Posts Tagged ‘trade’
“Stand firmly in the present and focus on the future”*…
In a widely-cited article from May, Gillian Tett marks a fundamental shift– accelerated by the Trump administration, but underway beforehand:
… in the 20th century free-market intellectual framework — which is the one in which most western professionals built their careers — it was generally assumed that rational economic self interest ruled the roost, not grubby politics. Politics seemed to be derivative of economics — not the other way around.
No longer. The trade war unleashed by US President Donald Trump has shocked many investors, since it seems so irrational by the standards of neoliberal economics. But “rational” or not, it reflects a shift to a world where economics has taken second place to political games, not just in America, but many other places too…
…this phenomenon is not simply about one man (Trump), but rather marks a much bigger turning point in the intellectual zeitgeist — of a sort we have seen a few times before.
One such shift occurred just over a century ago, when the globalist, Imperialist vision of capitalism that reigned before the first world war was displaced by nationalist, protectionist policies. Another came after the second world war, when Keynesian economics took hold. Then, in the 1980s, free-market neoliberal ideas displaced Keynesianism.
The fact that the intellectual pendulum is now swinging again, towards more nationalist protectionism (with a dose of military Keynesianism), thus fits a historical pattern — although few predicted that the swing would take quite this form…
… one important facet of this zeitgeist shift is that governments are no longer “just” focused on their country’s absolute wellbeing, but on their relative positions too. This distinction might sound subtle. But it matters deeply, as a paper co-authored by Aaditya Mattoo, a World Bank economist, along with Michele Ruta and Robert Staige, spells out.
That is because an “absolute welfare” mentality supports trade co-operation, but unravels “if rivalry eclipses any consideration of own- country wellbeing,” the authors say. Trump’s angry rhetoric about America being “ripped off” by competitors, in other words, reflects a bigger mental shift… an (obvious) factor behind this rivalry is that China is now challenging America’s incumbent dominance…
It’s worth reading Tett’s piece in full (gift link)– and noting that the real-world evidence supporting her thesis is clear. Here, let us look more closely at China. Adam Tooze offers a primer– all-too-appropriate to Tett’s argument– on how to see China’s historic development through the veil of macroeconomics…
In the global economic conjuncture there are few if any factors more important than the state and future prospects of China’s economy. In purchasing power parity terms, it is the largest economy in the world, with a 20 percent share of global GDP. Measured in terms of current exchange rates, China comes second to the US.
China impacts the world economy as a huge market for exports from other countries. China’s imports range from raw materials, to Europe’s luxury brands. The share price of LVMH, Europe’s largest company by stock market valuation, bobs up and down in response to the spending patterns of Chinese women, the world’s most rapidly growing segment of luxury consumers.
China’s exports are a huge part of global markets. And when China’s domestic demand is less buoyant, there is a surge of anxiety about “excess capacity”, the pressure of exports increases and we start talking about “China shocks”.
In the macroeconomic balance, as discussed in World Economy Now of May, China’s huge surplus is the counterpart to the huge deficit of the USA.
China’s currency is pegged against a basket of other world currencies. This is backed up by some of the more effective capital account regulation in the world economy today. Funds cannot easily be transferred out of China on a large scale. So, there is structural uncertainty about what the exchange rate of the RMB should be. The trade account would suggest stronger. The scenario of mass capital flight in the event of a loosening of capital controls would suggest a much weaker currency, as happened during the crisis episode of 2015. A sudden adjustment in the Chinese exchange rate has the potential to destabilize the world economy as severely as Trump’s trade wars.
For all of these reasons, China is at the heart of global macroeconomics.
And there are a lot of news to be concerned about…
[Tooze reviews the decline in China’s growth rate…]
… But as useful as it is, this macroeconomic approach also minimizes the drama of history and qualitative transformation. China’s economy is huge because it encompasses the material destiny of one sixth of humanity. In the 1970s, China’s national income per head was less than that of Sudan and Zambia. It was not just the most populous country in the world but also one of the poorest. China’s ascent during the age of globalization is not just one economic story amongst many. It is the single most dramatic development in world economic history, bar none…
… Today, with a per capita GDP in purchasing power parity terms of $24,569, China is officially classed as an “upper middle-income” economy. It has far outstripped India (which in 1990 was still ahead of China). It has overtaken Indonesia. It has surpassed Brazil and caught up with Mexico. China is now on the cusp of being promoted to the ranks of the “high-income” countries…
… So here we have two images of China: One, as a big part of global macroeconomics, the other as a world historic development story. The trick is not to play these two accounts against each other, but to figure out how they interrelate and condition each other.
If we can sensibly discuss China today as just another big economy, rather than a country struggling with basic development issues, it is because it has actually undergone something truly exceptional, namely, utterly radical economic development in the space of less than two generations.
Pause for a second to consider this twist.
Dialectics offers us a way of imagining the process through which quantitative change turns into qualitative transformation. And there is plenty of that going on in the Chinese case. For example, it is one thing to be a big player in electric vehicles, it is quite another to entirely dominate every facet of the global supply chain. At that point market share measured in percentage points, a quantitative metric, turns into power, a statement of qualitative distinction.
But China also spectacularly illustrates the opposite process, through which qualitative change on a huge scale – “opening up” and “market reform” – transform a society’s entire mode of being so much that it becomes discussable as “just another really big piece of the world economy”, no different in macroeconomic terms than the Eurozone or the US economy. A history of radical qualitative change gives way to bland quantitative metrication.
Social theorists and market practitioners both use the same word to capture this dialectic of quality into quantity – commodification. When your distinctive, branded product with its specific qualities and associated narrative becomes commoditized, it widens the market, but also erases distinctions. In intellectual terms, rendering China’s utterly radical, world-changing development story as a question of “global growth”, is something akin to “commodification”.
Of course, quantitative comparison enabled by commodification has many uses. No less than commoditized goods. But both accept as a cost the erasure of specific qualities. In narrative terms, it involves a kind of blindness to history – how we got here – but also to the wider social and political meaning of current trends and the network of social, political, cultural and material forces that may drive future development. We do macroeconomics no injustice, if we call it heuristic and algorithmic in its approach. Its metier is not the in-depth search for historical meaning.
If we are to have both we need to learn to shuttle back and forth in our economic analysis from quality to quantity to quality to quantity etc.
Of course, you might object that all I am describing in rather highfalutin terms, are the methods of any good economic journalist. A good economics story weaves back and forth between the particular and the general, the experiential and the GDP numbers. That is true. It is a familiar narrative style. But there is a difference between an anecdote that merely serves as a “hook” and the effort to actually find a keyhole or opening that allows us to enter into the complexity of historical reality. As Stuart Hall once put it, the challenge is to find ways of “breaking in” to the historical conjuncture we are trying to decipher…
… How does the quality-quantity dialectic help us to better understand China’s economic situation and its relationship to the world economy in the summer of 2025?…
[Tooze uses that dialectic to unpack four key issues for China: real estate/urbanization, youth unemployment/generational shock, trade surplus/manufacturing power, and deflation (the “accumulation regime”)…]
… This essay had been a forced march, the aim of which is to connect four points of common concern about China’s macroeconomic situation – real estate, youth unemployment, the trade balance and deflation – with broader questions of China’s recent history and development. Doing justice to any of these themes would require far more space and far more expertise than I have my disposal. My aim here is simply to demonstrate the value of this kind of approach. My aim is to alert us to the moments when quality flattens into quantity – when “world-changing hundred-millionfold urbanization” is recharacterized as nothing more than a real estate boom – and to suggest the possibility of different narratives. The aim is to allow us to see through the bare bones of the macroeconomic schema, to the more historically specific and ultimately more powerful forces that are at play.
I’m not original in suggesting this. This is just what good history and good critical social analysis ought to do when it wrestles with the limitations of familiar macroeconomic concepts. In this particular case I am indebted to the work of Lan Xiaohuan of Fudan university, whose book How China Works: An Introduction to China’s State-led Economic Development offers a fascinating developmentalist perspective on recent Chinese economic history.
But not the least attraction of this approach is that it actually allows us to hear – as in really hear – how the Chinese describe their own situation. China insists on referring to itself as “developing” and “development” as the key objective of policy. The phrase 发展 (fāzhǎn) recurs in the titles of the National Development and Reform Commission, the de facto center of Chinese planning, and the Development Research Council of the State Council.
All too often the question of whether China should be counted as a “developing economy” is treated as a matter of cheap gamesmanship. Western critics, allege that China shirks its responsibilities by insisting on its status as a developing country. But triviality aside, as I have argued here, the question is actually a fundamental one. China is a huge and complex society with a powerful regime undergoing the most dramatic process of socio-economic change in world history. To describe this ongoing process as one of development is, if anything, an understatement.
Indeed, the question is why we don’t learn from the Chinese. Would it not behoove Western advanced economies to consider themselves, as well, as “developing”. Or does the difficulty of doing so betoken a telling blindspot? Development as a conception of economic change embodies a notion of comprehensiveness, qualitative change and deliberate purpose that is a challenge to policy in rich countries. In the US the bold vision of the Green New Deal was reduced to the Inflation Reduction Act. Trump’s tariffs and Big Beautiful Bill are a parody of economic nationalism. The best that the EU could manage was NextGen EU in 2020.
As Wang Yiwei of the Academy of Xi Jinping Thought at Renmin University remarked to The Economist:
Development is a permanent “political identity” … The party’s legitimacy depends in part on the riches yet to come. “Once you are ‘advanced’,” says Mr Wang, “you are declining.
The frankness is disarming. But does the West really have an answer?
Eminently worth reading in full: “Whither China? – World Economy Now, June 2025 Edition” from @adamtooze.bsky.social.
Pair with: “The Two Chinas.”
And for context, “Structure and Interpretation of the Chinese Economy.”
(Image above: source)
* ancient Chinese adage
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As we synthesize, we might recall that it was on this date in 626 that Li Shimin ambushed and killed his rival brothers Li Yuanji and Li Jiancheng in the Xuanwu Gate Incident. Li Shimin went on to become Emperor Taizong of Tang– the second emperor of the Tang dynasty of China, ruling from 626 to 649. He is traditionally regarded as a co-founder of the dynasty for his role in encouraging his father Li Yuan (Emperor Gaozu) to rebel against the Sui dynasty in 617. Taizong subsequently played a pivotal role in defeating several of the dynasty’s most dangerous opponents and solidifying its rule over China proper.
“Nanotechnology is an idea that most people simply didn’t believe”*…
Indeed, in the 1980s, even as nanotech pioneer Erik Drexler, a graduate student at MIT at the time, was doing the early work of defining and charting a course for the nascent field, MIT’s departments of electric engineering and computer science refused to approve his Ph.D. topic and plan of study (though ultimately the Media Lab did, and Erik earned his doctorate).
Today the reality– and centrality– of the field are only too apparent and have become the subject of trade and industrial policy… because while the U.S. led in the development of nanotech science, it lags in manufacturing and commercialization. In an excerpt from their book Industrial Policy for the United States: Winning the Competition for Good Jobs and High-Value Industries, Ian Fletcher and Marc Fasteau explain…
Nanotechnology is the manipulation of matter at scales from a fraction of a nanometer to a few hundred nanometers — sizes between individual atoms and small single-celled organisms — at which it has radically different properties. Nanotech is already significant in many industries. Integrated circuits are a form of nanotech. Other nanotech provides the light, strong composites in aircraft and space vehicles. Still other nanotech powers the solid-state lasers used to transmit information through the internet and the light-emitting diodes in LED light bulbs and flat-screen TVs. Nanotech also makes possible solar cells, the batteries in electric cars, and medical technologies such as vaccines. It is thus the unifying thread of many of today’s most advanced technologies. Unfortunately, America is falling behind.
In the future, nanotech-based quantum computing and communications will lead to more powerful computers, transforming national security and internet commerce by making currently secret communications insecure. Medical nanotechnologies will permit targeted interventions at the cellular level, providing new weapons against diseases, biological weapons, and defenses against them. China is known to be working on these.
Much of the science underpinning these advances was developed at firms and universities in the US. But the huge manufacturing industries built on it are mostly overseas. For example, the organic light-emitting diode (OLED) technology Kodak created didn’t save that firm from going bankrupt in 2012. But it did enable lucrative businesses for Korea’s Samsung, to whom Kodak licensed the technology, and LG, which bought Kodak’s entire OLED business in 2009. Today, American firms like Nanosys and Universal Display develop important nanotechnologies, but do not actually manufacture the end products and are thus relatively small.
How did the US get itself into this situation? A major government program, the National Nanotechnology Initiative (NNI), has been funded since 2001, but Washington failed to appreciate the importance of having both a technology and a manufacturing strategy. The prevailing wisdom was that if the academic science was supported, mass manufacturing would follow automatically. By contrast, successful rival nations in nanotech have focused on making these technologies manufacturable at scale, employing every policy tool from R&D subsidies to cheap capital to tariffs. A 2020 National Academies review of the NNI urged that the US recognize that ‘the recent, focused, and in some cases novel commercialization approaches of other nations may be yielding better societal outcomes.’…
A little wonky, but both fascinating and important: “Nanotechnology,” via the invaluable Delanceyplace.com.
(Image above: source)
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As we get small, we might send miniscule birthday greetings to a man who whose work has contributed to the development of medical applications of nanotech: Bert Sakmann; he was born on this date in 1942. A cell physiologist, he shared the Nobel Prize in Physiology or Medicine (with Erwin Neher) in 1991 for their work on “the function of single ion channels in cells”– work made possible in part by their invention of the patch clamp.
“The bond of our common humanity is stronger than the divisiveness of our fears and prejudices”*…
Inanna Hamati-Ataya on the importance of understanding our place in the world…
In the 1990s, an entire generation was robbed of its historical consciousness by a powerful and seemingly unprecedented tale. This story, crafted as the Cold War came to an end, declared that real or imagined boundaries had stopped working as they once had. Humans were no longer contained within their old geographies or identities. They now inhabited a new world that appeared to be unhinged from the normal evolution of human society.
The concept chosen to capture this transformational moment in human history was ‘globalisation’. It described how new technologies and networks of connectivity had suddenly brought human communities closer together and made them permeable to an uncontrollable flow of people, ideas, goods and cultural practices, which all moved freely across the integrated markets of the world economy. In the wake of this transformation, new jargon emerged, expressing new anxieties: the world had truly become the ‘global village’ that Marshall McLuhan anticipated in the 1960s, but it was a world shaped by multinational corporations and ‘elite globalisers’, who spoke a common, hegemonic ‘global English’, and were spearheading a destructive ‘homogenisation’ (or ‘McDonaldisation’) of human cultures that national borders were too fragile to withstand.
During the past three decades, more people have begun viewing our ‘global’ world as a cursed fate. With its suffocating time-space compression, globalisation seems to have uncoupled us from the logic and flow of history. Our suspicious, bastard identities – patched together from a mishmash of cultures – appear incompatible with our ancestors’ ‘authentic’ traditions and ways of life. We have become strangers to the places they called home, to the ways they dressed, ate or communicated with one another. And, with no template for how to live and no experience to learn from, the deafening siren songs of anti-globalisation movements are now luring us back into the safer identities and boundaries of a lost, golden past.
This tale of globalisation is the most successful scare story of our times. And like all scare stories, it stimulates our fear of an overwhelming unknown.
But it’s all an illusion. There is no new global world.
Our present appears that way only because we have forgotten our common past. Globalisation didn’t begin in the 1990s, or even in the past millennia. Remembering this older shared history is a path to a different tale, which begins much, much earlier – long before the arrival of international supply chains, ocean-going sailing ships, and continent-spanning silk roads. The tale of globalisation is written across human history. So why do we keep getting the story so wrong?…
[She unpacks the answer to her questions, then turns to it implications…]
… In our own contemporary era, anti-globalisation movements have recently shifted from the far Left to the far Right of national and global politics. Justified resentment against the locally experienced injustices of the global economy and the growing disruptive effect of global climate change are now couched in resentment for the social and cultural dimensions of globalisation. Identitarianism, a political ideology that stresses the preservation of narrowly conceived ‘Western’ ethnicities and cultures, has accordingly become the easiest and most efficient strategy to mobilise local grievances, and direct them at whatever is perceived as a threat to the wellbeing of those suffering within. The ugly age of nationalism is back.
Is nationalist identitarianism the ethos we will now deploy to confront the common existential threats that await us in the coming century? Why wouldn’t it be? Does anyone doubt that national borders will be turned, once again, into sacred physical boundaries and fiercely defended against those fleeing the environmental, economic or military devastation of their homes? Do we doubt that eloquent voices animated by the most (ig)noble intentions will rise to justify patriotic bullets being aimed at ‘alien migrants’ and climate refugees? And that leaders will say these displaced people cannot be accommodated because of their numbers and cultures, and the threat they pose to our secure lives – to our ‘identity’?
Such scenarios are far too likely given the rise of xenophobic worldviews, such as the conspiratorial idea of a ‘Great Replacement’, in which elites – imagined to be Jews and other minorities – have begun executing a plan to replace so-called indigenous white Europeans with other populations of apparently greater and threatening reproductive vitality. These racialist worldviews dangerously converge with a public misunderstanding of ‘race’ as reflected in the recent craze for DNA ‘ancestry tests’. DNA has little to do with ‘identity’, as social and political ideologies have constructed it, and much to do with physical and social geography. Our genes are a result of human adaptive mobility, and the journeys, rich encounters and kin-making that our freedom of movement made possible over tens of thousands of years. Our genome does not tell our whole story, but the story it does tell shows how past globalisations made us what we are today.
As we search for ways of communing with one another beyond the stubborn ideology of difference, we should also prepare for vicious future distortions and manipulations of our current scientific and historical understanding of identity. Some humans today carry a few genes that their Pleistocene ancestors inherited from intercourse with our Eurasian Neanderthalian and Denisovan cousins, whom some communities of Homo sapiens encountered on their journeys of cosmopolitan expansion. How might such a genetic difference among us be interpreted and used in the future by those intent on pursuing identitarianism to its silliest or most murderous conclusions? Might they declare that some humans are not ‘pure’ enough to enjoy the full freedom, security and dignity we recognise as the natural rights of humankind? Or might they, on the contrary, elevate the Neanderthalian or Denisovan gene as a marker of Eurasian ‘distinction’ to recreate narratives of racial superiority, similar to those that once plagued archaeological thinking about the allegedly more ‘advanced’ nature of those human fossils laying the farthest away from the species’ original African homes?
Palaeontologists who insist on ascribing the label ‘humans’ to the entire Homo genus while reserving that of ‘modern humans’ to the surviving representatives of the lineage (ie, us) probably understand better than most the dangers of ideological manipulations of scientific taxonomies. But in the open marketplace where ideas freely flow in the name of freedom of thought and expression, how can we protect ourselves and one another from such dangers, if we still perceive plurality as a threat to survival, and cannot see the richness of our shared human culture?
The wars we wage against one another are all civil wars. Until we recognise them as such, they will remain tragedies we accept as natural – or horrors we cheer on in the name of grand notions sold to us by loud voices who know our fears too well (and know too little of the richness of our world and our history). We have always been global, and this is our shared identity. It is our unique way of being and remaining in the world as one family. Whatever we cherish in our humanity and culture has been crafted by our global journeys and encounters. Through them, we will continue to write the story of how we become us…
All of our religions, stories, languages, and norms were muddled and mixed through mobility and exchange throughout history: “There are no pure cultures,” from @berytia.bsky.social in @aeon.co.
Still, as Venkatesh Rao reminds us, the “vacuous over-large abstractions like “globalization” make us underestimate the horizontal historicity of the world.”
* Jimmy Carter
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As we go with the flow, we might recall that it was on this date in 1690 (or so musicologists believe) that Johann Christoph Denner, inspired by a reeded recorder-like instrument called the chalumeau, designed and created a longer and keyed (so more widely-ranged) instrument that was quickly copied and modified by other makers– and became what we know as the clarinet. By 1791, Mozart was composing for the instrument; by Beethoven’s time, the clarinet was a staple member in the orchestra.
To the point of the essay above, it’s worth noting that the chalumeau– and thus the clarinet– were direct descendants of ancient Greek and ancient Egyptian reeded pipes… that may themselves have been modeled on similar instruments from Central and East Asia.
The clarinet, as depicted in Diderot’s Encyclopedia, 1776 (source)
“The only thing that will redeem mankind is cooperation”*…
Industrial policy is on the rise around the world, as nations (and sometimes regions) create laws and policies that prioritize domestic competitiveness and economic benefit over free trade, using tools like investment, regulation, and tariffs. Increasingly these policies are being animated not only by economic, but also security concerns. (See, e.g., here and here.)
The traditional worry about policies like these is that they create barriers (thus tensions) between countries… which, at a time when the world desperately needs collaborative responses to global challenges like climate change, could be deeply problematic. But Nathan Gardels argues that industrial policy might be precisely what we need to set the stage for meaningful cooperation…
The remarkable story future historians will tell about the late 20th and early 21st century is how inviting a Communist Party-state to enter a global economy built on the capitalist principles of free trade and markets ended up transforming the neoliberal West into a bastion of protectionism and state-directed industrial policy of the same kind now condemned as unfairly advantaging China’s rise.
They will also note the further irony that the logic of opening to China in the 1970s — and of China’s opening to the West — had a national security premise of checkmating the Soviet Union. Half a century on, the Middle Kingdom is more closely aligned with Russia than in the later stages of the Cold War, primarily as a way to do the opposite: checkmate America’s continuing dominance of the very world order that enabled its rapid ascent.
Adding more complexity to this reversal of history are the related global challenges that have arisen in both East and West: decarbonization of fossil-fuel dependency to mitigate climate change while coping with the disruptions of the digital revolution and the advent of artificial intelligence.
These threads of deglobalization, climate and technological revolution have all converged in the competitive assertion of “industrial strategies” in which nation-building is integrally bound up with international security concerns. China is driven by the fear of not catching up, the United States by alarm at losing the upper hand and Europe by the angst of falling behind both and losing its strategic autonomy.
China’s industrial strategy is called “dual circulation,” essentially a policy of self-reliance and resilience in the face of newfound Western hostility. It is aimed at bolstering domestic consumption and production, including conquering the latest AI technologies with its own resources, while off-loading manufacturing overproduction abroad and expanding trading ties in the global South.
The U.S. strategy, as crafted by President Joe Biden, encompasses a broad array of protective tariffs and subsidies. The CHIPs Act and related policies seek to foster homegrown microchip production while denying frontier technologies to China and restructuring supply chains to friendly nations. The Inflation Reduction Act promotes extensive new investment in the green energy transition. Incongruously, at the same time, a tariff of 100% has been imposed on the import of Chinese electric vehicles. Further tariffs on component inputs, such as batteries sourced in China, are already on track.
Following the U.S, the European Union is also set to raise its own stiff tariff hikes on Chinese EVs as it pursues a European Green Deal to transition to renewables on its own terms. Europe also seeks to blunt the impact of the “buy American” restrictions of the IRA so that fleeing capital looking to exploit the subsidized U.S. market does not hollow out its own green industries before they can be firmly established.
Earlier this month, the former European central banker and one-time Italian prime minister, Mario Draghi, has gone the next step and plotted out a detailed, long-term “industrial strategy” to close the gap with the U.S. and China, which he calls “an existential challenge” to the European way of life.
“If Europe cannot become more productive,” Draghi writes in his report, “we will be forced to choose. We will not be able to become, at once, a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage. We will not be able to finance our social model. We will have to scale back some, if not all, of our ambitions.”…
[Gardels unpacks both European and Australian industrial policy..]
… For all these divergent industrial strategies to succeed in the end depends largely on whether sustained nation-building investment outstrips the duration of protective measures that ought to be only a temporary respite from asymmetrical conditions while they are rebalanced.
To the extent these decoupled initiatives do succeed, they will, paradoxically, come to be regarded not as the antithesis of global cooperation, but as the precondition for it. Only when the power centers of China, the U.S. and Europe are assuredly in control of their own destiny will they be secure enough to open up and cooperate on the global issues that impact them all equally…
The case that divergent “industrial strategies” in the U.S., China, and Europe can create the security to open up: “The Precondition for Global Cooperation,” from @NoemaMag.
* Bertrand Russell
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As we reconfigure, we might spare a thought for a man who provided an important part the foundation on which opponents of industrial policy base their arguments: Pierre Le Pesant, sieur de Boisguilbert (or as he is more commonly known, simply Boisguilbert); he died on this date in 1714. A French Enlightenment law-maker and economist, he was the first of the great continental liberals– a proponent of laissez-faire and minimalist government and an early opponent of mercantilist “Colbertisme.” He is considered one of the fathers of the notion of an economic market.
“Our grandfathers lived in a world of largely self-sufficient, inward-looking national economies – but our great-great grandfathers lived, as we do, in a world of large-scale international trade and investment, a world destroyed by nationalism.”*…
There’s a growing chorus of opinion arguing that the era of global trade is ending. To be sure, nationalism and the protectionism it can spawn are on the rise. But is globalization’s decline now locked in? In a recent speech at the University of Tokyo, Bill Emmott questions the conclusions of The Economist (which he used to edit) and others predicting an end to a world in which goods and services flow relatively freely– pointing out the global trade is still very much alive. It’s a provocative talk, eminently worth reading in full; it ends with a framework for thinking about the question…
The history of globalisation that I have outlined has shown the development of international trade in goods and services to have been driven by three main forces:
- Peace, war and international security
- National external trade policies
- Technology, and its effect on transaction costs
It is clear that the biggest discontinuity in the growth of international commerce was caused by what we now know as the two world wars of the 20th century.
Russia’s invasion of Ukraine in 2022 has certainly diverted trade and financial flows considerably, thanks to direct security effects and to sanctions. But neither it nor the other conflicts we can see occurring in the Middle East, Africa or elsewhere have been sufficient to block global trade in a significant way.
Tensions between the US and China similarly have some diversionary effects, and are to some degree echoed in tensions between China and Europe and China and Japan. But those geopolitical tensions would have to get a lot worse to have a major effect on global commerce as a whole, in part because the world economy has become much more complex and multipolar in nature.
The one conflict that would be very likely to have a major “deglobalisation” influence would be a conflict between the US and China over Taiwan, for such a conflict would very likely reach catastrophic proportions and would force many countries to choose sides. We cannot predict how commerce and the exchange of ideas would look after such a conflict, just as my European forebears would have been unable to predict the world after 1918 from the standpoint of 1914 or earlier.
Secondly, nations’ external trade policies. As I commented earlier, there has been a clear trend back towards protectionism since the 2008 financial crisis, one that has lately been reinforced by policies aimed at the energy transition and by US-China tensions.
This has not yet however had a major effect on world trade. It could, of course. The big question is what would happen if Donald Trump is re-elected as US President in November and carries out his promise to impose a 10% tariff on all imported goods, and a 60% tariff on all goods from China.
One quite likely possibility is that other countries – including the EU, the UK, Japan and indeed China – would retaliate by imposing higher tariffs of their own, and we would be in a trade war, one that could escalate higher and higher.
The wider such a trade war became – i.e., taking in more countries – the likelier it would be to make deglobalisation visible in the trade statistics. Nonetheless, we should bear one other thing in mind: this is that services, especially digitally delivered services, have become an increasingly important component of global commerce. How they would be affected is unpredictable.
Third, we need to bring in the related and vitally important force of technology. Falling costs and increasing digital capabilities have been a big factor behind the growth of global commerce. The entry of artificial intelligence means that there is no likelihood of this technological force for cross-border commerce diminishing.
During the pandemic, the science and technology behind vaccine development, production and distribution were all global, even if geopolitics introduced some distortions. Moreover, the basic reason why the US stock market has been driven by the so-called “Magnificent Seven” tech stocks is that the market for all of them is global.
Geopolitics threatens, but as yet it does not decide. External trade policies at present divert, but only an escalatory trade war would be likely to have a major effect. Technology, however, remains the most powerful force in favour of continued globalisation.
The future of globalisation will be determined by the interplay of these three forces. There is no currently pre-determined destiny for globalisation. Many commentators over-play the influence of politics and under-play the role of technology. Extreme outcomes are possible, and need to be prepared for. But we must above all keep an open mind as to what the actual outcome will be…
We see deglobalization everywhere except in trade statistics: “The future of globalisation: a history,” from @bill_emmott and his excellent newsletter, Bill Emmott’s Global View .
(Image above: source)
* Paul Krugman
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As we tackle trade, we might recall that it was on this date in 1178, about an hour after sunset, that five monks from Canterbury saw “the upper horn [of the Moon] split in two.” They reported their experience to the abbey’s chronicler, Gervase, continuing (as he reports) “From the midpoint of the division a flaming torch sprang up, spewing out, over a considerable distance, fire, hot coals and sparks. Meanwhile the body of the Moon which was below writhed, as it were in anxiety, and to put it in the words of those who reported it to me and saw it with their own eyes, the Moon throbbed like a wounded snake. Afterwards it resumed its proper state. This phenomenon was repeated a dozen times or more, the flame assuming various twisting shapes at random and then returning to normal. Then, after these transformations, the Moon from horn to horn, that is along its whole length, took on a blackish appearance.”
In 1976, a geologist suggested that this was consistent with the location and age of the 22-km lunar crater Giordano Bruno. However, such asteroid impact would have ejected debris causing an astonishing meteor shower, which was never reported. So, while that is plausible, it’s now considered more likely that the sighting of 1178 was an exploding meteor that just happened to line up with their view of the Moon.
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