It wasn’t meant to be this way. China’s accession to the World Trade Organization was supposed to herald a new era of open markets and free trade allowing Western companies access to China’s large and increasingly prosperous population whilst integrating the country into the global trading regime. This singular, globalized market would naturally be led by the world’s most powerful economy, the USA, which would also be the main beneficiary.
Whilst the benefits of globalization have indeed been transformative for the world’s economy (although not unalloyed as I will go on to discuss), politically and economically it was China, not the USA, which gained the most. However, instead of growing closer to the West in terms of culture and democratic values as many in the US and Europe had naively hoped, China’s government used its newly gained economic influence to project political power into Asia, Africa, Latin America and even Europe, challenging the post-war world order. In many ways Western policy towards China in the 2000s was an earlier version of Germany’s more recent ‘Wandel durch Handel’ (‘Change through trade’) approach to Russia. In both cases, the belief that exposure to Western business practices, social and political freedoms and increasing prosperity would result in the adoption of liberal democracy and free markets has proved ill-conceived.
Instead, China has developed a ‘market socialist’ alternative in which political and commercial interests have become intertwined. Nowhere is this more apparent than the new Chinese multinational ‘challengers’, such as high-tech manufacturer Huawei, which many Western intelligence agencies believe to be an extension of the state apparatus. Governments are only recently waking up to the risks to energy, communications, financial, transport and technology infrastructure which these companies may represent.
Increasing geopolitical tensions, not least Russia’s invasion of Ukraine and China’s threat to Taiwan, have led many governments and companies to re-evaluate the security of the globalized eco-systems which underpin international trade and economic development. As a result, new supply chain hegemonies are developing based on the concept of ‘ally’ or ‘friend shoring’ rather than economic rationale. An extension of this policy is the ambition of ‘strategic autonomy’: governments in the West and China are determined to reduce their dependence on potentially hostile countries for critical products and raw materials. The practicality of this policy is yet to be seen, especially when it involves scarce minerals or the development of enormously expensive manufacturing capabilities, such as semi-conductor fabrication plants. At the very least, however, such moves will provide significant headwinds to the growth of international trade in strategically important sectors.
Whilst Chinese economic ascendancy and its newly developed political influence has caused Western governments to question many of the tenets of globalization, domestic politics have also played a role in undermining accepted supply chain doctrine. Off-shoring production has resulted in ‘collateral damage’ to parts of society, especially those communities formerly dependent on employment in heavy industry. The development of the resulting so-called ‘rust belt’ areas has been exploited by populist politicians who claim to represent those ignored by governments, media interests, big business and intergovernmental organizations over which normal people have little or no control – the so-called ‘democratic deficit’. The election of President Trump in the US has been the most obvious example of a politician coming to power with an anti-globalization mandate, resulting in free trade agreements being ripped up and a trade war with China (and to a lesser extent the EU and UK).
Whilst it would be tempting to apportion responsibility for the fragmentation of world trade to individual leaders such as President Trump, this is certainly not the case. The level of protectionist measures including tariffs and non-tariff barriers has been increasing since the Great Recession of 2008 and even after the Trump administration President Biden has maintained many of the trade barriers previously erected. In fact, Biden’s latest Inflation Reduction Act (IRA) has gone way beyond the previous administration in terms of subsidizing parts of the US economy. Making subsidy contingent on the production of goods in the US – necessarily at the expense of its trade partners – has caused significant anger even amongst its closest allies in Europe. What is clear is that protectionism and subvention, discredited by the majority of economists and politicians only a few years previously, have now been revived, rehabilitated and readopted into mainstream political orthodoxy throughout the West. ‘Industrial Policy’ – the idea that governments should select and support specific sectors – is back in fashion, despite evidence that such an approach is hugely costly and counter-productive.
The imposition of tariffs by consecutive administrations on Chinese (and European) goods may not have benefited the US economy – one estimate suggests that they have resulted in the loss of 173,000 jobs – but they have brought about significant changes in supply chain strategies and global trading patterns. Not least, they have driven the growth of ‘China plus’ alternative markets such as Vietnam and Thailand which have benefited from the diversification of manufacturing locations away from China. Many global manufacturers are now adopting far more nuanced supply chain strategies integrating various remote suppliers (‘far-shoring’) with those based closer to home markets (‘near-sourcing’) or even repatriating production completely (‘re-shoring’). This is also partly due to the mitigation of other risks such as the concentration of production in areas prone to natural disasters and the vulnerability of international transportation to bottlenecks such as the Suez Canal or capacity issues within the West Coast ports of the USA. However, political measures are arguably the most important factor in the transformation of supply chain structures.
That being said, globalization is not just under-pressure from geopolitics or domestic pressures. It has also faced criticism from environmental campaigners highlighting the carbon intensive nature of the transportation of components and products around the world. Ethical considerations also need to be taken into account regarding the conditions of workers at remote, off-shored suppliers or those involved in mining virgin materials destined for use in consumer goods or ‘green’ technologies.
The aim of my book 'The Death of Globalization' is to highlight the political, ethical and environmental forces which are driving structural and deep-rooted change, challenging the orthodoxy of globalization. It is clear that the market landscape will become hyper-complex and difficult to navigate, making the decisions made by both politicians and supply chain leaders ever more critical. A global recession, the resurgence of nationalism, fears for the environment, the Covid crisis and growing geo-political tensions have resulted in the re-emergence of trade barriers amidst toxic international relations. Neo-protectionism has transformed the economic landscape and supply chains are now being shaped by political rather than commercial imperatives. Fragmented, localized, fractured…globalization, if not completely dead, is on life support.
If you would like to pre-order my book which goes on sale on May 5, 2023 follow the link https://www.seapenbooks.com/product-page/The-Death-of-Globalisation
Comments