As the war in Ukraine initiated by Russia lingers, the world is once again reflecting on the end of globalization.
In the last two months, there have been many noteworthy developments on the global trade front, including the Biden administration's new trade agenda, the second meeting of the U.S.-EU Trade and Technology Council (TTC), and Joe Biden's promotion of the Indo-Pacific Economic Framework (IPEF) during his Asia-Pacific tour. Notably, in April 2022, there are crucial speeches given by U.S. Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde at the Atlantic Council and the Peterson Institute for International Economics, respectively.
In their speeches, Yellen and Lagarde spoke of what has now become progressively more apparent. Rising geostrategic tensions and an increasingly volatile security milieu are rendering the post-World War II global trade system obsolete. New approaches will be required to adequately cope with the world of today rather than the world of 75 years ago. The ideal of a single, deeply integrated global trade system–embodied in the founding of the General Agreement on Trade and Tariffs (GATT) and the World Trade Organization (WTO) - no longer seems to be realistic.
"We need to modernize the multilateral approach we have used to build trade integration. Our objective should be to achieve free but secure trade," Yellen said in her speech. In her view, "it will be increasingly difficult to separate economic issues from broader considerations of national interest, including national security." Trade should be conducted with "countries we know we can count on". This strategy was referred to as "friend-shoring", which she explained as: "(Having) a group of countries that have strong adherence to a set of norms and values about how to operate in the global economy and about how to run the global economic system. And we need to deepen our ties with those partners and to work together to make sure that we can supply our needs of critical materials."
Lagarde highlighted strikingly similar themes in her speech at the Peterson Institute for International Economics, saying: "Russia's unprovoked aggression has triggered a fundamental reassessment of economic relations and dependencies in our globalized economy. And in a post-invasion world, it has become increasingly untenable to isolate trade from universal values such as respect for international law and human rights." Lagarde went on to say, "the war may prove to be a tipping point for Europe and other regions too, making the alliances to which suppliers' countries belong more important. International firms will still face strong incentives to organize production where costs are lowest, but geopolitical imperatives might restrict the perimeter in which they can do so".
Both Yellen and Lagarde are prototypical Washington and Brussels "power players". During the course of impressive four-decade careers, both have proven themselves to be committed multilateralists and staunch proponents of globalization. Both have embodied the strong pro-globalization, pro-free trade conventional wisdom that has been dominant in Washington, Brussels, and many other world capitals since at least the 1980s. Their latest remarks, however, suggest that the two staunchest multilateralists have come to recognize that trade and investment flow in today's world will no longer be driven solely by economic efficiency, but increasingly by the need for shared values and geopolitical compatibility. This means that the post-war era of globalization, which ignored any underlying differences in security or philosophy, is drawing to a close.
The shift in views of Yellen and Lagarde represents the end of globalization of the past. In fact, the idea of the end or reversal of globalization is not a new one. It could even be argued that Yellen and Lagarde's view of globalization is a belated one, showing that the wave of the "end" of globalization has crushed the last beliefs of its staunch supporters.
In ANBOUND's view, this reversal of globalization has already happened. As early as 2020, Chan Kung, founder of ANBOUND, put forward his judgment on this issue from another aspect -- reverse globalization. In his article "The Past, Present and Future of Globalization" (Strategic Insight, June 2020), Chan pointed out that "globalization must be comprehensively defined and understood, and globalization must be understood from the overall framework of globalization, rather than being artificially fragmented at a certain level and interpreted and elaborated hypothetically." "We firmly believe that globalization is a curve with peaks and troughs. The so-called reverse globalization should be precisely defined as the reverse globalization phase of globalization”.
He further pointed out that the phase of reverse globalization will last for a very long time, possibly a decade to several decades. For the real world and public policy decisions, it is not enough to just see the reverse globalization trend, especially for China, an economic and trading power. What is more important is to anticipate the trend -- What will happen to the reverse globalization or the "end" of globalization? What impact will it have on the world?
In his analysis a few years ago, Chan gave his prediction. He believed that a series of geopolitical and geo-economic phenomena would emerge in the phase of reverse globalization, including: (1) The phase of reverse globalization is often accompanied by economic contraction; (2) Serious geopolitical conflicts; (3) Large-scale industrial restructuring; (4) The political leftward shift; (5) Elite discourse of power is overwhelmed by social voices; (6) The discovery of new space; (7) The increase of social costs; (8) The rising social prices; (9) Fragmentation of global space. He further reminded us that the phase of reverse globalization is the main theme of the current world, one should have unrealistic fantasy about globalization merely because of illusion and preference. If policymakers misjudge the status quo, this can lead to serious policy mistakes, wasting a lot of resources and missing the window period of reform and adjustment in the process.
In terms of predicting the characteristics of future trends in the reverse globalization phase, Chan summarized three points in his report several years ago:
First, future globalization will be reflected in the development of regionalization. The theory supporting this regionalization feature is mainly the concept of spatial fragmentation in geopolitics. Globalization is a process of "integration", while reverse globalization is a process of "fragmentation". This "integration-fragmentation" process and its changes represent and reflect the changes of globalization from peak to trough, and is also the basic trend of reverse globalization in the future.
Second, the phase of reverse globalization will inevitably bring social harm. This is the phase where irrationality is on the rise, which is the inevitable result caused by the long-term accumulation of contradictions and pressures. All kinds of consequences produced by irrational social movements will cause serious social damage and impacts, and they might spread throughout the society of all countries. Once the general damage of such social harm exceeds the capacity of the social structure, it may lead to the occurrence of wars and conflicts. When certain political forces break down after violent conflicts, the world may once again emerge from the phase of reverse globalization and restart the process of globalization.
The next phase of reverse globalization is an era of great wealth transfer. This great transfer of wealth may be realized through the capital market, industrial investment, or even through other ways such as art investment. In the process of wealth transfer, some conventional investment theories of the capital market may become invalid, and a large number of speculative activities and investment arbitrage based on wealth security will take their place. The essence of globalization is capital, and the biggest resistance against globalization is also capital.
Looking at the changes in the world in recent years, there are geopolitical conflicts, global economic contraction, large-scale industrial restructuring, the change in social thought, the fragmentation of global space, the increase in social cost, the rise of social prices, and other real changes. All of these are in the judgment made by ANBOUND a few years ago. If countries and companies could have made strategic adjustments accordingly several years ago, we believe that many losses would have been avoided.
Chan further emphasized that the change of the world in the reverse globalization process is "structural", synonymous with “long-term, new order, and redefinition”. The world will undergo many permanent changes, which cannot be casually reversed or changed. In other words, the world will never be the same again.
Final analysis conclusion:
The elites who championed globalization in the past have now recognized that "globalization is over", and that the era of reverse globalization has changed the world. While this is a belated recognition, it is still better than misjudging the actual situation. The shift in the conventional elites’ view of globalization will further strengthen the reverse globalization trend, and exert major impacts on the decisions and actions of many countries and companies in today's world.
