View from USA: Globalisation – why it went into retreat

Pic.: Foreign Policy

In a speech in Washington, D.C. in 2019, ex-British prime minister Tony Blair declared that ‘globalisation is a force of nature, not a policy; it is a fact.’ He echoed President Bill Clinton back in 2000: ‘Yet globalisation is not something we can hold off or turn off. It is the economic equivalent of a force of nature — like wind or water… But there is no point in denying the existence of wind or water, or trying to make them go away.’ A generation ago, sentiments like these struck many otherwise intelligent people as profound. Now they seem quaint, writes Michael Lind, a professor at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin.

Globalisation is under fire. In the last decade, the partial deindustrialisation of Western democracies by a combination of corporate offshoring and cheap imports from China and other low-wage nations has contributed to populist insurgencies against trade and immigration policies on both sides of the Atlantic. In the US in 2016, votes for Bernie Sanders and Donald Trump were high in areas that had lost a lot of manufacturing to global competition. In Europe as well, anti-system populism is strong in post-industrial areas like eastern Germany and Britain’s Red Wall.

Among trans-Atlantic elites, the consensus in favour of free market globalisation that dates back to the end of the Cold War remains, but it is showing cracks.

What many see as a new cold war between the West and China and Russia has led to economic warfare in the form of sanctions and embargoes that have disrupted global markets and may result in the disintegration of the world economy into rival military and economic blocs.

If that occurs, it will mark a return to the historic pattern of ‘jealousy of trade’ and economic nationalism. Since the Industrial Revolution began in Britain in the 1800s, every great power has sought to obtain its own share of industries that are viewed as critical to military strength and economic growth, from textiles and steel in the nineteenth century to automobiles and aerospace in the twentieth and drones and artificial intelligence in the twenty-first.

For generations, national industrial policies have been justified by several rationales. National security is the most important. In the industrial era, a country cannot be a military power of the first rank if it is dependent on other countries for weapons and military supplies. And it is more efficient to convert a civilian industrial base to wartime production than it is to pay to maintain a wholly separate military-industrial base.

Another factor is the ‘terms of trade.’ Manufacturing is high-value-added. Agriculture and mining are low-value-added. It takes enormous quantities of iron ore to buy a few refined metal goods and a great deal of crude oil to buy plastics made from advanced chemistry. As a result, in international trade, there tends to be a seller’s market in manufactured or refined products, and a buyer’s market in food and raw materials (unless those are very scarce).

A commitment to increasing trade liberalisation was shared by elites on both sides of the Atlantic in the early 2000s. The rise of China as both an economic and a military power has provided a challenge to the free-market consensus more powerful than academic arguments. When the Clinton administration brought about Permanent Normal Trade Relations (PNTR) with China in 2001, it was widely assumed that China would continue to specialise in low-wage, low-value-added links in global supply chains — and it was hoped that a rising Chinese middle class would press for political liberty and democracy. Instead, China has used its model of illiberal state capitalism to try to corner one global manufacturing industry after another. In 2015, the Chinese government announced its ambitious ‘Made in China 2025’ strategy for systematically raising the Chinese domestic content of key manufactured goods, displacing foreign importers and suppliers.

The response has been what many view as a new cold war in what the Pentagon calls the ‘Indo-Pacific,’ with China allied with Russia against the ‘Quad’ or quadrilateral alliance of the US, Japan, India, and Australia, joined by Britain in the AUKUS group. Viewing China as an economic as well as a military threat, American leaders have followed one of two strategies.

One strategy is to maintain a commitment to free market globalisation among the US and its allies and neutrals on a smaller scale, while excluding China until it reforms. Freezing China out of a US-dominated Asia-Pacific trade bloc was the goal of the Obama administration’s ill-fated Trans-Pacific Partnership (TPP) agreement. But many Americans have soured on globalisation, which they associate with the outsourcing of industry and the replacement of good jobs by bad ones, and both Hillary Clinton and Donald Trump denounced the TPP in 2016. President Trump took a much more unilateral approach to trade policy, imposing tariffs on European allies and Canada as well as rivals like China to protect favoured American industries.

The COVID-19 pandemic revealed the dependence of the US on China, India, Vietnam, and other countries for essential health care supplies, and the inflation that followed the pandemic has been driven largely by disruptions in global manufacturing and energy supply chains. War in Ukraine, followed by the impositions of severe sanctions by the US and its European allies, has accelerated the fracturing of the world economy into rival blocs centered on rival military great powers.

Thanks to cold war, hot war, and the revived quest of many nations for a degree of industrial self-sufficiency, free market globalisation has peaked for the foreseeable future. Tony Blair was wrong. Globalisation is not a force of nature, it is a policy. Or perhaps, in the past tense, it was a policy.

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