Is globalization over?

April 03, 2023 09:49
Photo: Reuters

Late last year, Morris Chang, the legendary founder of Taiwan’s (and the world’s) leading semiconductor producer, proclaimed that “globalization is almost dead.” In a world where supply chains have been disrupted by COVID-19 and the deepening Sino-American rivalry, other commentators have echoed this view, and many companies have begun “on-shoring” and “near-shoring” their procurement of goods. But it is a mistake to conclude that globalization is over. A lot of human history reveals why.

Globalization is simply the growth of interdependence at intercontinental, rather than national or regional, distances. Neither good nor bad in itself, it has many dimensions, and it certainly is not new. Climate change and migration have been driving humanity’s spread across the planet ever since our ancestors began to leave Africa over a million years ago, and many other species have done the same.

These processes have always given rise to biological interactions and interdependencies. The plague originated in Asia but killed a third of the European population between 1346 and 1352. When Europeans journeyed to the Western Hemisphere in the fifteenth and sixteenth centuries, they carried pathogens that decimated the indigenous populations. Military globalization goes back at least to the days of Xerxes and then Alexander the Great, whose empire stretched across three continents. And, of course, the sun never set on the nineteenth-century British Empire. Through it all, great religions also spread across multiple continents – a form of sociocultural globalization.

More recently, the focus has been on economic globalization: the intercontinental flows of goods, services, capital, technology, and information. Again, the process is not new, but technological changes greatly reduced the costs associated with distance, rendering today’s economic globalization “thicker and quicker.” The Silk Road connected Asia and Europe in the Middle Ages, but it was nothing like the vast flows of modern container ships, let alone internet communications that connect continents instantaneously.

While globalization came to be seen primarily as an economic phenomenon in the twentieth century, it then became a political buzzword (for proponents and critics alike) in the 2000s. When rioters in Davos broke the windows of a McDonald’s to protest labor conditions in Asia, that was political globalization.

The current globalization clearly differs from that of the nineteenth century, when European imperialism provided much of its institutional structure, and when higher costs meant that fewer people were involved directly. Western firms began spreading around the world in the 1600s, and by the end of the nineteenth century, the global stock of foreign direct investment was equivalent to about 10% of global output. By 2010, the worldwide stock of FDI included non-Western companies and was equivalent to about 30% of world GDP.

On the eve of World War I in 1914, there was a high degree of global interdependence, including movements of peoples, goods, and services. There was also inequality, because the benefits of economic globalization were unevenly shared. But economic interdependence did not prevent the major trading partners from fighting each other (which is why people at the time called it the Great War). After those four years of devastating violence and destruction, global economic interdependence was sharply reduced. World trade and investment did not return to their 1914 levels until the 1960s.

Could the same thing happen again? Yes, if the United States and Russia or China blunder into a major war. But barring that contingency, it is unlikely. For all the talk of economic “decoupling,” the breaks so far have been quite selective and incomplete. Global trade in goods and services made a strong comeback after the COVID downturn in 2020, though not all areas recovered equally.

With the US having established new barriers to hamper the flow of certain sensitive goods to and from China, its imports from China have risen by only 6% above pre-COVID levels, while its imports from Canada and Mexico have risen by over 30%. In the US case, then, regionalization seems to have recovered more robustly than globalization. But look more closely and you will find that while China’s share of America’s imports dropped from 21% to 17% between 2018 and 2022, US imports from Vietnam, Bangladesh, and Thailand rose by more than 80%. Those figures certainly do not suggest that globalization is dead.

It bears mentioning that this new Asian trade with the US is, in fact, intermediated Chinese trade. The US and its allies are still more deeply intertwined with the Chinese economy than was ever the case with the Soviet Union during the Cold War. Western countries can reduce their security risks by excluding Chinese companies like Huawei from Western 5G telecommunications networks without incurring the inordinately high costs of dismantling all global supply chains.

Moreover, even if geopolitical competition were to curtail economic globalization substantially, the world would remain highly interdependent through ecological globalization. Pandemics and climate change obey the laws of biology and physics, not politics. No country can solve these problems alone. Greenhouse gases emitted in China can lead to costly sea-level rises or weather disruptions in the US or Europe, and vice versa.

These costs could be enormous. Scientists estimate that both China and the US suffered over one million excess deaths as a result of the COVID-19 pandemic that began in Wuhan, partly owing to both countries’ failure to cooperate on policy responses. Success in addressing climate change or future pandemics will require recognition of global interdependencies, even if people do not like it.

Globalization is largely driven by technological changes that reduce the importance of distance. That will not change. Globalization is not over. It just may no longer be the kind we want.

Copyright: Project Syndicate
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Professor at Harvard University, Chairman of the World Economic Forum’s Global Agenda Council on the Future of Government.