2022

A tattered American flag is seen at a cemetery in Bayou La Batre, 

Alabama, November 10, 2009. (Carlos Barria/REUTERS)

According to Oxford historian Peter Frankopan, we are witnessing the unravelling of the global order. In a period of history marked by a Western financial crisis, a global coronavirus pandemic, war in Europe, rising government debt and political instability across advanced democracies, the Western era is winding down. Indeed, the global order has been steadily moving toward a “post-American World” or “post-Western World” for some time. At the heart of this shift is the rise of China and the emergence of a multipolar system.

While we have grown used to thinking of globalization in terms of liberal democracy and Western-led multilateralism, globalization within a multipolar order will increasingly favour regional autonomy and a struggle to define a new balance of power. Taken together, China, India, Russia, Turkey, Iran, Indonesia, Saudi Arabia and Brazil are becoming regional powers within a loosely coupled global system.

What is clear is that we are living through an interregnum — a period in history that bridges a fading industrial era dominated by Western countries and a new digital era underwritten by the rise of China and a vast Asian trading system. Since the end of the Second World War, American predominance has depended on a network of alliances overseen by a sprawling US military. But, as American researchers Alexander Cooley and Daniel Nexon explain, the world is exiting US hegemony. As the US-led order winds down, Western influence over the global system will wane.
Competitive Multilateralism

Rapid shifts in the distribution of power have transformed the global system from the bipolar order of the Cold War (1945 to 1989) to the unipolar order of “American empire” (1989 to 2008) to the current multipolar order typified by the rise of China. Deepening ties between China and other emerging economies and the rise of Asia as the centre of world trade are reshaping the global balance of power. As Asia returns to the patterns of commerce and cultural exchange that thrived before the “age of exploration,” a new period of history is taking shape.

In the decades ahead, frontier technologies including artificial intelligence, robotics, quantum computing, 6G (sixth-generation) telecommunications, genetic engineering, renewables and nanotechnology will be the basic building blocks of a competitive multipolar order. This future includes a return to hard-power diplomacy and the competition for resources. Together, China’s increasing dominance over the world’s supply chains and Russia’s regional ambitions mark a new period of “competitive multilateralism.”

Where many Western countries cling to the post-1945 Bretton Woods system, China’s government is reimagining the world as a single complex network of supply chains and trade arteries. Fuelled by commodities from around the world, China is now the keystone of the global economy and the principal engine of globalization. As the country’s immense state-led production capacity continues to focus on frontier technologies, its power to displace the United States as the world’s centre of gravity will grow. Indeed, leveraging this “geotechnological” shift is China’s grand strategy.
A New Modus Vivendi Is Needed

In the United States, competition with China in the pursuit of US primacy has become the main driver of national policy. Politically, this includes a desire to remain the world’s police, using its enormous military to manage conflict. Economically, this includes a desire to remain the world’s largest market, underwriting globalization. Culturally, this includes a desire to remain at the centre of ideas, driving the world’s imagination, values and cultural exchange. None of this seems likely going forward.

Across emerging economies, Chinese-led globalization has already begun displacing America’s “rules-based order.” This is reflected in the rise of multilateral institutions such as the Regional Comprehensive Economic Partnership, the Asian Infrastructure Investment Bank, the Shanghai Cooperation Organisation, the Eurasian Economic Union, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and the New Development Bank of Brazil, Russia, India, China and South Africa (BRICS). As it leverages this system of multilateral institutions, China will grow its sphere of influence, tipping the balance of power in its favour.

In addition to political disruption, climate events have begun accelerating changes in global demography. According to American geographer Parag Khanna, climate disasters are set to drive millions of refugees across the Indian subcontinent, Southeast Asia, Central Africa, West Asia and Central America to seek life elsewhere. Aging and underpopulated northern regions across Canada, Scandinavia and Russia will invariably become destinations for large populations escaping drought, flooding and wildfire.

Navigating this new multipolar system will be daunting. Over the past century, multilateral institutions such as the United Nations, the World Trade Organization and the World Bank have served as pillars of Western-led globalization. But the growing weight of emerging economies now requires proper representation. Reforming the UN system to reflect these changes will be critical to maintaining global stability.

All of which suggests the need for a new generation of multilateral coordination. In the West, multilateralism is often equated with defending the “liberal international order” — a term coined by international relations scholar John Ikenberry in the 1990s. But in the face of economic, technological and ecological disruption, multilateral governance will increasingly be shaped by competing interests. It’s clear that a Western monopoly on leadership is no longer possible. As geopolitical rivalry fuels regional competition, multilateral cooperation will become increasingly precarious. A new modus vivendi is needed.


The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.

ABOUT THE AUTHOR
Daniel Araya is a CIGI senior fellow, a senior partner with the World Legal Summit, and a consultant and an adviser with a special interest in artificial intelligence, technology policy and governance.

A New Cold War - Rivalry To Grow Between China, Russia And The USA As Globalization Ends

Mike O'Sullivan

Senior Contributor FORBES

Hedge Funds & Private Equity

I cover the economic and financial world outside the USA, for the USA.


Activists carry placards during a protest in front of the Chinese consulate in Manila on February ... [+] AFP VIA GETTY IMAGES

The upturn in the world economy and the assured arrival in power of the Biden administration will have many commentators pondering as to whether globalization is back, after a violent interregnum during the Trump years.

I believe globalization is finished. To take trade as an example, if trade bounces back it will have changed in two important ways, both of which make the world less interdependent.

Trade will change

First, trade and state led investment will be driven by the notion of ‘strategic autonomy’ – that they should be structured so as to reinforce a country’s geopolitical power as well as its prosperity. Second, advances in technology and the corporate strategy lessons from the coronavirus crisis mean that business models can be more technology driven, more decentralized and arguably less labour intensive, something that may impact many south Asian countries.

Another important element is that the one aspect of globalization that many ignore is political. Globalization happened because of a shift in political models – communism fell, and thereafter the ‘American’ model traversed the world (again especially Asia), the number of democracies rose, and human development improved manifestly across the world.

Yet, this sense of ‘one system’ is now at an end – the global financial crisis and the Trump Presidency have sapped its credibility. Moreover, globalization has not transformed the world politically in the image of the American model. Indeed, there is plenty of evidence to suggest that the flourish in ‘democracies’ has halted and is reversing. Take for example the the Economist Intelligence Unit’s Democracy Index which in 2020 fell to its lowest level since 2006, and with 70% of countries covered showing a deterioration in the quality of their democracy.

In this respect there are two vital cognitive errors that ‘Western’ commentators make. The first is to assume that all countries prioritise their economy over geopolitics and social needs – Russia shows that this is not the case. The second is to believe that economic progress will naturally beget a desire for democracy. China, and the relative success of its Communist Party show that this is not the case.

Hong Kong

What is now important and noticeable is that more and more events are occurring that push back and check the liberal democratic model. The most prominent of these is the quenching of Hong Kong’s ‘two systems’, and event that bookends the fall of communism. The failure of liberal democracies to support the pro-democracy movement in Belarus is another and is the dereliction of many world institutions such as the WHO (World Health Organisation).

The abject failure of Josep Borrell’s diplomatic mission to Moscow and a surge in military posturing in and around the South China Sea (for example ‘scrambles’ of Japanese fighter jets are at a record, averaging three per day) also point to a hardening of political arteries.

Against this backdrop, a new model is emerging to challenge that of liberal democracies and for the first time since Ronald Reagan bemoaned the ‘evil empire’, we have two competing ‘ways of government’. I call them the Levelling and Leviathan models, drawn from the mid 17th which was formative period for the emergence of the nation-state, elaboration of democracy and thinking on how government should work.

Levellers

The Levelling model (from the 17th century English movement who crafted the ‘Agreement of the People) is based on the popular rediscovery of liberal democracy in the light of all of the challenges our world throws at it – indebtedness, climate damage and the penetration of social media into mindsets. Most of Europe, including the UK and the Democratic Party in the USA and naturally the Biden administration are in this camp. Indeed, on Friday President Biden staked a claim to revitalise liberal democracy when he stated he would ‘make a strong and competent case that democracy is the model that can best meet the challenges of our time’.

On the other side, are the Leviathans – who following the sense of Thomas Hobbes’ 1651 book ‘Leviathan’ see the need for a ‘supreme’ actor to control a country’s fortunes and where its citizens enter into a bargain with that leader. China today is a ‘Leviathan’ – its citizens exchange liberty for prosperity and national prestige, and there are growing signs that its President covets a long, unchallenged (ask Jack Ma) period in power. Its not clear to me that Russia for instance is a ‘Leviathan’ country, given the lack of a cohesive national project and the lack of a real developmental contract between Vladimir Putin and his people.

A world defined by ‘recuperating liberal democracy’ and ‘tough managed democracy’ will have many implications. Rhetorically it will make the role of the likes of Joe Biden easier if he can frame world affairs along these lines. It may also force the debate on European values – eastern European states may be forced to give up the illusion that they can pick and choose the variety of democracy they adhere to.

Finally, the battle of the competing attractions of the ‘Leveller’ versus ‘Leviathan’ model will be played out across many emerging nations. Ethiopia is one such example, where an open economy and the beginnings of a stable polity were beginning to take hold but that has recently lurched towards a more controlling, and brutal style of government. Think also of Nigeria – where inequality is growing and where unrest could become a serious socio-political issue. Nigerians may soon ask themselves if they want to replicate China’s success or whether Britain is a model for them.

Mike O'Sullivan
I am the author of a book called The Levelling which points to what's next after globalization and puts forward constructive ideas as to how an increasingly fractured world can develop in a positive and constructive way. The book mixes economics, history, politics, finance and geopolitics. Markets are the best place to watch and test the way the world evolves. Most of my career has been spent in investment management, the last 12 years at Credit Suisse where I was the chief investment officer in the International Wealth Management Division. I started my career as an academic, at Oxford