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The enemies of globalisation are circling

Globalization is not just about trade and technology. It’s also about politics. Political change, especially the collapse of communism, created the conditions for an era of hyper-globalization. Now political change, especially rising nationalism, threatens the dense network of economic ties built over the past three decades.

The enemies of globalization can be found across the political spectrum, from the nationalist right to the anti-capitalist left, and from the environmental movement to the intelligence community.

It is true that deglobalization is not yet really reflected in the trade figures. As my colleague Alan Beattie recently noted, “most of the standard measures of globalization – cross-border movements of goods, services, capital, data and people – are doing quite well.”

One possible conclusion that can be drawn is that global economic connections and supply chains are now too complex to be untangled. While there may be a will to deglobalize, there is no real way.

A sudden withdrawal into economic autarky by the world’s leading trading nations would certainly cause chaos and hardship. But for all the turmoil that comes with it, international economic ties can suddenly break. Over the past two years, the pandemic and the war in Ukraine have shown how vulnerable international trade is to unexpected shocks. Covid-19 halted global travel and disrupted supply chains. The war in Ukraine led to a rift in the west’s economic ties with Russia. And the combined political and social forces now pushing against globalization make it likely that more shocks are to come.

A decade ago, protectionism was still a dirty word in American politics. But the Trump administration started a trade war with China and the Biden administration has maintained the tariffs. A bipartisan consensus in the US is now pushing for policies to reduce economic dependence on China and repatriate key industries, especially semiconductors. India has followed the decoupling trend by banning Chinese tech companies such as: TikTokin response to rising tensions with Beijing.

The Chinese themselves are actively participating in this process of decoupling. Undoubtedly, they have taken the first important step, with a drive to promote the domestic production of key technologies. Beijing’s ‘Made in China 2025’ policy was announced in 2015, before the election of Donald Trump.

When economic logic was more powerful than geopolitical rivalry, the overriding question was: where is it cheapest or most efficient to buy or produce? This led to the construction of complex cross-border supply chains. But in a world where international rivalry is growing, different questions are being asked. Where is the safest place to produce or buy? And should we even trade with countries we consider to be a threat?

The invasion of Ukraine has not only made it careless to rely on political rivals for important economic input, it has also enabled the Western national security organization to conquer the moral high ground of the free traders. Jens Stoltenberg, NATO Secretary General, say that “freedom is more important than free trade”. There are not many influential voices making the counter argument.

The political and strategic arguments for severing trade ties are increasingly complemented by arguments about environmental and social resilience. After the pandemic, governments are reluctant to go back to a world where the production of, say, vaccines, or even rubber gloves, is concentrated in just one or two countries. Pushing for domestic production facilities, which once seemed inefficient, now seems sensible. As one senior industrialist says, “We’re moving from just in time to just in case.”

The potential vulnerability that preoccupies national security agencies everywhere is semiconductors — crucial for everything from cellphones to missiles. According to US President Joe Biden, some 90 percent of the world’s most advanced semiconductors are: made in Taiwan by a single producer, TSMC. A senior US official says a Chinese invasion or blockade of Taiwan would trigger a “nuclear semiconductor winter”. Correcting that situation could take many years. But the drive to do so is now underway with the passage of America’s Chips Act.

The US has long had rules that can restrict internal investment for reasons of national security. The Chips Act creates new rules that will restrict outbound investment, discouraging US companies from making semiconductors in China.

National security hawks believe that globalization meant that Western democracies naively supported the rise of hostile rivals such as Russia or China. Left-wing critics associate the “neoliberal” era of globalization with rising inequality and environmental degradation. Both critiques contain elements of truth. But the pressure to sever trade and investment ties isn’t just a product of rising nationalism and economic stress — it also contributes to both processes.

Despite all the discontent that hyper-globalization has caused, I suspect that the period from 1989 to 2022 will be seen in the coming decades as a golden age of peace and prosperity. The world may soon discover that globalization is the worst possible system – apart from all the alternatives.

gideon.rachman@ft.com

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