Is Globalisation In Retreat?

Globalisation, which in essence, means openness in international economic relations, has recently come under strain. Several factors are responsible for this.  One of major elements is growing mistrust between the countries that dominate global trade. Following Cold War, an unprecedented openness in trading relations of countries became the order of the day. Globalisation attracted countries helping them to reduce poverty besides spurring rapid economic growth. Drastic reduction in global poverty was comparatively noticeable in East Asia. China, in particular, achieved double digit annual economic growth. Consequently, living standards measured against per capita income improved, too.

Of late, this enviable economic rise in China and other countries has been impeded as economies around the world have slowed owing to COVID-19 and Ukraine war. How long such economic downturn will continue remains uncertain as the resolution of war in Ukraine drags down. Worryingly, major powers of the world are divided to resolve global problems not least the threat of climate change.

Open trade 

In the 1990s, open trade and market-oriented policies contributed to the fast economic growth and development in countries which embraced openness in trade. In low-wage countries trade boomed benefiting the exporting and importing ones simultaneously. Workers in exporting countries and consumers in importing countries were the beneficiaries. Additionally, this scenario kept goods prices and wages in developed countries in check. However, low wages in rising economies prompted workers’ wages in developed countries to go down. This is the reason that caused set back to globalisation even in rich countries to some extent.

Despite some grumbling among workers due to lowered wages economic integration and openness received a boost that resulted in fostering long term peace in the Western world. Many in the West had a conviction that peace was essential to ensure smooth operation of far-flung supply chains. They believed that any disruption in supply chains could lead to severe economic consequences. It was marked by an era of hyper globalisation manifesting interconnectedness in economic, political, and cultural fields.

This era was short-lived. The painful transition from integration to fragmentation started in 2016 with Britain’s formal announcement of leaving the European Union. The referendum held to determine Britain’s choice either for integration with the Europe Union or leaving it marked the real beginning of deglobalisation. This disenchantment for globalisation was further fueled by American people’s presidential election of Donald Trump in 2016 whose economic slogan of “America First” ignited trade war with China. In the name of protecting domestic manufacturers and the workers Donald Trump introduced tariffs raising the prices of Chinese goods, which paradoxically hurt the American people.

Experts opine that the above examples are in reactions to rising inequality among certain group of people though the average person globally was better off at the end of 2010s than in 1980. Many workers in developed country felt left behind as substantiated by their support for Brexit and Donald Trump, the former US president who championed protectionism. Some studies revealed that communities which were exposed to import competition from low-wage countries fared worse compared to those that were provided state protection through subsidies and import restrictions.

In spite of such drawback, it was unreasonable to predict that globalisation would end because economic integration and interconnectedness had advanced much. The world was too integrated to bid farewell to globalisation, however, its critics argue otherwise. Unfortunately, for economic integration the world faced an unprecedented health crisis of COVID-19 that killed millions within a span of two years plus. This disaster squeezed the global economy by causing massive disruptions in supply chains as workers could not be mobilised for the sake of saving lives. The hard reality was that more integration would worsen the health crisis as human contact helped spread COVID-19.

Optimistically, the early invention and use of effective vaccines has given a great relief in our fight against this pandemic. Nevertheless, the fear mentality concerning integration’s risks has not disappeared completely. Rather it has exacerbated countries’ apprehension about being too dependent on foreign countries especially for critical supplies. If export ban on essential goods, including Personal Protective Equipment (PPE), and other inward-looking policies pursued by some advanced nations at the time of heightened emergency to deal with health crisis is any guide then it is right to conclude that ‘every-country-for-itself ‘ mentality was widespread during the pandemic.

Dependency 

Ever since many have concluded that the dependencies created by international trade are full of risks. Importing countries became more vulnerable during crises when exporting countries resorted to protectionist tactics. Vaccine apartheid was rampant in 2020 when rich countries accumulated doses more than they required denying vaccines to the front-line workers in poor countries. The most recent instance of dependency vulnerability is now obvious with Russian move to export the European countries that heavily rely on its gas supplies. Russia has responded aggressively to EU for latter’s sanctions it is facing due to its attacks on Ukraine. 

Whether it is justifiable on the part of Russia to do so is contestable but geopolitics does fuel such sentiments and feelings which indeed harm the larger communities by wrecking the economies at this age of integration. No doubt that smooth functioning of global supply chains requires peace, stability and predictability. 

The Russian-Ukraine war has certainly eroded trust among nations and hence they tend to become more apprehensive of others. This has also prompted countries to shift expectations about geopolitical alliances. Globalisation may have its pitfalls. Its limitations have been exposed more glaringly in the recent past. Nonetheless, it is unreasonable to say that it has retreated. The world economy is too integrated to be fragmented so easily.

(Thapa was Foreign Relations Advisor to the Prime Minister (2008-09)