A number of recent events in the 2020s suggest that globalisation is in reverse.
In America Jo Biden has made several speeches stating that more manufacturing will take place in America, rather than China, and his presidential predecessor, Donald Trump was vocally anti-globalist, while in Britain the recent immigration Bill suggests a breakdown of commitment to international human rights conventions.
Russia’s war on Ukraine and the hardening of divisions between Russia, its allies and China which is taking a neutral stance, and the U.S. and European nations supporting Ukraine with military aid suggest that the world is fracturing politically and economically, and at the same time global supply chains are still under strain from the aftermath of the Coronavirus Pandemic.
Individual countries are increasingly putting in place policies which protect their borders and economies and it seems are less inclined to support policies which promote globalisation.
The benefits of globalisation
Globalisation is about flows of things, people, finance and ideas across national borders: the more flows there are, the more the world can be said to be globalising.
Globalisation became a tidal wave in the 1990s with several events:
- The collapse of the UUSR and the end of the cold war
- The integration of Europe
- The opening of of China
- The birth of the World Wide Web
Globalisation made goods cheaper through economies of scale and lifted a billion people out of poverty. When you fragment trade
Globalisation also increases jobs in poor countries through export markets, and when China, the world’s largest exporter, shut off its trade in a chosen response to the Covid-19 pandemic its economy shrank.
For more details on the benefits see this post on the Optimist View on Globalisation.
Globalisation in decline…
Countries are increasingly putting themselves first and focusing on national gain rather than mutual benefit through gradually increasing trade barriers.
The World Trade Organization has assessed the consequences of what might happen if the world splits into separate trading blocks: it would cost the world a 5% loss in GDP in the long term, more than the costs of the entire British economy.
Global trade is essential to maintaining the quality of life we’ve come to expect because no country can produce everything itself: without global trade we have no rice or bananas in the U.K.
If Britain makes it more difficult for other countries to trade with it, other countries will do the same, meaning goods will be more expensive and probable knock on effects such as less tourism, and it be less likely that we’d work together to solve global problems.
National security concerns have affected trade in certain goods, obviously military goods but also microchips and batteries more generally, but there are increasingly trade barriers in other economic sectors too.
One form of anti-global policies is subsidies in which government money is used to make manufacturing at home cheaper than imports.
The problem with this is that it is only the richest countries that have deep enough pockets to do this, and it hurts poorer countries, and in some cases even relatively rich countries cannot compete with economic behemoths such as the United States.
British car manufacturing is at its lowest level since the 1950s because it cannot compete with subsidies in the U.S. The United States is offering billions of dollars in subsidies to companies there who produce electrical vehicle supply chains.
The European Union is thinking of retaliating against the U.S. by introducing its own subsidies for electrical vehicle manufacturers, which would actually make things WORSE for U.K. car manufacturers.
Countries are also increasingly using export controls to protect their economies.
The U.S. has put a lot of export controls on various goods that can’t be exported to China and limits on international investment to protect foreign take overs of American companies. The United States has put these measures in place mainly because it claims China has embarked on unfair competition.
President Biden’s Inflation reduction Act which focuses heavily on green tech only gives out subsidies to companies which are based in America.
One argument for subsidies is to protect strategic industries, because relying on one country alone for any one product makes you vulnerable to supply chain shocks
For example 92% of all global semi-conducted chips are made in Taiwan, which is not really an acceptable risk for other countries because these chips are essential to communications technologies.
Similarly, Africa imports 99% of its vaccines, and it would also probably be better off producing at least some of those vaccines within Africa.
National subsidies can help broaden supply chains and make countries more resilient.
The problem is if subsidies are applied to everything it destroys the free market and is very inefficient, so countries need to be very selective about how they apply them.
The current rules on subsidies were established through the World Trade Organisation in 1994 and some current agreements on trade were entered into before China became a global player. Now the world is a very different place and trade rules may need to be changed to ensure a level playing field
Why the shift to deglobalisation?
In Reagan and Clinton’s era, American was very pro global free trade, which was the mood up until the 2008 financial crisis.
Globalisation created huge wealth on a global scale but it also created enormous inequalities within countries, which are largest in the Anglo-American world, and rising inequalities withing countries may have created the politics of nationalism that we saw with Donald Trump and Brexit.
By 2008 it had become clear that the global market system was working very well for a very small global elite, but not so well for ordinary working people who made up the democratic majority, and the failure to redistribute global wealth fairly led to a backlash and the rise of nationalist politics.
The average income of the bottom 50% hasn’t gone up for 30 years.
The problem with deglobalisation
The problem with this trend towards ‘deglobalisation’ is that it increases tensions between countries making it more difficult to slow climate change and stop the next pandemic. It would also slow growth and increase poverty.
We in the West cannot afford to be cut off from Asian markets with a combined population of 3.6 billion and a growing middle class, projected to be at over 3 billion people by 2030, which will make it the world’s largest market.
If the U.S. and E.U. start to put up trade barriers with China, China might just put up barriers to trade with the U.S. and E.U., and China can probably find sufficient trading partners within Asia, Russia and South America.
Increasing trade barriers reduces international co-operation which is required to tackle pandemics, climate change and conflict.
deglobalisation isn’t the answer
Globalisation since the 1990s has increase wealth but this wealth hasn’t been distributed equally which is a problem.
Rather than pursuing anti-globalist policies such as introducing subsidies which put up barriers to trade governments would be better off focusing on fairer taxation and redistribution policies to ensure that everyone can benefit from the increased wealth that increased global trade has generated.
The last 40 years have witnessed a form of neoliberal globalisation in which national governments have entered into a race to the bottom with corporate taxes: offering lower and lower taxes to attract investment.
This has lead to massive technology shifts around the world and mass deskilling of populations as more and more jobs have become automated, which has contributed to increasing inequalities withing countries, and low taxes have meant governments haven’t been able to reinvest sufficiently to make up for the disruption caused by these changes.
At the same time failure to tackle tax havens has allowed huge amounts of international capital to flow freely out of nation states.
The World Trade Organisation is now talking about reglobalisation: globalisation with a human face so that it’s more inclusive.
This might involve the following:
- A global agreement on a minimum global corporate tax and getting rid of tax havens. This should work as companies are more interested in stability, infrastructure and a skilled workforce.
- Governments need increased tax revenue so they can invest in infrastructure and education so as to pass on the benefits of global trade to more people.
- Diversifying supply chains may still help with poorer countries, and reskilling poor people in rich countries.
- We need to strengthen co-operation in some aspects to tackle three large global problems: climate change, pandemics and conflicts.
Turning our backs on globalisation won’t bring jobs or improve security or solve climate change, and it also threatens global peace!
This material is mainly relevant to the globalisation and global development module within A-level Sociology.
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This post is a summary of a Radio 4 Analysis podcast: The Death of Globalisation?
This was hosted by Ian Goldin, Professor of Globalisation and Global Development at the University of Oxford.