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Foreign affairs Readings on

GLOBALIZATION
articles published in the Years 2020-22

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 READINGS ON GLOBALIZATION
Taken from Foreign Affairs Magazines, 2020-22 | www.CSSExamDesk.com

GLOBALIZATION ISN’T DEAD

After two and a half years of a pandemic that and buried along with globalism, the ideology
has exposed the fragility of global supply chains that propelled it, and unipolarity, the
and eight months of war in Ukraine that has international order that upheld it. An
severed economic ties between Russia and the increasingly inward-looking United States no
West and disrupted global food and energy longer has the political will to serve as architect
markets, the world seems to be at a turning and guarantor of the world economy. China,
point. Globalization, many claim, is receding. A meanwhile, is beset with structural economic
growing number of analysts now argue that challenges that limit its ability to promote its
much as World War I and the 1918 influenza own order by means of trade access and
pandemic brought an end to the first great era investment policy. And no other country or group
of globalization, the combination of Russia’s war of countries has the capacity to fill the void. But
in Ukraine, COVID-19, simmering populism, that does not mean that globalization is ending.
and geopolitical competition between the United Such an outcome would require the United
States and China has kicked the second great States to actively turn against economic

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era of globalization into reverse. “This new cold integration. Bombast aside, that did not happen
war marks the end of the era of globalization under Trump, and it is not happening under U.S.
and integration that has shaped the President Joe Biden. Rather, the United States
international system since 1989”, the journalist has simply stopped leading the drive for ever-
Fareed Zakaria wrote in mid-October. greater globalization. This leadership vacuum
Prominent investors and policymakers agree. has resulted in the fraying of the “governance of
Larry Fink, the CEO of the asset management globalization”, as the former World Bank
firm BlackRock, wrote to shareholders in March President Robert Zoellick has put it. But
that the war in Ukraine had “put an end to the globalization itself is not fraying—it is simply
globalization we have experienced over the last adrift. It is less coordinated, deliberate, and
three decades”. And at the World Economic efficient than before but still in most countries’
Forum in Davos in May, International Monetary interest given how much worse the alternatives
Fund Managing Director Kristalina Georgieva are. A look at economic data belies the notion
warned of a coming “geoeconomic that globalization is reversing. Even as global
fragmentation”. Countries and companies, she capital flows relative to GDP have moderated
said, are “re-evaluating global supply chains” since their peak in the middle of the first decade
and undoing decades of integration. Yet of this century, cross-border investment has
globalization has been pronounced dead many continued to grow and financial market returns
times before: after the global financial crisis in have remained highly correlated globally.
2008, after the Brexit referendum in 2016 and Worldwide merchandise trade is near all-time
the election of Donald Trump later that year, highs, having surpassed pre-pandemic
and after the outbreak of the COVID-19 projections already this year. Multilateral trade
pandemic in 2020. That none of these negotiations have stalled, but new trade deals
predictions has come to pass should give continue to emerge, including the Regional
analysts pause about predicting deglobalization Comprehensive Economic Partnership between
once more. Rather than the end of economic 15 Asia-Pacific nations and the 11-member
integration, the world is experiencing a Comprehensive and Progressive Agreement for
geopolitical recession that has left globalization Trans-Pacific Partnership. The number of
adrift. regional trade agreements in force has grown
continuously since the 1990s, more than
MORE INTERCONNECTED THAN EVER- doubling since 2008. Trade in goods has slowed
Those proclaiming the demise of globalization as relative to global output since 2008, but even
it was once known are not totally wrong. It is this shift does not signal deglobalization. To the
true that the era of “hyperglobalization” that contrary, the plateauing of the global trade ratio
lasted from the 1970s to the 2008 global is partly a side effect of economic development—
financial crisis, during which a hegemonic a sign of globalization’s success. Take the
United States drove a top-down process of trade example of China, which has seen its ratio of
liberalization and global integration, was a trade to GDP decline by nearly 30 percentage
unique historical episode. That era is now dead points since 2006 and which, by virtue of its size,

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has been the biggest contributor to the slowing Intangibles such as research and development,
worldwide trade-to-GDP ratio. As the country intellectual property rights, branding, design,
has grown richer and its economy more and software have also grown significantly as a
complex—owing to market reforms and share of total trade, investment, and output. Yet
integration into global markets—China’s growth many services and intangibles are not captured
model has shifted away from exports and by current trade data because of measurement
toward domestic consumption and investment. challenges. All this suggests that traditional
At the same time, domestic demand has shifted measures of globalization are being rendered
away from goods and toward services, which are obsolete as the global economy grows more
traditionally less tradable. China has also complex. In reality, however, the world is more
moved up the value chain, manufacturing fewer interconnected than ever. And interconnection
cheap consumer goods and more advanced begets interconnection, because the more
intermediate inputs, and now produces a interconnected nations grow, the harder and
greater share of the value of its exports costlier it becomes for them to decouple.
domestically. Because of rising incomes,
Chinese labor is more expensive as well, making DECOUPLED, NOT DIVORCED- To be sure,
the country a less desirable manufacturing hub parts of the world are decoupling, but only some
and eliminating one of the country’s key parts and only to some extent. Advanced
competitive advantages. And finally, China has industrial democracies are forcibly decoupling
already exploited and exhausted most from Russia in a way that is near-total and likely
opportunities for trade liberalization and permanent. Western multinational companies

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integration into global value chains, meaning have closed nearly all their businesses in Russia
that it has less room to globalize further. None and liquidated their holdings. Russian oligarchs
of these trends constitute disintegration or have been sanctioned and their assets have been
retrenchment. Rather, they reflect the fact that frozen. Most Russian banks have been banished
globalization has diminishing returns, and not from SWIFT, the global payments system, and
just for China. Now that most countries are even Russia’s central bank reserves have been
already relatively well integrated into the global seized. The developed world is halting its
economy, the world as a whole has less to gain purchases of Russian energy and blocking
from additional globalization. In general, as Russia’s access to advanced manufactured goods
once closed low-income economies integrate and critical components. This decoupling will
into global markets and grow wealthier and have dire implications for Russia’s economic,
more developed, they become more self- military, and geopolitical standing. But Russia is
sufficient. China and many other emerging- hardly being cut off from the entire world.
market countries that globalized in the last half Although the country accounts for a minuscule
century now produce more of what they share of world GDP, its natural resources are too
consume, consume more of what they produce, valuable for it to be cut off entirely from the
and produce more of what they produce. This global economy. China and India have already
shows up in the data as a decline in global increased their purchases of Russian oil from a
trade intensity, but it is a sign of progress, not combined 1.7 million barrels per day in June
of deglobalization. What is more, technological 2021 to nearly 2.8 million barrels per day in
advances such as e-commerce, automation, June 2022, and at a discount. Developing
artificial intelligence, robotics, cloud computing, countries still rely on Russian grain and fertilizer,
and telework have transformed many labor- and many regular and irregular armies continue
intensive production processes into capital- and to use Russian weapons and mercenaries. Much
knowledge-intensive processes. Trade designed of the world will continue to do business with
to take advantage of labor-cost differentials Russia. The United States and China, meanwhile,
between countries has consequently declined are locked in an intensifying geopolitical
worldwide—but not because of any conscious competition that has led them to decouple in
turn against globalization. The growing areas perceived to be of national security
importance of services and intangibles in the importance. These areas encompass an ever-
modern economy has also fueled the false growing number of “strategic” sectors—from
impression of deglobalization. Trade in services dual-use technologies such as semiconductors to
and intangibles has been accelerating for 15 renewable energy to social media and other
years and accounts for an increasingly large information industries—that are now off-limits
share of global economic activity. This is for foreign trade and investment. But this partial
especially true of trade in digital services. For decoupling can only go so far because the U.S.
instance, computer and communication and Chinese economies are so interdependent
services now make up around half of all services that a full divorce would be ruinous for both
exports and three percent of global GDP. countries and for the world. The U.S. and

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Chinese business communities want to do more, toward China, Chinese “Wolf Warrior” diplomacy,
not less, business with each other. Likewise, the politics of the pandemic, Russia’s invasion of
most other countries—including the United Ukraine, and rising tensions over Taiwan have
States’ closest allies in Asia and Europe, which all made the U.S.-Chinese relationship more
are just as wary of China’s rise—have no dangerous and harder to manage. But the
interest in mutually (and globally) assured relationship is not on the verge of breaking down,
economic destruction and are therefore ramping because the ties that bind the two countries are
up investment in and exposure to both the U.S. becoming more, not less, important.
and Chinese economies. Despite tensions, trade
wars, and pandemic disruptions, bilateral trade LEADERLESS WORLD- Although the partial
between the United States and China has decoupling of Russia and the West and China
continued to grow. Two-way goods trade stood and the United States does not amount to
at $657 billion in 2021, up from $557 billion in deglobalization, it does indicate a shift in the
2019, and this year’s figure will almost surely nature of globalization. The global economic
surpass the record of $659 billion set in 2018. order is becoming more multipolar and
The United States is still China’s largest goods fragmented in the absence of international
trading partner and export market, and China leadership. This means that geopolitics will
is still the United States’ largest goods trading increasingly creep into economic calculations.
partner, its largest supplier of imported goods, The interdependencies and vulnerabilities
and its third-largest export market. Investment exposed by COVID-19 and Russia’s invasion of
has also remained strong. Although Western Ukraine have brought economic security

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corporations are more worried about the risk of concerns to the fore. Countries and companies
investing in China than they were in the past, will increasingly attempt to make themselves
they show few signs of backing off. Foreign more resilient to external shocks and insulate
direct investment into China reached a record themselves from geoeconomic pressures through
high last year, and a recent survey by the a combination of “ally shoring”, “nearshoring”,
American Chamber of Commerce in China diversifying supply sources, and stockpiling. It is
found that 83 percent of American even possible that cross-border economic activity
manufacturers operating there have no plans to will splinter into geopolitical spheres of influence,
move out. Only three percent intended to as countries deepen their integration with
“reshore” production to the United States and friends and reduce their reliance on foes. These
60 percent planned to increase their investment forces point away from the aggressive
in China. U.S. imports of intermediate and final globalization of recent decades, but not toward
manufactured goods continue to grow faster autarky. The benefits of scale and specialization
than U.S. manufacturing output, indicating are too great, and the costs of reversing
that no net reshoring has occurred so far. For globalization are too high. The global value
its part, Beijing might like to become chains that produce most modern goods are so
technologically and economically self-reliant, complex and spread out that recreating them at
but China’s economic growth remains a national level is virtually impossible. Western
dependent on commercial ties with the West. companies will increasingly pull back from China,
Together, the United States, the European no doubt, but for the most part they won’t bring
Union, and Japan buy nearly 40 percent of production back home, instead shifting it to
China’s exports—a share that has barely friendly, lower-wage nations such as Mexico and
budged in the last decade. Moreover, China Vietnam. With few exceptions, reshoring and
lacks the ability to produce cutting-edge insourcing would prove excessively costly—and
semiconductors indigenously, and U.S. export risky. As the shortage of baby formula in the
controls and investment restrictions ensure that United States demonstrated earlier this year,
it will remain unable to produce them for at resilience is best achieved through diversification
least the next decade. Given the importance of and spare capacity—not self-reliance. These
semiconductors for manufacturing not just shifts in the patterns of global integration may
consumer goods such as phones, computers, well result in efficiency losses. Politics and
and cars but also most advanced weapons geopolitics, after all, increase transaction costs
systems, China simply cannot afford to and impede the optimal allocation of resources.
decouple from the United States and its allies. But this is a small price to pay to ensure that
That is not to say the United States and China globalization and its benefits endure. Striking
are growing closer. The most important the right balance between efficiency and security
geopolitical relationship in the world is still will result in a safer, more sustainable economic
entirely devoid of trust, and the domestic order. (By Ian Bremmer, October 25, 2022)
politics of both countries lean increasingly
toward antagonism. Bipartisan U.S. hostility

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THE END OF GLOBALIZATION?
Over the last three weeks, the Russian economy economic actions may be just, and there may be
has been overwhelmed by sanctions. Soon after little risk of countries not invading Ukraine
the Kremlin invaded Ukraine, the West began ending up on the wrong side of U.S. policies. But
seizing the assets of the wealthiest individuals the next time, the United States may be more
close to Russian President Vladimir Putin, selfish or capricious. Finally, the damage
prohibited Russian flights in its airspace, and sanctions are doing to the Russian economy and
restricted the Russian economy’s access to the substantial costs to central Europe if Russia
imported technology. Most dramatically, the cuts off its access to natural gas and oil in
United States and its allies froze the reserve response may make governments pursue self-
assets of Russia’s central bank and cut Russia reliance and disentangle themselves from
out of not just the SWIFT financial payments economic connections. Ironically, this will be
system, but of the basic institutions of self-defeating. Russia’s current sharp economic
international finance, including all foreign contraction shows just how difficult it is for
banks and the International Monetary Fund. As states to thrive without economic
a result of the West’s actions, the value of the interdependence, even when they try to minimize
ruble has crashed, shortages have cropped up their perceived vulnerability. In addition,
throughout the Russian economy, and the Russia’s attempts to make itself economically
government appears to be close to defaulting on independent actually made it more likely to be

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its foreign currency debt. Public opinion—and subject to sanctions, because the West did not
the fear of being hit by sanctions—has have to risk as much to impose them. But that
compelled Western businesses to flee the will not stop many governments from trying to
country en masse. Soon, Russia will be unable retreat into separate corners, looking to protect
to produce necessities either for defense or for themselves by withdrawing from the global
consumers because it will lack critical economy. Pundits, of course, have cried wolf
components. The democratic world’s response about such divisions for years, and the smaller
to Moscow’s aggression and war crimes is right, countries that attempt to self-isolate will be
both ethically and on national security grounds. unable to succeed. But it now seems likely that
This is more important than economic efficiency. the world economy really will split into blocs—
But these actions do have negative economic one oriented around China and one around the
consequences that will go far beyond Russia’s United States, with the European Union mostly
financial collapse, that will persist, and that are but not wholly in the latter camp—each
not pretty. Over the last 20 years, two trends attempting to insulate itself from and then
have already been corroding globalization in the diminish the influence of the other. The
face of its supposedly relentless onward march. economic consequences for the world will be
First, populists and nationalists have erected immense, and policymakers need to recognize
barriers to free trade, investment, immigration, and then offset them as much as possible.
and the spread of ideas—especially in the
United States. Second, Beijing’s challenge to the THE DOLLAR ENDURES- For all the talk about
rules-based international economic system and the “weaponization of finance,” the sanctions
to longstanding security arrangements in Asia employed against Russia have been effective only
has encouraged the West to erect barriers to because the international alliance imposing them
Chinese economic integration. The Russian has been broad and committed. Freezing the
invasion and resulting sanctions will now make Russian Central Bank’s reserves, for instance,
this corrosion even worse. There are several works only if the majority of the world’s financial
reasons why. First, China is attempting to system is on board with doing so. It is the
navigate a nonconfrontational response to the alliance, not the finance, that has mattered.
Russian invasion. Both its financial system and Since the anti-Russian alliance contains all the
its real economy are observing the sanctions major financial institutions except the Chinese
because of the potential economic retaliation if banks—and since Chinese banks do not want to
they finance or supply Russia, let alone bail be shut out of that system—the financial
Moscow out. But anything short of fully joining sanctions will not lead to any fundamental
the blockade will feed anti-Chinese policies in changes in the world’s monetary or financial
the West, reducing the country’s economic order. Economies that feel threatened by
integration. Second, countries fear being Washington do now have an incentive to shift
subject to the whims of Washington’s economic their reserves out of holdings in the United
might, now that it is re-enamored with its States. In theory, this has always been a check
apparent power. Right now, the United States’ on Washington’s overuse of financial power; if

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the country sanctions too frequently, it might changes to the global economy. But they will
induce other states to come up with better speed up the corrosion of globalization already
alternatives to the dollar and to the payments underway, a process that will have broad
system around it. And over the very long term, a impacts. With less economic interconnectedness,
divided world economy under the threat of the world will see lower trend growth and less
sanction will bend in that direction. But in the innovation. Domestic incumbent companies and
meantime, what Russia demonstrates is that industries will have more power to demand
diversifying into euros, yuan, and even gold will special protections. Altogether, the real returns
not help states if other market participants are on investments made by households and
themselves afraid of being shut out of the dollar corporations will go down. To see why this is,
system, because there will be no other party for consider what may happen to supply chains.
them to sell their reserves to. Cryptocurrencies Currently, most industrial companies and
are going to have to decide whether they will retailers source each key input or step in their
observe sanctions and thus lose some of their production processes from a single or handful of
users (who treat the currencies as a refuge) or separate places. There was a powerful economic
whether they will facilitate attempts to elude logic to setting up global supply chains this way,
sanctions, in which case governments are likely with relatively few redundancies: not only did
to shut down or marginalize them. The Chinese they save on costs by encouraging firms and
yuan will struggle to become a major alternative factories to specialize, they also increased the
to the dollar, even for economies in Beijing’s scale of production and provided local marketing
bloc. As long as China prevents people from and information advantages. But given the

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freely taking assets out of its domestic financial current geopolitical and pandemic realities, these
system, investors and even central banks that global value chains may no longer be worth the
adopt it would just be trading Washington’s risk of relying on specific choke points,
sanction threats for Beijing’s. Beijing could particularly if those points are in politically
work around this problem by making the yuan unstable or undependable countries.
freely convertible, rather than tightly controlled. Multinational companies, with government
But if that happened, the value of the yuan encouragement, will rationally insure against
would likely decline sharply for an extended problems by building redundant supply chains
period, as it did from 2015 to 2016, when China in safer locations. Like any form of insurance,
temporarily opened its capital account, because this will protect against some downside risk, but
billions of people who hold their savings in it will be a direct cost that yields no immediate
China are desperate to diversify their portfolios economic returns. Meanwhile, if Chinese and
by moving their assets elsewhere in pursuit of U.S. companies no longer face competition from
higher returns. China could, of course, become each other (or from companies outside their
the reserve currency for the small economies it economic bloc), they are more likely to be
dominates and for pariah states—countries with inefficient, and consumers are less likely to get
no real alternative. But this would do little to as much variety and reliability as they currently
diversify or create preferential returns for do. When that consumer is the government,
Chinese savings, and it could backfire by protected domestic firms are even more likely to
entangling China’s financial system in other engage in waste and fraud, because there will be
states’ financial instability. That does not mean less competition for government procurement
nothing will change financially. The more that contracts. Throw in nationalism and fears of
economic divisions are amplified by hard-power national security threats, and it will be easy for
divisions, the more that governments will align such companies to cloak themselves in
their financial systems with their primary patriotism and take it all the way to the bank,
military protector. Exchange-rate pegs tend to knowing that they are politically too big to fail.
follow military alliances (as I established in There is a reason why closed economies are more
2008). The world saw this throughout Africa, likely to experience corruption. The world will see
Latin America, and South Asia during the Cold lower growth and less innovation. Analysts can
War, as governments switched the focus of their already see this at work in seemingly patriotic
exchange-rate targets or currency pegs when commitments by President Joe Biden and former
realigning between the Soviet Union and the President Donald Trump about “onshoring”
United States. But although that may mean manufacturing—relocating the supply chains
some countries move in and out of the de facto that make U.S. goods so they take place in the
dollar zone, it will not create an alternative United States. They are using national security
currency that is attractive on its own terms. and pride to justify policies that shortchange
both national defense and the 85-plus percent of
COME UNDONE- The invasion and sanctions, U.S. workers not employed in heavy industry.
then, will not result in enormous financial The fetishizing of domestic manufacturing over

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advancing cross-border trade in services and Both of these investments will go a long way
networks is especially ironic, given that the toward ending Europe’s free-riding on the United
latter sectors are what has truly advantaged the States and China for growth; giving the global
West over Russia in implementing effective economy another engine will help balance out
sanctions, and what has deterred Chinese the ups and downs of the business cycle,
businesses from bailing Russia out. Similarly, stabilizing the world against recessions. It will
the corrosion of globalization will have negative also prevent the faster-growing economies from
consequences for technology. Innovation is running up foreign debt as they have when
faster and more common when the global pool Germany and other European surplus economies
of scientific talent is engaged and can exchange exported products but failed to consume. These
ideas and share proof, or disproof, of concepts. initiatives will, in particular, help the eurozone
But there is a politically compelling reason for itself. One of the primary causes of the euro
states to try to make sure that only allies have crisis a decade ago were the imbalances among
access to their technology, even if restrictions euro economies caused by German austerity. By
are of dubious military relevance (in a world of increasing German domestic demand, southern
cyberespionage, it is easy to acquire members of the eurozone will be able to work off
technological designs). The likely result will be a some of their debt through increased exports
decline in innovation, as U.S. and other rather than having to cut back wages and
Western research institutions deprive imports to make their payments. This should
themselves of many talented Chinese and strengthen the long-term viability of the euro, as
Russian students and scientists. The intensified well as increase its attractiveness to potential

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corrosion of globalization will further diminish new members in eastern Europe and reserve
the return on capital in the world economy, and managers around the world. A euro that is less
it will do so on every side of the economic divide. subject to internal tensions and worries will also
There will be new limits on where people can be of higher, more stable value, which in turn
invest their savings, driving down the range of will reduce trade tensions with the United States.
diversification and average returns. Fear and
nationalism will likely increase people’s desire AN INCONVENIENT TRUTH- Unfortunately, the
for safe investments at home, in government or Russian invasion will prove to be far less kind to
publicly backed securities. Governments will the developing world. Food and energy price
also combine national security arguments with hikes are already hurting the citizens of poorer
fiscal and financial stability measures designed states, and the economic impact of corroding
to strongly encourage investment in their own globalization will be even worse. If lower-income
public debt, as they do during wars. countries are forced to choose sides when
deciding where they get their aid and foreign
THE CONTINENTAL CONNECTION- There is direct investment, the opportunities for their
one beneficial economic side effect to the private sectors will narrow. Companies within
increasing global divisions: the European Union these countries will grow more dependent on
is being galvanized to unify more of its economic government gatekeepers at home and abroad.
policies. The bloc is putting up joint resources And as the United States and other countries
to share the financial burden of the massive increase their use of sanctions, firms will be less
Ukrainian refugee inflow coming into Poland likely be less likely to invest in these economies.
and other eastern members. European bonds Anxious multinational companies want to avoid
are being issued to pay for these measures, U.S. opprobrium, and so they will forego
rather than individual member state debts. The investing in places that they see as having
European Union or eurozone may issue more undependable transparency. The saddest part of
European public debt in the future, which this is that it comes on top of the world’s
would further help the global economy. The unequal response to COVID-19, in which high-
Russian invasion reinforces the fact that this is income countries did not provide enough
a world of low returns, and many investors have vaccines and medical supplies to the developing
a high desire for safety. By creating more safe world. This political disregard for the well-being
assets for them, the EU and eurozone can of low-income populations globally materially
absorb some risk-averse savings, improving changes the economic conditions on the ground.
financial stability. Stronger EU unity will also That in turn provides a commercial justification
create new opportunities for growth. Led by for the private sector not to invest in those
Germany’s Chancellor Olaf Scholz, almost every economies. The only way out of this cycle is
EU member has made a multiyear commitment through public investment and enforced, fair
to increased defense spending and a greater treatment. Division among the major economies,
public investment in rapidly reducing the however, is likely to make such investment in
continent’s dependence on Russian fossil fuels. the developing world insufficient, unreliable, and

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arbitrarily disbursed. Helping poor economies is PICKING UP THE PIECES- Stopping the
not the only long-term, development goal that corrosion of globalization was already difficult,
Russia’s invasion puts at risk. To survive, and the Russian invasion of Ukraine makes it
societies around the world will need to mitigate harder. As politicians in the United States and
and adapt to climate change, but the pivotal elsewhere spin false narratives about how
role of Russia and Ukraine in global energy economic openness is bad for workers, the
supplies sends out contradictory forces that will Russian invasion and the resulting sanctions
make the energy transition more challenging. push China and the United States further apart.
Simultaneously, Western politicians are calling But policymakers are not helpless. The financial
for moving away from greenhouse gasses and sanctions on Russia were so powerful because
advocating increased fossil fuel exploration they were imposed by a strong alliance of higher
outside Russia. States want to prevent price income democracies. If Australia, Japan, South
gouging, cut energy taxes, and compensate Korea, the United Kingdom, the United States,
households for higher gas prices, but they also the European Union, and other important
want to increase incentives to expand greener market economies can channel the same might
energy production and decrease consumption, they used to punish Russia toward helping the
which require higher prices. The tradeoffs economy, they can repair the erosion—perhaps
extend beyond climate change. Democracies encouraging China to stay connected as well. To
want to build alliances around liberal values do so, officials must pursue a wide range of
and freer markets, but to cut energy costs, they policies. They can start by making a common
are going to autocratic governments such as market among democracies that is as broad and

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Saudi Arabia and Venezuela, offering to deep as possible—including for goods, services,
legitimize their regimes in exchange for and even labor opportunities. They must create
increased oil supply. Underlying all this is an common standards for screening cross-border
inconvenient reality: to slow rising temperatures, private investment for national security and
the world needs international collective action, human rights reasons. They should create a
including from China. The alliance of relatively even playing field among allies that can
democracies cannot do it alone. The Chinese foster healthy competition, which would
and the U.S. governments have, at times, been diminish the worst side effects of economic
able to make joint progress on climate nationalism: corruption, the entrenchment of
initiatives even while being in conflict on other incumbents, and waste. Policymakers must also
issues, and both Chinese President Xi Jinping set up a sustained, multiyear public investment
and Biden have said they want to do so again. front across the Western alliance, which would
But it will get harder as each country retreats reduce imbalances between economies and raise
into a separate bloc. Meanwhile, as the overall returns on investment. The world’s
corrosion of globalization reduces the pace of democracies cannot reverse every corrosive
innovation by restricting research collaboration, division in the global economy caused by
it will also become more challenging for Russian aggression and China’s tacit approval.
scientists to come up with a deus ex machina They should not want to; some forms of violence
that can save the planet. must be met with economic isolation. But they
can make up for many of the losses, steadying
the planet in the process. (By Adam S. Posen,
March 2022)

THE HIDDEN THREAT TO GLOBALIZATION

Globalization has lost its shine in wealthy doubled in Japan and in the United States,
countries, particularly among low-skilled causing overall support for free trade to fall by
workers. From 2002 to 2018, for instance, more than ten percentage points in those
support for free trade fell significantly in Japan, countries. The rising opposition to free trade has
the United States, and many European fueled successful, inward-looking populist
countries, driven largely by rising hostility movements, most strikingly in the United
toward free trade among the poor and working Kingdom and the United States. The reasons for
classes. Among low-skilled workers in Italy, the growing hostility vary, but the most
opposition to free trade grew from nine percent politically potent charge is that globalization has
to 28 percent during that period, and it more hurt workers in rich countries in order to help
than tripled among the same group in France. those in poorer ones. Donald Trump, for example,
Disapproval among this demographic more than won the U.S. presidency in 2016 in part by

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arguing that Americans were losing their jobs to international investment are helping many
workers in China, India, and Mexico—what he poorer countries establish middle classes and
termed the “greatest job theft in the history of build robust domestic economies. To keep this
the world.” Marine Le Pen, currently polling system in place, however, countries will have to
second in France’s coming national election, make it more inclusive of low-skilled workers
declared during her 2017 campaign that trade everywhere—and especially in developing states.
with developing economies “has been
devastating to the French and European UNKEPT PROMISES- The global economic
industries” and has “led to the destruction of system was not designed with poor countries in
millions of European jobs.” It is true that trade mind. In the aftermath of decolonization, most
agreements have generated economic newly independent states preferred protectionist
opportunities in poor countries and have policies to economic integration with the rest of
sometimes created pockets of economic loss the world. Following its independence in 1947,
within wealthy states in the process. But there for instance, India raised tariffs and instituted
is something ironic about Western populists’ capital restrictions to promote local production.
complaints that globalization has hurt their Several countries in Latin America adopted
countries and helped poorer ones. If these import substitution industrialization policies in
leaders seriously examined how people in the 1960s and the 1970s, hoping that high
developing states felt about globalization, they tariffs and protectionism would create
would encounter a familiar situation. As we homegrown champions that could compete
have illustrated in a new study, differences globally. In the 1970s, East Asia’s then

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between support for globalization among high- industrializing countries, such as South Korea,
skilled and low-skilled workers—and gaps in the adopted similar measures under an export-
optimism the two groups feel about their oriented industrialization paradigm with more
prospects for upward mobility—have grown in success, creating domestic powerhouses that
poor countries as well as rich ones. As a result, spearheaded rapid, export-led growth. The
overall backing for economic integration is pressure to lower tariffs and open borders for
eroding. What accounts for the decline in Western capital, goods, and services came from
support for globalization and free trade even in Washington. Mired in debt and currency crises,
countries that seem to have the most to gain developing countries had little choice but to ask
from them? The answer is straightforward: even the U.S.-dominated International Monetary Fund
in the developing world, high-skilled employees for financial assistance. Help did not come cheap.
have benefited disproportionately from To get foreign investment, governments in
globalization, whereas much of the working developing countries had to swallow painful
class has missed out. Although policymakers conditions, pledging to divest from public-sector
promised that trade and international enterprises; reduce government spending,
investment would provide widespread upward especially on employment and social insurance;
mobility in developing countries, only a fraction and allow in more international competition.
of low-skilled workers have actually seen their India is a canonical case in point: a balance-of-
earnings meaningfully increase, and the payments crisis in 1991 forced the country to
disparity between what these workers expected adopt harsh austerity measures in exchange for
and what actually happened has generated IMF funding. To advance these difficult reforms,
growing disappointment. In some cases, it has leaders cultivated support from poor and
bred outright resentment. So far, the anger has working-class citizens, who had been largely
been most pronounced in wealthy countries, excluded from secure government employment
such as the United States. But if globalization and pensions. Globalization, policymakers
continues to disproportionately help the rich, promised, would mean more jobs, better wages,
the fierce backlash will inevitably spread to and greater consumer power for this silent
poorer states. This is an outcome that all majority. In 2001, responding to IMF demands,
countries should work to avoid. Irrespective of Indian Prime Minister Atal Bihari Vajpayee
what Trump, Le Pen, and other populists may proposed labor reforms that he argued would
claim, workers in rich economies have greatly make it easier for companies to lay off workers
benefited from globalized markets. By raising but would ultimately “protect Indian industries
manufacturing employment and wages over the and businesses by enabling them to become
last eight decades, trade fueled the United more competitive, more profitable, grow faster,
States’ rise to global hegemony in the first half and, hence, employ more people both directly
of the last century and allowed European states and indirectly.” (The reforms never went through
to rebuild their economies after two world wars. then, but some are being put in place passed
And despite their failure to distribute wealth now.) Nearly two decades later, Zimbabwean
broadly, policies that favor trade and President Emmerson Mnangagwa echoed that

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claim while selling his own painful agreement. Barriers to the flow of capital, goods, and
To help secure over $3 billion in foreign services across these borders ultimately
investment in early 2018, Mnangagwa enacted a undermine growth. If developing states do pull
variety of austerity measures, including cuts to back from the global economic order, it could
fuel and electricity subsidies. Many residents have disastrous consequences. A withdrawal, for
protested, but the president pledged that the example, would make today’s supply chain
tradeoff would be worth it. “We want this nightmares seem miniscule: without access to
country to move forward,” he said. “We want low-cost labor and materials, product prices
jobs for our children.” Initially, globalization would sharply increase, fueling worsening
delivered on these promises. Fresh foreign inflation. Decoupling the world’s economies
funds in developing countries created relatively would also slow job growth by making it more
well-paying jobs for a younger generation. difficult for businesses to expand their
Factories, information technology offices, and operations. This would, in turn, decrease
call centers began opening across the productivity, hinder innovation, and lower overall
developing world. And although not everyone economic growth in both rich and poor nations.
gained right away, workers still trapped in
poverty could reasonably dream that they would IF YOU CAN KEEP IT- Plenty of U.S. scholars
soon find better employment. In the meantime, and policymakers, especially those who closely
they could enjoy foreign-branded consumer followed Trump’s rise, are well aware that an
goods, which had become increasingly angry working class can threaten globalization’s
affordable and available in local stores. gains. To avoid drifting further into isolationism,

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Developing countries are willing to restrict many have argued that the United States must
access to their markets. But as time has passed, find new ways to share the upsides of trade with
optimism has begun to fade. Support for free its low-skilled workers. Some Europeans have
trade among the developing world’s low-skilled issued similar calls for their own countries. But
workers remains high, but it is clearly to safeguard globalization, rich countries can’t
decreasing. Among respondents in South Africa, just take action at home. They must also make
for example, support dropped from 88 percent sure that trade and foreign investment help poor
to 76 percent between 2002 and 2018. In Brazil, workers across the developing world. In some
it went from 84 percent to 68 percent. And in instances, that will require developed countries
Mexico, it fell by a sizable 20 percentage to provide greater access to their markets.
points—from 89 percent to 69 percent. Support Protectionism in agriculture among rich
also dropped in India, Pakistan, and other countries, for instance, has long made it
developing states. The story behind this challenging for less-skilled workers in poorer
disillusionment will be familiar to anyone who states to move up the economic ladder. The same
has read about left-behind manufacturing goes for protectionism in digital services and the
towns in the United States. The mechanisms intellectual property rights regimes in rich
are different: the angst in “middle America” is countries that lock in the advantages of U.S. and
for the factories that left, whereas in Brazil and European pharmaceutical giants. Both are areas
Nigeria, it is for the factories that never arrived. in which developing countries are becoming
But the process is the same. In both places, increasingly competitive, and rich countries
low-skilled workers have observed globalization could lift millions of people out of poverty at
without fully experiencing its gains. The longer home and abroad if they did not prevent these
this bait and switch persists, the more likely it sectors from experiencing healthy competition
is that protests will erupt, societal trust will from lower-cost producers. But policymakers in
drop, and frustrated citizens will elect the “global South” also need to act. Many
opportunistic populists who offer protectionism developing states have economic systems that do
as a panacea. Indeed, there are already signs far too little to help their low-skilled workers,
that developing countries are willing to restrict and their governments must make serious
access to their markets. Poor states are acting reforms. That means enacting and enforcing
aggressively to protect their digital interests; policies that bolster employee rights, penalizing
India, for example, is considering data companies when they violate environmental and
localization laws that would force companies to social obligations, and making innovative
store and process all data gained from Indians investments in education and training so that
within the country. Multiple states are passing workers can compete for better jobs—and, in so
laws that require multinational companies to doing, enjoy larger shares of the benefits that
invest in domestic brick-and-mortar operations come from foreign investment. Developing
in exchange for access to their consumer countries should also avoid protectionism,
markets. The political logic of such policies is including by not walling off their economies to
obvious, but the economic logic is unsound. outside technology businesses. Digital

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technology and data will help drive economic taking bold steps to counteract inequality. All 20
growth during the next several decades, and of the world’s largest economies, for example,
developing countries should not be left out. have now endorsed a minimum corporate tax—a
Fixing globalization requires international once unthinkable act of policy coordination that
collaboration. None of this will be easy. Global shows how countries can work together to create
democratic backsliding means that an a fairer society. States should make a similar
increasingly large number of politicians cannot effort across a range of other policy domains,
be held publicly accountable, and many of the especially worker protections. Policymakers
world’s leaders are minimally interested in could begin by requiring that firms receiving
helping the poor. Many countries are controlled government contracts honor collective-
by elites who actively redistribute wealth bargaining rights throughout their supply chains.
upward to the powerful, including into their Ultimately, the future of globalization may come
own pockets and those of their cronies. And down to whether leaders can recognize the stark
even when policymakers have the right consequences of failing in this fight and, hence,
institutional incentives, asking countries to the necessity of action. Fixing globalization
further open their markets is daunting in an era requires international collaboration. It demands
of nationalist backlash. Rich countries will that countries commit to difficult economic
especially struggle to expose their agricultural reforms and public investments even at the cost
systems to international competition given the of vested domestic interests. Otherwise, decades
political power of the farm lobbies. Poor of economic gains could melt away, as billions of
countries fear the wrath of small- and medium- the world’s poorest citizens watch their patient

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sized enterprises threatened by foreign dreams of prosperity evaporate. (By Niccolo W.
competition. Yet today’s international Bonifai, Irfan Nooruddin, and Nita Rudra,
community has proved that it is capable of December 3, 2021)

DEGLOBALIZATION IS NOT INEVITABLE

As trade officials gather on the calm shores of doomsayers. Of course, it is still too early to
Lake Geneva for the World Trade Organization’s evaluate the long-term effects of the recent
long-delayed 12th ministerial conference, a disruptions. For now, though, evidence suggests
perfect storm is brewing in the multilateral that global economic integration continues, even
trading system. The cumulative effects of the if it is slowing and changing. This evolution also
COVID-19 pandemic and the war in Ukraine means that traditional measurements of global
have led to prolonged supply chain disruptions, integration are becoming obsolete as value
global food shortages, and skyrocketing energy chains adapt to new realities. For instance, one
prices. These breakdowns of international trade historical metric of globalization is the ratio of
are causing some to proclaim the end of the era merchandise trade to global GDP, which
of globalization. Business and political leaders measures the relative importance of international
such as BlackRock CEO Larry Fink, European trade of goods in an economy. That ratio has
Central Bank President Christine Lagarde, and declined from its peak before the 2008 global
U.S. Treasury Secretary Janet Yellen are financial crisis, suggesting that globalization is
questioning the future of an integrated global indeed on the retreat. Yet the ratio of services
economy. They predict that the steps that firms trade to global GDP, which measures the relative
and governments are taking in response to the importance of international trade in services
current crises will effectively “deglobalize” the such as sales, marketing, management,
world economy: for instance, the business administration, engineering, and education, has
practice of “just-in-time” value chains that move increased during the last 15 years, fueled by the
materials across borders just before they are rapid growth of cross-border digital networks. At
needed could shift to a “just-in-case” model that the same time, the falling ratio of merchandise
focuses on maintaining large inventories to trade to global GDP should also come as no
safeguard against supply chain disruptions. surprise: the economic integration of China,
This also means that the offshoring of whose participation in global value chains was a
production to the most cost-effective location key driver of globalization over recent decades, is
could give way to so-called re-, near-, and facing diminishing returns. Moreover, China’s
friend-shoring: putting production in closer or economy is now undergoing a structural shift
friendlier destinations that align with the home toward domestic consumption and services.
country’s political values and lower a company’s China’s weighty role in the world economy masks
exposure to external risks. But there are good the fact that many other economies, such as
reasons to be skeptical of the globalization Bangladesh and Vietnam, are continuing to

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integrate ever more deeply into global value public health will require global cooperation, so
chains. Other factors also indicate that global the two sides will have to keep talking to each
economic integration is here to stay. Global other. What the former Australian Prime Minister
exports of goods and services, for example, are Kevin Rudd calls “managed strategic
still growing steadily in absolute terms. Even competition” will therefore predominantly play
bilateral trade between China and the United out in the economic domain, with significant
States, geopolitical rivals that are increasingly implications for the trading system. For example,
at odds, continues to reach record heights—in Beijing is pushing for greater internationalization
the face of a trade war and a pandemic, no less. of the renminbi to conduct more of its trade in a
Moreover, notwithstanding the political rhetoric currency that is independent of the U.S. dollar,
of their governments, many European and U.S. insulating it from U.S. economic weapons such
firms are doubling down on their investments in as sanctions. Both countries are building more
China. Other indicators point in a similar and more domestic capacity for critical supply
direction: both the DHL Global Connectedness chains in strategic sectors, such as
Index and the KOF Globalisation Index indicate semiconductors, to lessen their dependence on
that global integration is deepening in various the other. In the digital sphere, they are
economic, social, and political dimensions. In advancing different, if not opposite, visions of
the short run, there is, therefore, a discrepancy data governance, with the United States
between business realities and political advocating for the free flow of data and China
objectives: for the most part, discussion of so- seeking to stifle it. Recent technological
called decoupling is occurring in policy planning developments are also changing the nature of

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rooms, not corporate boardrooms. Such trade itself. The digital transformation, for
contradictions may expose the limits of instance, is redefining how business is
economic statecraft. This is not to say that the conducted across borders, and stay-at-home
political choice to curb further integration of the measures to fight the COVID-19 pandemic have
global economy will not have consequences, but only accelerated this change. More parcels are
for now, deglobalization is mostly a point of crossing borders than ever before as a result of
principle rather than of practice. Nonetheless, it the wider use of online platforms to buy and sell
is clear that the international trading system goods, shifting the relationship between
and the course of globalization are being put businesses and consumers toward digital
under pressure by new fault lines, namely, mediation and driving new global markets for
great-power competition, digital transformation, small and medium-sized businesses. The digital
inequality, fallout from the pandemic, and platform and app economies are creating
climate change. Given these rising challenges, international ecosystems with products such as
there are steps that the members of the World social networks and media streaming that were
Trade Organization must take to prevent inconceivable when WTO members began
deglobalization talk from becoming a reality. discussing the implications of electronic
commerce in the mid-1990s. Artificial
RETHINKING TRADE- The current upheavals intelligence applications such as machine
certainly have the potential to transform the translation and image recognition are generating
global economy. Perhaps most important, new efficiencies and value in cross-border
China’s rise and Russia’s invasion of Ukraine exchanges. Telework is changing global travel
are causing the geopolitical structure patterns and allows service providers in
underpinning global trade to undergo a developing countries to directly participate in the
dramatic shift. Although Russia may soon be world’s largest consumer markets. These
relegated to the sidelines, the rivalry between examples illustrate how digital trade across
the United States and China will continue to be borders is changing so quickly that it is
the most defining feature of international presenting the trading system with a range of
politics for years to come. In the face of thorny challenges, including consumer safety,
mounting tensions, Washington and Beijing are cybersecurity, ethics, competition policy, and
already trying to decouple sensitive segments of taxation. Although for many years the Internet
their economies to limit the availability of dual- was a self-regulated space, it has become subject
use technology—designs that can be used for to intergovernmental negotiations, such as the
both peaceful and military aims—for the other WTO’s Joint Statement on Electronic Commerce,
side. Countries and regions that have deep which seeks to develop global rules on digital
economic ties with both the United States and trade; digital trade chapters in regional trade
China, such as the European Union, are agreements such as the United States–Mexico–
increasingly caught in the middle. This rift, Canada Agreement; and new, stand-alone digital
however, is mitigated by the fact that major economy agreements, such as the Digital
global challenges such as climate change and Economy Partnership Agreement between Chile,

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New Zealand, and Singapore. But the and water-supply networks will dramatically
emergence of different models to govern the flow alter the nature of agricultural trade. Moreover,
and storage of data, which is crucial for digital the growing adoption by many governments of
services and other forms of trade, also suggests green energy production may well end by the
we are entering a new era in which globalization middle of the century the iron grip that fossil
occurs with firewalls. Amid growing fuels have long had over geopolitics, a
socioeconomic dislocation and political transformation that has the potential to shift
upheaval in many parts of the world, countries political alliances and reconfigure trade flows. In
will also need to reckon with the uneven the shorter run, policies to reduce greenhouse
distribution of the rewards of globalization—and gas emissions will not be contained by
come up with policies to address it. Increased international borders, and climate-conscious
trade boosts overall welfare but, by definition, governments may increasingly resort to carbon
produces winners and losers. To avoid social border adjustment mechanisms—which impose
disruptions, many countries liberalizing their a cost on carbon-intensive imports such as
economies therefore implement trade cement and steel—to avoid carbon leakage,
adjustment programs that provide aid to where actors outsource greenhouse gas
workers adversely affected by increased imports emissions to countries with lower production
or rely on social safety nets to compensate and standards. The many vulnerabilities created by
retrain employees. Although there is evidence continued globalization require firms and
that countries with more robust social safety governments to reprice the risks of international
nets are also more open to trade, it is also clear trade. They also pose new challenges for the

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that income inequality within many countries trading system, which was primarily built to
has increased during the last decades as address the negative effects of protectionism. To
economic integration has accelerated. What is survive in the twenty-first century, the
less clear, however, is how much of this multilateral order must learn to address the
inequality can be attributed to exposure to effects of precautionism—the desire by
foreign competition—the so-called China shock, consumers, firms, and governments to limit their
in which rising Chinese exports led to a loss of exposure to the risks from participation in the
manufacturing employment in high-income global economy.
countries—and how much of it can be
attributed to creative destruction from ESCAPING A SELF-FULFILLING PROPHECY-
technological change, in which more efficient This is where the members of the World Trade
economic structures supersede old ones. Organization can—and must—step in. The WTO
Regardless of the causes, a growing segment of is not a world government and cannot be
the public in many countries has come to view expected to solve all problems. At the same time,
trade as the main culprit behind inequality, an the WTO has played a crucial role in forging and
assumption that has fueled anti-trade underpinning the rules-based trading system
politicians, such as Donald Trump, who seek to that sustained globalization over the last three
reduce the exposure of their countries to the decades, a time during which global per capita
global economy. When the coronavirus sent the income almost doubled. Although the challenges
global economy into a tailspin, states took the world faces today may be unique, it is also
unprecedented steps to help their citizens and important to recall that political leaders and
businesses weather the pandemic. G7 policy experts have debated regionalization for as
economies, for example, put in place support long as the WTO has existed. The proliferation of
schemes amounting to $12 trillion, about one- regional trade agreements, expanding from 55 in
third of their combined GDP. These were, 1995 to 355 in 2022, seems to support the view
without a doubt, necessary and timely steps to that the system has been fragmenting for some
address the crisis. Some efforts, such as the time. However, at most one-third of world
EU’s State Aid Temporary Framework, were merchandise trade has preferential tariffs that go
specifically designed to avoid distortions to beyond the nondiscriminatory WTO rates, and
international competition. Nonetheless, given even the degree to which firms use these trade
the extraordinary size of the funds that preferences is an open question. As it stands, the
governments disbursed quickly, these efforts multilateral trading system therefore remains the
are certain to tilt the playing field and have an backbone of the globalized economy. Of course, if
impact on global trade, at least in the short to multilateral trade rules are not updated to
medium term. Finally, the climate crisis should address twenty-first-century challenges,
compel governments and policy experts to countries could increasingly fall back on the
fundamentally rethink how the trading system expanded network of regional trade agreements.
interacts with the environment. In the long run, But the economic inefficiencies that such
the impact of climate change on food production fragmentation entails would leave all WTO

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members worse off and hurt the poorest many countries for efforts to address carbon
countries the most. Managing the new fault leakage must induce reforms of the multilateral
lines of globalization will be a challenge—one trading system to bring it in line with the goals of
that WTO members must rise to meet. The 12th the Paris Agreement. In the absence of
ministerial conference will focus on fisheries meaningful reform, anti-trade political forces
subsidies and vaccine equity, which are may eventually succeed at tearing the integrated
important issues in their own right. But global economy apart. But for now, fears about
tackling these issues will not resolve the deeper deglobalization have little grounding in economic
structural challenges facing the multilateral reality, and the multilateral trading system
trading system. If WTO members want the continues to provide an important public good
current order to survive, they urgently need to that delivers substantial benefits to people
forge a shared understanding of how geopolitics, everywhere. At the same time, the current wave
technology, inequality, subsidies, and climate of inflation serves as a reminder that a less
change are affecting international trade. Many predictable and more volatile path of
things stand in the way of this goal: for one, it is globalization would come at a high economic and
an open question to what extent WTO members political cost to all. Recognizing this, WTO
can weaponize trade in the name of security, as members can take initial concrete steps that
in the case of Western sanctions against Russia, improve the governance of the institution and
without causing the system to implode on itself. could help them to tackle the more complex
Structural divisions between competing data- issues facing the multilateral trading system.
governance models present a challenge for a These include increased transparency; reform of

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plurilateral agreement on electronic commerce the WTO’s appellate body, its main dispute-
and may shift the locus for regulating digital settlement mechanism; a right of initiative for
trade elsewhere. So-called worker-centered the secretariat, which would empower WTO staff
trade policies must not ignore the fate of to develop constructive proposals; and more
workers in the developing world, or they could cooperation in plurilateral initiatives, such as the
end up fueling populist movements in some Trade and Environmental Sustainability
developing countries that undermine the rules- Structured Discussions, to build momentum on
based system even further. WTO members will collective initiatives that address the thorny
also need to find an arrangement that issues facing the global economy. The
accommodates the vastly expanded subsidies consequences of inaction are dire: if WTO
that many countries have been using to address members fail to move quickly, deglobalization
the economic impact of the pandemic, or risk a could become a self-fulfilling prophecy. (By
harmful subsidy race. Finally, uneven Pascal Lamy and Nicolas Köhler-Suzuki, June 9,
emissions and the growing political support in 2022)

GLOBALIZATION’S COMING GOLDEN AGE

The thought that trade and globalization might extrapolate and see a future of “nobalization”—
make a comeback in the 2020s, picking up globalization vanishing in a viral haze. Over the
renewed vigor after the pandemic, may seem past two centuries, the course of trade and
far-fetched. After all, COVID-19 is fragmenting globalization has been shaped by how
the world, destroying multilateralism, and governments and people have responded to such
disrupting complex cross-border supply chains. crises. Globalization comes in cycles: periods of
The virus looks like it is completing the work of increasing integration are followed by shocks,
the 2008 financial crisis: the Great Recession crises, and destructive backlashes. After the
produced more trade protectionism, forced Great Depression, the world slid into autarky,
governments to question globalization, nationalism, authoritarianism, zero-sum
increased hostility to migration, and, for the thinking, and, ultimately, war—a series of events
first time in over four decades, ushered in a often presented as a grim parable of the
sustained period in which global trade grew consequences of globalization’s reversal. Yet
more slowly than global production. Even then, history shows that many crises produce more,
however, there was no complete reversal or rather than less, globalization. Challenges can
deglobalization; rather, there was an uncertain, generate new creative energy, better
sputtering “slobalization.” In contrast, today’s communication, and a greater willingness to
vaccine nationalism is rapidly driving China, learn from effective solutions adopted elsewhere.
Russia, the United Kingdom, and the United Governments often realize that their ability to
States into open confrontation and sowing bitter competently deliver the services their
conflict within the EU. It is all too easy to populations demand requires answers found

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abroad. Modern globalization, for instance, shortages, which pushed up interest rates in the
began as a response to social and financial United Kingdom and France. This intensified a
catastrophes in the 1840s. The most recent manufacturing crisis—itself the result of a
wave of globalization followed scarring economic decline in purchasing power caused by surging
disruptions in the 1970s. In both cases, shocks food prices. Although the best solution was to
laid the foundation for new international sell more goods abroad, that would have
connections and solutions, and the volume of required governments to lower trade barriers and
world trade surged dramatically. The truth is open up their markets. These shortages
that historic ruptures often generate and generated popular demands for more competent
accelerate new global links. COVID-19 is no governments. Although it was only in 1981 that
exception. After the pandemic, globalization will the economist Amartya Sen’s pioneering work on
come roaring back. the 1943 great Bengal famine definitively showed
that famines are often manmade, that intuition
THE FIRST TIME AROUND The 1840s were a was already widely shared in the 1840s. John
disaster. Crops failed, people went hungry, Mitchel, an Irish nationalist who emigrated to
disease spread, and financial markets collapsed. the United States, concluded, “No sack of
The best-known catastrophe was the Irish Magdeburg, or ravage of the Palatinate, ever
potato famine, which began in 1845 and led to approached in horror and desolation to the
the deaths of nearly one million people, mostly slaughters done in Ireland by mere official red
from diseases caused by malnutrition. The tape and stationery, and the principles of
same weather that made potatoes vulnerable to political economy.” Governments everywhere

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fungal rot also led to widespread crop failures eventually responded to these demands. That
and famine across Europe. In The Communist meant learning from successful efforts elsewhere.
Manifesto, published in 1848, Karl Marx and The United Kingdom enacted a series of civil
Friedrich Engels articulated how global service reforms, adopting a competitive
integration was driving the world toward social examination process in place of arcane
and political upheaval. “The development of patronage. The most striking extension of state
Modern Industry,” they argued, “cuts from capacity, however, occurred across the English
under its feet the very foundation on which the Channel, where Louis-Napoléon, the nephew of
bourgeoisie produces and appropriates the emperor, was elected president of France in
products.” Europe was a tinderbox. In 1848, it 1848. After a coup and a series of plebiscites
ignited in an inferno of nationalist revolution, advertising his competence and activism,
with populations rising up in France, Italy, and Napoleon made himself president for life and,
central Europe. But the economic shock of the eventually, emperor—Napoleon III. His policies
1840s did not reverse the course of global were designed to show the benefits of an efficient
integration. Instead, trade expanded, autocrat over divided liberal regimes. He initiated
governments reduced tariff barriers, capital large-scale public works projects—including
mobility surged, and people moved across railroad expansions and Baron Haussmann’s
continents. Migration was not only a response famous rebuilding of Paris. Napoleon also
to social and political immiseration; it also demonstrated his competence by negotiating the
reflected the promise of new prosperity. Anglo-French tariff agreement of 1860, which
Historians now think of the second half of the reduced duties on important goods traded across
nineteenth century as the first age of the channel. Other countries quickly followed
globalization. Food shortages highlighted the suit and negotiated bilateral trade deals of their
need for broad and diversified supply chains, own across Europe. But even before 1860,
and leaders realized that a modern state needed improved communication and transportation
reliable access to supplies from beyond its meant commerce was surging: global trade in
borders. In the United Kingdom, the British goods accounted for just 4.5 percent of output in
government initially responded to the Irish 1846 but shot up to 8.9 percent in 1860. The
famine by importing corn from outside Europe. events of the 1840s also laid the foundation for a
At the time, The Economist argued that “except wave of institutional changes to address the
Russia, Egypt, and the United States, there are proliferation of small states with a limited ability
no countries in the world able to spare any to deal with migration. The creation of new
quantity of grain worthy of mention.” Historic nation-states with novel currencies and banking
ruptures often generate and accelerate new systems, notably Germany and Italy, and
global links. Imports, however, failed administrative reform in the Habsburg empire—
catastrophically. This was in part because the ending internal customs duties and serf labor—
new food was unfamiliar, but above all, it was were all designed to push economic growth. In
because London couldn’t work out how to pay this context, the American Civil War and the
for the goods. Trade deficits generated currency Meiji Restoration in Japan were also nation-

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building efforts meant to maximize the world saw its way of life threatened. Oil prices
effectiveness and capacity of institutions. The had been stable in the 1960s, but a surge in
abolition of slavery in the United States and demand taught producers that they could exploit
feudalism in Japan were profound social and control over the world’s most important
economic transformations. Both upheavals, commodity. Adding to the crunch, the first oil
moreover, led to monetary and banking reforms. shock, in 1973–74, was accompanied by a 30
Business competence was also newly in demand. percent rise in wheat prices, after the Soviet
In 1851, the United Kingdom celebrated its Union experienced poor harvests and bought up
industrial strength with the Great Exhibition— U.S. grain to compensate. Shortages reappeared.
an international fair intended to display British Some oil-importing countries imposed “car-free
ingeniousness and mechanical superiority, as days” as a way of rationing gasoline consumption.
well as the virtues of peaceful commerce. Some As states spent more on oil, grain, and other
of the most stunning products, however, were commodities, they found their balance of
neither British nor particularly peaceful— payments squeezed. Unable to afford vital goods
among them, the steel cannon, invented by a from abroad, governments had to make hard
German, Alfred Krupp, and the revolver, choices. Many floundered as they tried to ration
developed by an American, Samuel Colt. British scarce goods: mandating who could drive cars
observers saw continental Europeans catching when or struggling over whether they should pay
up and overtaking their own country. To the nurses more than teachers, police officers, or
British scientist Lyon Playfair, the exhibition civil servants. The immediate and instinctual
showed “very clearly and distinctly that the rate response to scarcity was protectionism. In the

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of industrial advance of many European nations, United Kingdom, where the balance-of-payments
even of those who were obviously in our rear, problem appeared earlier than elsewhere, the
was at a greater rate than our own.” He went on: government tried a domestic purchasing
“In a long race the fastest sailing ship will win, campaign, supported by all the major political
even though they are for a time behind.” The parties. Leaders encouraged citizens to wear
event taught world leaders a powerful lesson: stickers and badges with the Union Jack and the
international trade was vital for enhancing message “I’m backing Britain.” (The press
national performance. Competition was central magnate Robert Maxwell distributed T-shirts
to generating competence. The result was an with a similar slogan, but they turned out to be
abrupt psychological shift from catastrophism made in Portugal.) In the mid-1970s, after the
to optimism, and from despair to self-confidence. first oil shock, the government briefly flirted with
This new mood initiated the first wave of what the Labour Party’s left flank called a “siege
globalization—its so-called golden age, in which economy,” including extensive import restrictions.
international trade and finance expanded In the United States, there was acute anxiety
rapidly. Eventually, however, this optimism about Japanese competition, and in 1981,
gave way to complacency, then doubts about Washington pressured Tokyo to sign an
the benefits of globalization and increasing agreement that limited Japanese car exports.
disillusion among those left behind (notably The move backfired, however. Because of the
European farmers). The upswing came to an new restrictions, Japanese producers merely
end with World War I. That conflict prompted a shifted their focus away from cheap, fuel-efficient
massive international rebuilding effort that cars and toward luxury vehicles. Despite these
faltered bloodily with the rise of fascism in the gestures at economic nationalism, the oil
1930s and the advent of World War II. shock—paradoxically at first—created more
globalization. In conjunction with price increases,
A SHOCK TO THE SYSTEM- The makers of the a financial revolution driven by the emergence of
postwar settlement in 1945 had learned a great large international banks transferred huge
deal from the mistakes of the last century. They surpluses accumulated by oil producers into
created an extensive framework of international lendable funds. The new availability of money
institutions but left substantial economic made resources easily accessible for
control in the hands of national authorities. As governments all over the world that wanted to
a result, the end of World War II did not push development and growth. International
immediately unleash waves of capital mobility demand thus surged. In contrast, in the United
like those that had characterized the nineteenth Kingdom, Labour’s siege economy looked like it
century. Nearly three decades later, however, would cut off access to markets and prosperity.
the dilemmas raised by shortages and scarcity Familiar historical forces will drive post-
that had led to earlier versions of integration pandemic reglobalization. Thus, crises in the
finally returned—setting the stage for the 1970s led to the same realization as in the 1840s:
current era of globalization. In the 1970s, after openness produced resilience, and financing
two large oil price hikes, the industrialized needed to be available for trade to expand. The

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eventual impact was obvious: trade in goods abundance generates the impression that they
and services, which in 1970 had amounted to can have everything they want. Only gradually
12.1 percent of global GDP, increased to 18.2 do consumers realize that prices are rising and
percent by 1980. The cycle swung back to that their money buys less. In the 1850s,
globalization once again. Protectionism in the inflation may have been partially unintended. It
1970s also triggered a discussion of whether was largely the result of the 1849 California Gold
governments were handling the crisis Rush, which vastly increased the world’s gold
competently. At first, the debate was stock. Price increases were also driven by
personalized and highly caricatured: in the financial innovation, primarily Europe’s adoption
United States, it centered on Richard Nixon’s of new types of banking that drove money
crookery, Gerald Ford’s supposed inability to creation, such as the so-called crédits mobiliers,
chew gum and walk, or Jimmy Carter’s which developed industrial lending in France
micromanagement. In the United Kingdom, and central Europe. By giving people apparently
commentators focused on the detached greater wealth, this increase in the supply of
bachelor existence of Prime Minister Edward money (and the resulting mild inflation) helped
Heath and then on allegations of cronyism governments appear more competent and made
against his successor, Harold Wilson. France businesses and consumers more confident. It
went into the oil shock under the very sick prompted a genuine global surge in production,
President Georges Pompidou, who died of which generated greater prosperity and security.
cancer in 1974. In West Germany, the After 1971, when Nixon finally severed the link
revelation that Chancellor Willy Brandt’s closest between the dollar and gold, monetary policy was

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assistant was an East German spy undermined no longer constrained by a metallic standard. In
the country’s reputation for competence. His times of crisis, governments could now print
successor, Helmut Schmidt, believed that more money to drive growth. In many countries,
Germany was returning to the chaos of the the immediate response to oil price increases
interwar Weimar Republic. The many examples was therefore to accommodate the shock
of personal incompetence in rich industrial through expansive fiscal and monetary stimulus:
democracies generated the thesis that such people could still go on buying. That reaction
countries had become ungovernable. The spurred inflation, which by 1974 had risen to 11
political theorist Jean-François Revel concluded percent in the United States and beyond that in
that democracies were perishing and that the some other countries: in 1975, the United
Soviet Union was winning the Cold War. Kingdom’s inflation rate reached 24 percent.
Autocracies such as Chile under Augusto Although inflation initially seemed to be the
Pinochet and Iran under Mohammad Reza Shah solution to the scarcity problem, it soon
Pahlavi appeared better suited to handle appeared in diagnoses of government
modern global challenges. The autocrats incompetence. The economist Arthur Okun
lectured others about their superiority. In developed a popular “misery index” by simply
reality, however, they were bloody, corrupt, and, adding inflation and unemployment. The metric
in many cases, spectacularly unsuccessful. The became an important political weapon. The
real insight of the debate over administrative Democratic presidential challenger George
effectiveness was that governments could McGovern used it against Nixon in 1972, Carter
overstretch themselves by taking on too many used it against Ford in 1976, and Ronald Reagan
tasks. That realization inspired a key tenet of used it against Carter in 1980. High inflation at
what was later widely derided as “neoliberalism”: first superficially stabilizes societies, but over
the belief that if governments took on time, it becomes a threat. Inflation often pushes
microdecisions, such as determining wage and interest groups—internationally, producer
price levels (a central part of both Nixon’s and cartels such as OPEC, and domestically, labor
the British government’s bids to contain unions—to mobilize, organize, and lobby in the
inflation), they risked their legitimacy and hope of acquiring a greater share of monetary
reputation for competence. Official decisions and fiscal resources. Depending on the extent of
would appear both arbitrary and unenforceable that mobilization, it can pull societies apart, as
because powerful groups would quickly make unions leapfrog each other with aggressive wage
sure that new settlements favored their demands and inflation erodes the pay and
interests. pensions of the nonunionized and the retired. By
demonstrating that governments are vulnerable
INFLATION NATION- The shortages of the to organized pressure, inflation is thus a
1840s and the 1970s both seemed to have an destabilizing force in the long term. Indeed,
apparent cure: inflation. Inflation can help analysts have argued that it was at least in part
accommodate shocks, often painlessly. Because generalized international inflation in the 1960s
people have more cash or bank credit, monetary that pushed oil producers to organize—leading to

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the price hikes of the 1970s. Monetary Steel, too, is in short supply. Much as the crises
experiments of this sort created demands for in the 1840s and the 1970s did, the pandemic
new ordering frameworks. After the surge in has also raised questions of government
economic growth of the mid-nineteenth century, competence. At first, China seemed able to deal
the world internationalized the gold standard to with the crisis better than its Western
create a common framework for international competitors—its cover-up of the severity of the
payments. Although policymakers went a pandemic notwithstanding—which prompted
different route after the inflation and many observers to question whether democracies
liberalization of the 1970s, they were also were capable of swift, effective action. Donald
looking for a return to stability. To end the Trump’s presidency collapsed because of his
monetary disorder, central banks targeted a low chaotic handling of the crisis. British Prime
inflation rate, and governments engaged in new Minister Boris Johnson faced a revolt among
patterns of cooperation abroad—creating the G- conservative members of Parliament because of
5 and then the G-7 and the G-20 as forums for his complex, contradictory, and constantly
discussing collective responses to global shifting lockdown rules. The European
economic challenges. The quest for stability was Commission lost credibility because of its poor
also aided by the steady march of globalization. management of vaccine purchases. As in the
Greater global integration lowered production past, citizens personalized the incompetence.
costs and thus helped correct the inflationary Americans debated, for example, how much
surge that initially accompanied the shortage blame to put on Trump’s son-in-law, Jared
economy. Inflation, which first fueled Kushner, who led part of the response. In the

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globalization in the 1850s, was, by the end of United Kingdom, much of the outrage focused on
the twentieth century, eventually tamed by it. Dominic Cummings, the prime minister’s policy
adviser, who had violated the country’s lockdown
PAST AS PROLOGUE- Today, the COVID-19 rules. The challenge of the new upswing in the
pandemic has produced a deep economic crisis, cycle of globalization will be to find ways to learn
but it is different from many past ones. The and adapt. For other observers, the unifying
shock is not a demand-driven downturn, like theme behind the mismanagement was populism,
the Great Depression or the 2008 recession. with Trump, Johnson, Brazilian President Jair
Although lockdowns have interrupted supply Bolsonaro, Indian Prime Minister Narendra Modi,
and caused unemployment to soar, there is no and Philippine President Rodrigo Duterte all
overall shortage of demand. Large rescue and botching the response. But even in countries
stimulus packages in rich countries have where the crisis has been handled relatively well,
generated a financial buffer, and savings have there have been surges of protests against the
shot up as people spend less. The best estimate way governments have reacted to the pandemic.
is that in 2020, the United States piled up $1.6 In Germany, “alternative thinkers” protesting
trillion in excess savings, equivalent to seven new lockdown measures attacked the parliament
percent of GDP. People are waiting to unleash building in August 2020. Even in Japan, where
their pent-up purchasing power. On top of that, there is a long tradition of the use of face masks
finance ministers and international institutions as a hygiene measure, a movement calling itself
are listening to U.S. Treasury Secretary Janet the Popular Sovereignty Party organized “cluster
Yellen’s demand that “the time to go big is now” protests” again mask wearing. Given these
when it comes to fiscal relief. Yet the current challenges, it’s easy to assume that governments
crisis does share key characteristics with the and citizens alike would prioritize
crises of the 1840s and the 1970s. The world of nationalization—cultivating supposedly resilient
scarcity, for one thing, is already here. The domestic supply chains to hedge against the next
pandemic has led to shortages of medical crisis. But that’s unlikely to happen. Instead,
supplies such as face masks and glass vials for people are desperately looking for new leadership
vaccine storage. Food prices have soared to and new visions. As was true during previous
their highest level since 2014—the result of a supply shocks, leaders can make a good case for
combination of dry weather in South America the importance of foreign models: some countries
that has hurt wheat and soybean crops and have done much better than others in dealing
pandemic-induced shipping disruptions. In the with the health and economic consequences of
initial stages of the pandemic, laptops became COVID-19. Although some of these countries are
scarce as employees scrambled to update their small or relatively isolated, by most metrics, the
work-from-home setups. There is also a country with the most competent response was
worldwide chip shortage, as the demand for the biggest: China. That is not without irony, to
microprocessors in medical, managerial, and put it mildly: the country responsible for
leisure use has increased. Freight rates between unleashing the virus has also been a major
China and Europe quadrupled at points in 2020. beneficiary—with some states now looking to

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Beijing for leadership. But instead of traded internationally, by a multiplicity of
condemning China’s response or demanding suppliers. Governments and businesses also
reparations for the pandemic’s costs, other need to continuously innovate. As it did in the
countries should consider how to use Beijing’s 1840s, isolationism today would mean cutting off
example, just as the United Kingdom in the opportunities to learn from different experiments.
1850s realized that it could learn from foreign No single country, or its particular culture of
producers. science and innovation, was responsible for the
development of an effective COVID-19 vaccine—
NO SURPRISES- Familiar historical forces will one of the miracles of 2020. Success was the
drive post-pandemic reglobalization. In a world product of intense international collaboration.
facing enormous challenges, not just the This story of innovation also applies to
pandemic but also climate change, solutions are government competence. No state can succeed
global public goods. In 1945, the architects of alone. Even if one particular decision is by
the postwar order believed that peace and chance spectacularly successful—say,
prosperity were indivisible and could not be the Germany’s impressive testing record or the
property of one nation. Now, health and United Kingdom’s fast vaccine rollout—it is
happiness are the same. Both are impossible for usually difficult to repeat that success in other
individual states or regions to enjoy alone. policy areas. Policymakers may stride confidently
Technology is also transforming a globalizing past their first victory, only to slip on a banana
planet, as it did in the 1840s and the 1970s. In peel. The United States, in particular, may find
the mid-nineteenth century, the drivers were this a hard pill to swallow. Americans have long

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the steamship, the undersea cable, and the been attached to the idea of their country’s
railroad. In the last quarter of the twentieth superiority, akin to the belief held by the British
century, it was computing power: the first in the mid-nineteenth century. COVID-19, like
widely available personal computers appeared the 1840s famines and the 1970s oil shocks,
in the early 1980s. Today, data occupies the presents both a crisis and a learning opportunity.
same position—linking the world and offering The United States has coasted on the idea that
solutions to major problems, including the world needs the English language and the
government incompetence. New types of U.S. dollar. Neither of those assumptions can
information might help leaders attack some of hold forever. Just as automatic translation
the inequalities and injustices highlighted by technology is increasing linguistic accessibility, a
the COVID-19 pandemic. More automation different currency could become a new
might mean that machines can take on some of international standard. The dollar is not an
the repetitive and dangerous tasks performed adequate insurance policy or a viable basis for
by low-paid essential workers. Telemedicine and Washington to reject the need for change. The
data-driven public health can trigger faster and challenge of the new upswing in the cycle of
more precisely targeted pharmaceutical or globalization will be to find ways to learn and
medical interventions. As in past crises, there is adapt—increasing the effectiveness of
also an immediate and powerful global demand government and business—without
for cheap and reliable products. In the mid- compromising fundamental values. As in the
nineteenth century, it was foodstuffs, and in the 1840s and the 1970s, financial and monetary
1970s, it was oil and commodities. In the 2020s, innovation, or the tonic of inflation, will drive
it is medical supplies, data chips, and rare- transformational change. Memories of crisis will
earth metals. To be resilient to new shocks, push countries and governments to adapt in
these commodities need to be produced and 2021 and beyond, just as they have before. (By
Harold James, June 2021)
GLOBALIZATION’S WRONG TURN
Globalization is in trouble. A populist backlash, hyperglobalist path, requiring domestic
personifed by U.S. President Donald Trump, is economies to be put in the service of the world
in full swing. A simmering trade war between economy instead of the other way around. In
China and the United States could easily boil trade, the transformation was signaled by the
over. Countries across Europe are shutting creation of the World Trade Organization, in
their borders to immigrants. Even 1995. The WTO not only made it harder for
globalization’s biggest boosters now concede countries to shield themselves from international
that it has produced lopsided benefits and that competition but also reached into policy areas
something will have to change. Today’s woes that international trade rules had not previously
have their roots in the 1990s, when touched: agriculture, services, intellectual
policymakers set the world on its current, property, industrial policy, and health and

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sanitary regulations. Even more ambitious the 1990s. International institutions played their
regional trade deals, such as the North part, but hyperglobalization was more a state of
American Free Trade Agreement, took off mind than a genuine, immutable constraint on
around the same time. In finance, the change domestic policy. Before it came along, countries
was marked by a fundamental shift in had experimented with two very different models
governments’ attitudes away from managing of globalization: the gold standard and the
capital flows and toward liberalization. Pushed Bretton Woods system. The new
by the United States and global organizations hyperglobalization was closer in spirit to the
such as the International Monetary Fund and historically more distant and more intrusive gold
the Organization for Economic Cooperation and standard. That is the source of many of today’s
Development, countries freed up vast quantities problems. It is to the more flexible principles of
of short-term finance to slosh across borders in Bretton Woods that today’s policymakers should
search of higher returns. At the time, these look if they are to craft a fairer and more
changes seemed to be based on sound sustainable global economy.
economics. Openness to trade would lead
economies to allocate their resources to where THE GOLDEN STRAITJACKET: For roughly 50
they would be the most productive. Capital years before World War I, plus a brief revival
would flow from the countries where it was during the interwar period, the gold standard set
plentiful to the countries where it was needed. the rules of economic management. A
More trade and freer finance would unleash government on the gold standard had to fix the
private investment and fuel global economic value of its national currency to the price of gold,

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growth. But these new arrangements came with maintain open borders to finance, and repay its
risks that the hyperglobalists did not foresee, external debts under all circumstances. If those
although economic theory could have predicted rules meant the government had to impose what
the downside to globalization just as well as it economists would today call austerity, so be it,
did the upside. Increased trade with China and however great the damage to domestic incomes
other low-wage countries accelerated the decline and employment. That willingness to impose
in manufacturing employment in the developed economic pain meant it was no coincidence that
world, leaving many distressed communities the first self-consciously populist movement
behind. The financialization of the global arose under the gold standard. At the tail end of
economy produced the worst financial crisis the nineteenth century, the People’s Party gave
since the Great Depression. And after the crash, voice to distressed American farmers, who were
international institutions promoted policies of suffering from high interest rates on their debt
austerity that made the damage even worse. and declining prices for their crops. The solution
More and more of what happened to ordinary was clear: easier credit, enabled by making the
people seemed the result of anonymous market currency redeemable in silver as well as gold. If
forces or caused by distant decision- makers in the government allowed anyone with silver
foreign countries. bullion to convert it into currency at a set rate,
the supply of money would increase, driving up
Politicians and policymakers downplayed these prices and easing the burden of the farmers’
problems, denying that the new terms of the debts. But the northeastern establishment and
global economy entailed sacrificing sovereignty. its backing for the gold standard stood in the
Yet they seemed immobilized by these same way. Frustrations grew, and at the 1896
forces. The center-right and the centerleft Democratic National Convention, William
disagreed not over the rules of the new world Jennings Bryan, a candidate for the presidential
economy but over how they should nomination, famously declared, “You shall not
accommodate their national economies to them. crucify mankind upon a cross of gold.”
The right wanted to cut taxes and slash
regulations; the left asked for more spending on The gold standard survived the populist assault
education and public infrastructure. Both sides in the United States thanks in part to fortuitous
agreed that economies needed to be refashioned discoveries of gold ore that eased credit
in the name of global competitiveness. conditions after the 1890s. Nearly four decades
Globalization, exclaimed U.S. President Bill later, the gold standard would be brought down
Clinton, “is the economic equivalent of a force of for good, this time by the United Kingdom, under
nature, like wind or water.” British Prime the pressure of similar grievances. After
Minister Tony Blair mocked those who wanted effectively suspending the gold standard during
to “debate globalization,” saying, “you might as World War I, the United Kingdom returned to it
well debate whether autumn should follow in 1925 at its pre-war rate. But the British
summer.” Yet there was nothing inevitable economy was only a shadow of its pre-war self,
about the path the world followed beginning in and four years later, the crash of 1929 pushed

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the country over the edge. Business and labor participate in the world economy. Advanced
demanded lower interest rates, which, under economies used that freedom to regulate and tax
the gold standard, would have sent capital their economies as they wished and to build
fleeing abroad. This time, however, the British generous welfare states, unhindered by worries
government chose the domestic economy over of global competitiveness or capital fight.
the global rules and abandoned the gold Developing nations diversified their economies
standard in 1931. Two years later, Franklin through trade restrictions and industrial policies.
Roosevelt, the newly elected U.S. president, Domestic autonomy from global economic
wisely followed suit. As economists now know, pressures might sound like a recipe for less
the sooner a country left the gold standard, the globalization. But during the Bretton Woods era,
sooner it came out of the Great Depression. The the global economy was on a tear. Developed and
experience of the gold standard taught the developing economies alike grew at
architects of the postwar international economic unprecedented rates. Trade and foreign direct
system, chief among them the economist John investment expanded even faster, outpacing the
Maynard Keynes, that keeping domestic growth of world GDP. The share of exports in
economies on a tight leash to promote global output more than tripled, from less than
international trade and investment made the five percent in 1945 to 16 percent in 1981. This
system more, not less, fragile. Accordingly, the success was a remarkable validation of Keynes’
international regime that the Allied countries idea that the global economy functions best
crafted at the Bretton Woods conference, in when each government takes care of its own
1944, gave governments plenty of room to set economy and society.

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monetary and fiscal policy. Central to this
system were the controls it put on international BACK TO THE SPIRIT OF THE GOLD
capital mobility. As Keynes emphasized, capital STANDARD: Ironically, the hyperglobalists used
controls were not merely a temporary expedient the very success of the Bretton Woods system to
until financial markets stabilized after the war; legitimize their own project to displace it. If the
they were a “permanent arrangement.” Each shallow Bretton Woods arrangements had done
government fixed the value of its currency, but so much to lift world trade, investment, and
it could adjust that value when the economy living standards, they argued, imagine what
ran up against the constraint of international deeper integration could achieve. But in the
finance. The Bretton Woods system was process of constructing the new regime, the
predicated on the belief that the best way to central lesson of the old one was forgotten.
encourage international trade and long-term Globalization became the end, national
investment was to enable national governments economies the means. Economists and
to manage their economies. Bretton Woods policymakers came to view every conceivable
covered only international monetary and feature of domestic economies through the lens
financial arrangements. Rules for trade of global markets. Domestic regulations were
developed in a more ad hoc manner, under the either hidden trade barriers, to be negotiated
auspices of the General Agreement on Tariffs away through trade agreements, or potential
and Trade (GATT). But the same philosophy sources of trade competitiveness. The confidence
applied. Countries were to open up their of financial markets became the paramount
economies only to the extent that this did not measure of the success or failure of monetary
upset domestic social and political bargains. and fiscal policy. The premise of the Bretton
Trade liberalization remained limited to lowering Woods regime had been that the GATT and other
border restrictions—import quotas and tariffs— international agreements would act as a
on manufactured goods and applied only to counterweight to powerful
developed countries. Developing countries were
essentially free to do what they wanted. And protectionists at home—labor unions and firms
even developed countries had plenty of serving mainly the domestic market. By the
flexibility to protect sensitive sectors. When, in 1990s, however, the balance of political power in
the early 1970s, a rapid rise in garment imports rich countries had swung away from the
from developing countries threatened protectionists toward exporter and investor
employment in the developed world, developed lobbies. The trade deals that emerged in the
and developing nations negotiated a special 1990s reflected the strength of those lobbies. The
regime that allowed the former to reimpose clearest illustration of that power came when
import quotas. Compared with both the gold international trade agreements incorporated
standard and the subsequent domestic protections for intellectual property
hyperglobalization, the Bretton Woods and rights, the result of aggressive lobbying by
GATT rules gave countries great freedom to pharmaceutical firms eager to capture profits by
choose the terms on which they would extending their monopoly power to foreign

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markets. To this day, Big Pharma is the single than squelching it. The way to achieve that,
largest lobby behind trade deals. International however, is not to further open markets and
investors also won special privileges in trade tighten global rules on trade and investment.
agreements, allowing them (and only them) to Barriers to trade in goods and many services are
directly sue governments in international already quite low. The task is to ensure greater
tribunals for alleged violations of their property popular support for a world economy that is
rights. Big banks, with the power of the U.S. open in essential respects, even if it falls short of
Treasury behind them, pushed countries to the hyperglobalist ideal. Building that support
open up to international finance. Those who lost will require new international norms that expand
out from hyperglobalization received little the space for governments to pursue domestic
support. Many manufacturing-dependent objectives. For rich countries, this will mean a
communities in the United States saw their jobs system that allows them to reconstitute their
shipped off to China and Mexico and suffered domestic social contracts. The set of rules that
serious economic and social consequences, permit countries to temporarily protect sensitive
ranging from joblessness to epidemics of drug sectors from competition badly needs reform. For
addiction. In principle, workers hurt by trade example, the WTO allows countries to impose
should have been compensated through the temporary tariffs, known as antidumping duties,
federal Trade Adjustment Assistance program, on imports being sold by a foreign company
but politicians had no incentives to fund it below cost that threaten to harm a domestic
adequately or to make sure it was working well. industry. The WTO should also let governments
Economists were brimming with confidence in respond to so-called social dumping, the practice

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the 1990s about globalization as an engine of of countries violating workers’ rights in order to
growth. The game was to encourage exports and keep wages low and attract production. An anti-
attract foreign investment. Do that, and the socialdumping regime would permit countries to
gains would prove so large that everyone would protect not merely industry profits but labor
eventually win. This technocratic consensus standards, too. For developing countries, the
served to legitimize and further reinforce the international rules should accommodate
power of globalizing corporate and financial governments’ need to restructure their
special interests. An important element of economies to accelerate growth. The WTO should
hyperglobalist triumphalism was the belief that also loosen the rules on subsidies, investment,
countries with different economic and social and intellectual property rights that constrain
models would ultimately converge, if not on developing countries’ ability to boost particular
identical models, at least on sufficiently similar industries. If China and the United States are to
market economy models. China’s admission to resolve their trade conflict, they need to
the WTO, in particular, was predicated on the acknowledge that the differences between their
expectation in the West that the state would economies are not going away. The Chinese
give up directing economic activity. The Chinese economic miracle was built on industrial and
government, however, had different ideas. It saw financial policies that violated key tenets of the
little reason to move away from the kind of new hyperglobalist regime: subsidies for
managed economy that had produced such preferred industries, requirements that foreign
miraculous results over the previous 40 years. companies transfer technology to domestic firms
Western investors’ complaints that China was if they wanted to operate in China, pervasive
violating its WTO commitments and engaging in state ownership, and currency controls. The
unfair economic practices fell on deaf ears. Chinese government is not going to abandon
Regardless of the legal merits of each side’s case, such policies now. What U.S. companies see as
the deeper problem lay elsewhere: the new trade the theft of intellectual property is a time-
regime could not accommodate the full range of honored practice, in which a young United
institutional diversity among the world’s largest States itself engaged back when it was playing
economies. catch-up with industrializing England in the
nineteenth century. For its part, China must
A SANER GLOBALIZATION: Policymakers can realize that the United States and European
no longer resuscitate the Bretton Woods system countries have legitimate reasons to protect their
in all its details; the world can’t (and shouldn’t) social contracts and homegrown technologies
go back to fixed exchange rates, pervasive from Chinese practices. Taking a page from the
capital controls, and high levels of trade U.S.-Soviet relationship during the Cold War,
protection. But policymakers can draw on its China and the United States should aim for
lessons to craft a new, healthier globalization. peaceful coexistence rather than convergence. In
Trump’s in-your-face unilateralism is the wrong international finance, countries should reinstate
way forward. Politicians should work to revive the norm that domestic governments get to
the multilateral trade regime’s legitimacy rather control the crossborder mobility of capital,

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especially of the short-term kind. The rules confer benefits on others but because trade
should prioritize the integrity of domestic creates gains at home. When those gains are
macroeconomic policies, tax systems, and distributed fairly throughout the domestic
financial regulations over free capital flows. The economy, countries don’t need external rules to
International Monetary Fund has already enforce openness; they’ll choose it of their own
reversed its categorical opposition to capital accord. A lighter touch may even help
controls, but governments and international globalization. After all, trade expanded faster
institutions should do more to legitimize their relative to global output during the three and a
use. For example, governments can make their half decades of the Bretton Woods regime than it
domestic economies more stable by using has since 1990, even excluding the slowdown
“countercyclical capital regulation,” that is, following the 2008 global financial crisis.
restricting capital inflows when the economy is Countries should pursue international
running hot and taxing outflows during a agreements to constrain domestic policy only
downturn. Governments should also crack when they’re needed to tackle genuine beggar-
down on tax evasion by the wealthy by thy-neighbor problems, such as corporate tax
establishing a global financial registry that havens, economic cartels, and policies that keep
would record the residence and nationality of one’s currency artificially cheap. The current
shareholders and the actual owners of financial system of international rules tries to rein in
assets. Left to its own devices, globalization many economic policies that don’t represent true
always creates winners and losers. A key beggar-thy-neighbor problems. Consider bans on
principle for a new globalization should be that genetically modified organisms, agricultural

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changes in its rules must produce benefits for subsidies, industrial policies, and overly lax
all rather than the few. Economic theory financial regulation. Each of these policies could
contributes an important idea here. It suggests well harm other countries, but the domestic
that the scope for compensating the losers is economy in question will pay the bulk of the
much greater when the barrier being reduced is economic cost. Governments adopt such policies
high to begin with. From this perspective, presumably because they think the social and
whittling away at the remaining, mostly minor political benefits are worth the price tag. In any
restrictions on trade in goods or financial assets individual case, a government might well be
does not make much sense. Countries should wrong. But international institutions aren’t likely
focus instead on freeing up cross-border labor to be better judges of the tradeoffs—and even
mobility, where the barriers are far greater. when they’re right, their decisions will lack
Indeed, labor markets are the area that offers democratic legitimacy. The push into
the strongest economic case for deepening hyperglobalization since the 1990s has led to
globalization. Expanding temporary work visa much greater levels of international economic
programs, especially for low-skilled workers, in integration. At the same time, it has produced
advanced economies would be one way to go. domestic disintegration. As professional,
corporate, and financial elites have connected
Proposing greater globalization of labor markets with their peers all over the globe, they have
might seem to fly in the face of the usual grown more distant from their compatriots at
concern that increased competition from foreign home. Today’s populist backlash is a symptom of
workers will harm low-skilled workers in that fragmentation. The bulk of the work needed
advanced economies. And it may well be a to mend domestic economic and political
political nonstarter in the United States and systems has to be done at home. Closing the
western Europe right now. If governments aren’t economic and social gaps widened by
proposing to compensate those who lose out, hyperglobalization will require restoring primacy
they should take this concern seriously. But the to the domestic sphere in the policy hierarchy
potential economic gains are huge: even a small and demoting the international. The greatest
increase in cross-border labor mobility would contribution the world economy can make to this
produce global economic gains that would dwarf project is to enable, rather than encumber, that
those from the completion of the entire current, correction. (By Dani Rodrik, July 2019)
long-stalled round of multilateral trade
negotiations. That means there’s plenty of scope
for compensating the losers—for example, by
taxing increased cross-border labor flows and
spending the proceeds directly on labor-market
assistance programs. In general, global
governance should be light and flexible,
allowing governments to choose their own
methods of regulation. Countries trade not to

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CHAINED TO GLOBALIZATION
In 1999, the columnist Thomas Friedman what might be called “chained globalization.”
pronounced the Cold War geopolitical system Under chained globalization, states will be bound
dead. The world, he wrote, had “gone from a together by interdependence that will tempt
system built around walls to a system them to strangle their competitors through
increasingly built around networks.” As economic coercion and espionage, even as they
businesses chased efficiency and profits, try to fight off their rivals’ attempts to do the
maneuvering among great powers was falling same. In some ways, chained globalization
away. An era of harmony was at hand, in which makes the Cold War seem simple. The economies
states’ main worries would be how to manage of the Western and Soviet camps shared few
market forces rather than one another. points of contact and thus offered few
Friedman was right that a globalized world had opportunities for economic coercion (and
arrived but wrong about what that world would policymakers on both sides came to understand
look like. Instead of liberating governments and the existential danger of nuclear weapons and
businesses, globalization entangled them. As developed strategies for limiting it). The situation
digital networks, financial flows, and supply today is far messier. The world’s powers are
chains stretched across the globe, states— enmeshed in financial, trade, and information
especially the United States—started treating networks that they do not fully understand,
them as webs in which to trap one another. raising the risk of blunders that could set off

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Today, the U.S. National Security Agency lurks dangerous conflicts. Accepting and
at the heart of the Internet, listening in on all understanding the reality of chained
kinds of communications. The U.S. Department globalization must be the first step toward
of the Treasury uses the international financial limiting those risks. Policymakers cannot cling to
system to punish rogue states and errant fantasies of either decoupled isolation or benign
financial institutions. In service of its trade war integration. Like it or not, the United States is
with China, Washington has tied down massive bound to its competitors. Since it cannot break
firms and entire national economies by those bonds, it must learn to master them.
targeting vulnerable points in global supply
chains. Other countries are in on the game, too: BOTTLENECKS AND BLOCKAGES- For decades,
Japan has used its control over key industrial commentators understood globalization as a
chemicals to hold South Korea’s electronics natural extension of market freedoms. To the
industry for ransom, and Beijing might extent that international economic networks
eventually be able to infiltrate the world’s 5G would lead to disagreements, the thinking ran,
communications system through its access to those squabbles would lie largely between the
the Chinese telecommunications giant Huawei. groups that benefited from open markets and
those that opposed them. But that line of
Globalization, in short, has proved to be not a thinking missed the fact that globalization itself
force for liberation but a new source of would also allow for a new kind of conflict. As
vulnerability, competition, and control; the world’s economic and information networks
networks have proved to be less paths to expanded, many of them coalesced around single
freedom than new sets of chains. Governments points of control, and some states learned to
and societies, however, have come to wield those hubs as weapons against their
understand this reality far too late to reverse it. competitors. Among the first networks to
In the past few years, Beijing and Washington undergo such a transformation was the system
have been just the most visible examples of underpinning international financial
governments recognizing how many dangers transactions. In the 1970s, the Society for
come with interdependence and frantically Worldwide Interbank Financial
trying to do something about it. But the Telecommunication (SWIFT) network made it
economies of countries such as China and the easier to route transactions through banks
United States are too deeply entwined to be around the world, and the dollar clearing system
separated—or “decoupled”—without causing allowed those banks to reconcile torrents of
chaos. States have little or no ability to become payments denominated in U.S. dollars. Once
economically self-reliant. Hawks in Beijing and both banks and individuals had accepted this
Washington may talk about a new Cold War, new messaging system, international exchanges
but there is today no way to split the world into became even more dependent on a single
competing blocs. Countries will remain currency—the U.S. dollar—granting Washington
entangled with one another, despite the dangers additional leverage over the global financial
that their ties produce—bringing a new era of system. International supply chains were next.

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In the 1980s and 1990s, electronics companies from selling to Huawei the
manufacturers began to outsource production sophisticated semiconductors that it cannot
to specialized firms such as Foxconn, creating easily acquire elsewhere. The Chinese
supply chains with tens or even hundreds of government has responded to those moves by
suppliers. Then, in the first decade of this threatening to blacklist U.S. firms such as FedEx
century, cloud computing began to centralize and companies based in countries allied with
key functions of the Internet in systems Washington, such as the British bank hsbc.
maintained by a few large firms, such as Even if the Trump administration eases up on
Amazon and Microsoft. In each case, money, Huawei as part of a trade deal with Beijing, a
goods, and information passed through bipartisan coalition in Congress will likely try to
essential economic hubs. A few privileged undermine those concessions.
powers ruled over those hubs, gaining the
chance to exclude others or to spy on them. The Europe has also been drawn into a fight over
United States saw those opportunities before networks, in part as a result of the United States’
most other countries did, thanks to the fact that campaign against Iran. Ever since 2018, when
so many networks lay within its reach. Since the United States pulled out of the international
the attacks of September 11, 2001, the agreement limiting Iran’s nuclear activities, it
Treasury Department has used the world’s has used its control of the dollar clearing system
reliance on the U.S. dollar to turn the global to limit Iran’s access to global financial resources
financial system into a machinery of control, and has threatened to sanction European firms
freezing out rogue actors such as al Qaeda and that do business with Iran. European

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North Korea and using the threat of sanctions governments worry that such measures are a
to terrify banks into advancing its goals. The prelude to a wider campaign of U.S. coercion.
National Security Agency has transformed the After all, the economic cost that isolating Iran
Internet into an apparatus of global surveillance imposes on European countries pales in
by tapping into the networks of comparison to the damage that would follow if
telecommunications providers such as AT&T the United States used similar tactics to force
and Verizon and running clandestine programs them to decouple from Russia, by, for example,
that can identify communications chokepoints making it harder for them to obtain Russian
and exploit them against both adversaries and natural gas and other raw materials. Some
allies. Until recently, other states struggled to European policymakers are thinking about how
keep up. China, a latecomer to the globalized to play defense. One option would be to turn the
economy, could respond to perceived slights United States’ economic ties with Europe against
only by locking transgressors out of its valuable it by withdrawing U.S. companies’ rights to
domestic market. And although the European operate in the EU if they comply with U.S.
Union played a significant role in global sanctions that harm EU members. Smaller
economic networks, it lacked the kind of powers are also joining the fray. Japan, incensed
centralized institutions, such as the U.S. by rulings from South Korean courts that have
Treasury Department’s Office of Foreign Assets criticized Japanese companies for their use of
Control, that Washington had been able to forced labor during World War II, threatened in
convert into instruments of power. July to strangle the South Korean technology
industry by restricting Japanese exports of the
Driven by both fear and opportunism, however, specialized chemicals on which major South
China is now insulating itself from networked Korean firms, such as Samsung, rely. South
attacks and building networks of its own to turn Korea responded by threatening to stop
against its rivals. Take Huawei, which seeks to exporting the heating oil that Japanese homes
build the world’s 5G communications network and businesses count on each winter. The
with the tacit support of Beijing. If Huawei dispute has highlighted the power states can
comes to dominate global 5G, the Chinese wield when they target a crucial link in
government could exploit its access to the firm transnational supply chains.
to tap into communications around the world,
using its new powers over the network against CHAIN REACTIONS- In this landscape, blunders
its rivals. Or to put it another way: China could could set off escalatory spirals, and mutual
do to the United States what the United States suspicion could engender hostility. By targeting
has already been doing to China. That explains a firm with an unexpectedly crucial role in a
why Washington has worked so hard to broader industrial network, for instance, a
frustrate Huawei’s ambitions. The Trump government could mistakenly generate
administration has barred Huawei from U.S. widespread economic damage—and trigger
markets, lobbied U.S. allies to shun the retaliation from other states in turn. As global
company’s 5G infrastructure, and forbidden U.S. networks grow thanks to developments such as

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the so-called Internet of Things, such dangers oligarch Oleg Deripaska and his vast aluminum
will grow, as well. Accordingly, it is not empire, it apparently failed to realize that doing
surprising that countries want to free so would produce chaos in the car and airplane
themselves from chained globalization by manufacturing supply chains that relied on
smashing its links. U.S. commentators speak of products made by Deripaska’s businesses. (After
a great decoupling from the Chinese economy, lobbying by European companies and
only vaguely understanding what such a governments, the Trump administration delayed
rupture might involve. China, for its part, is enforcement of the sanctions and then unwound
pouring resources into an indigenous them entirely.) As less savvy governments seek to
semiconductor industry that would protect it bend networks to their own ends, the risks of
from U.S. threats. South Korea has sought to such blunders will grow. To avoid such problems,
build up its own chemical sector in order to policymakers need to understand not just how
lessen its dependence on Japan. Russia, the world’s networks function but also how each
meanwhile, has embarked on a quixotic project of them connects to the others. And because
to create what it calls a “sovereign Internet”: one government agencies, international organizations,
that could prevent perceived foreign meddling and businesses have only incomplete, scattered
and let Moscow monitor the communications of maps of those relationships, Washington must
its own citizens. In a few areas, some degree of do the hard work itself. That will require making
insulation might be possible. When it comes to massive investments in parts of the federal
defense procurement, for example, countries bureaucracy that have withered in recent
can increase their autonomy by rerouting parts decades, as neoliberal, pro-market views took

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of their supply chains to minimize the risks of hold and regulation and oversight fell out of
spying and sabotage. The United States has favor. The government’s broad goal should be to
already made changes to limit the ability of break down the traditional barriers between
China to compromise its military technology; economic and security concerns. The Commerce
among other things, it has identified companies Department could be expanded to deal with
with connections to the People’s Liberation security issues, for instance, or the Pentagon
Army and cut them out of its military’s supply could take a newfound interest in the private
chains. Other countries will surely follow suit. sector outside the defense industry. Congress,
Except in the case of total war, however, for its part, could reestablish its Office of
governments will find it impossible to re-create Technology Assessment, which was shut down
the separate national economies that prevailed as a result of partisan disputes in the 1990s, to
before the advent of globalization. After all, study emerging technologies and how to manage
today’s states do not simply make use of them. Finally, the government should establish
worldwide financial systems, manufacturing specialized agencies to study threats related to
supply chains, and information networks: they specific networks, such as global supply chains,
rely on them. Washington may be able to drawing on information from across the
reshape its military procurement, but it would government and the private sector. In the U.S.
set off massive resistance and economic chaos if Cybersecurity and Infrastructure Security
it tried to remake the consumer economy along Agency, policymakers have a valuable model.
similar lines, since that would overturn entire Next, regulators will have to intervene in the
industries and vastly increase prices for economy more deeply than they have in decades.
ordinary people. Washington has already taken a useful step in
this direction through its reforms to the process
THE TIES THAT BIND- Instead of withdrawing run by the Committee on Foreign Investment in
from global networks, the United States must the United States, or CFIUS, which examines the
learn to live with them. Doing so will give the security implications of foreign capital flows
United States new powers and generate entering the United States. In 2018, Congress
enormous vulnerabilities, and policymakers will passed bipartisan legislation calling for the
need to carefully manage both. U.S. officials Department of Commerce to reevaluate the
must remember that willfully trapping its rivals licensing requirements for firms working in a
in U.S.-dominated financial and information variety of high-tech fields, including artificial
systems could provoke a backlash, encouraging intelligence and machine learning. Congress has
other states to enmesh the United States in nets also pushed the Trump administration to revive
of their own—or encouraging them to slip out of a long-dormant law requiring U.S. officials to
the country’s grasp for good. Washington also identify Chinese military companies and groups
has to worry about other kinds of unintended operating in the United States. Other
consequences. For example, in April 2018, governments are following Washington’s lead.
when the Treasury Department announced that The EU is rolling out its own process to
it would impose sanctions on the Russian scrutinize foreign investments, and some EU

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officials are debating whether to impose control systems, those hubs let the states that
restrictions on the bloc’s ties with China in control them exercise enormous offensive and
sensitive areas, such as defense technology, defensive power. That is why China’s efforts to
energy infrastructure, media, and use Huawei to topple the United States’ control
telecommunications. But scrutinizing foreign over global telecommunications are so
investments is not enough. U.S. regulators provocative. For its part, the United States needs
should also seek to protect sensitive domestic to recognize that its attempts to weaponize the
markets from foreign exploitation. In some world’s financial and information networks
sectors, Washington will need to restrict access threaten others and moderate its behavior
to trusted groups. Policymakers could make it accordingly. Restraint will not just encourage
harder for U.S. adversaries to use social media stability; it will also serve the country’s own
to undermine the country’s political system by, narrow interests. U.S. policymakers should
for instance, banning on those platforms remember that their punitive measures can
political advertisements that target narrow encourage states to defect to networks beyond
demographic groups. In other cases, the Washington’s control, stripping the United States
government may need to go further. By building of important sources of leverage. Take President
redundancies at key points in the country’s Donald Trump’s October 2019 threat to “destroy
critical infrastructure— such as its Turkey’s economy” through financial sanctions
telecommunications, electricity, and water and tariffs if Turkish forces overstepped in some
systems— policymakers could help those unspecified way in their invasion of northeastern
networks survive outside attacks. Finally, Syria. At the time, Turkey had already begun to

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governments need to learn to talk to one lay the groundwork to insulate some of its
another in new ways. During the Cold War, the international financial transactions from the U.S.
Soviet Union and the United States established dollar and the dollar clearing system by
a shared vocabulary to avoid crises, drawing on embracing Russia’s alternatives to the SWIFT
the work of scholars in a variety of fields who system. Even though Trump’s threat was quickly
had developed concepts such as mutual withdrawn, it surely unsettled Turkish leaders,
assured destruction and second-strike who feared that Congress might press for more
deterrence. Today, China, the United States, the substantial and long-lasting sanctions. And
EU, and other powers need to do something although Turkey or other midsize powers will
similar. Academics can play an important role probably not cut themselves off from the U.S.-
in building that new vocabulary, much as they dominated financial system, they certainly could
did during the Cold War. But they can do so persuade their banks to make greater use of
only if they break out of the confines of their networks that are beyond Washington’s grasp.
disciplines by homing in on the intersections of The United States should not use such tactics
economic and security concerns and by working against China, Russia, or other major powers
with the specialists who understand the except under extraordinary circumstances, since
technical underpinnings of global networks. those countries might respond to economically
Most national security experts know little about crippling attacks not just with economic
the infrastructure that supports the Internet. If measures but also with military force. States
they worked with engineers to understand those should work to make their decisions transparent
systems, protecting them would be easier. and predictable. Today, as in the nuclear era,
mixed signals could lead to catastrophic
EASING THE TENSIONS- A common language consequences. The United States’ recent inability
should be a first step toward common rules. to decide whether its sanctions against Iran were
Developing such rules of the road won’t be easy, meant to change that country’s behavior or its
since networked conflict and its consequences regime may have empowered Iranian radicals
are messy and unpredictable. And whereas the who were eager to retaliate by threatening
tacit rules of the Cold War were developed regional shipping lanes and U.S. allies. To
mostly by politicians, military leaders, and reduce the chances of mistaken escalations, the
nuclear physicists, their twenty-first-century United States and other powers should use
equivalents will necessarily involve the rules-based structures akin to CFIUS to decide
participation of a broader and more when to take offensive and defensive steps, and
quarrelsome set of communities, including not they should broadcast those choices clearly. The
just state officials but also businesses and United States must also avoid overreacting to
nongovernmental organizations. Governments other countries’ efforts to make themselves less
should tread carefully around others’ network vulnerable to chained globalization: China’s
hubs, such as the swift system or the essential investments in its semiconductor sector,
focal points of the world’s telecommunications Russia’s development of alternatives to global
architecture. Much like nuclear command-and financial networks, EU members’ efforts to

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insulate their firms from U.S. overreach. Just as the United States manage the risks of chained
it did after other countries acquired nuclear globalization, even as Washington reaps its
weapons without that leading to war, benefits. Failing to do so would plunge the
Washington must now recognize that it can United States into a more dangerous world, one
benefit when other states take steps to feel in which the ties of economic interdependence do
secure. The broader lesson of the nuclear era is not just constrain U.S. interests—they choke
that existential dangers do not have to be them. (By Henry Farrell and Abraham L.
paralyzing. Indeed, careful planning can help Newman, February 2020)

THE MYTH OF THE GLOBAL

A constant and largely unquestioned refrain in multinationals found that just nine of them were
foreign policy is that the world has globalized. truly global, meaning that Asia, Europe, and
Closets are full of clothes stitched in other North America each accounted for at least 20
countries; electronics and cars are often percent of their sales. Additionally, the oft-
assembled far from where consumers live. U.S. repeated term “global supply chains” is a
investment Åows into Asian markets, and misnomer. The making of things across borders
Indians decamp to the United States for tends to be even more regional than the buying
graduate school. The numbers show the and selling of »nished products: the pieces and

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magnitude of international exchange. Trade parts that come together in modern
among all countries hovers around $20 trillion, manufacturing are more likely to be shipped
a nearly tenfold increase from 1980. between neighboring countries than from farther
International capital flows also grew away. International capital Åows are also more
exponentially during that period, from $500 regional than global. Cross-border buyers of
billion a year to well over $4 trillion. And nearly stocks, bonds, and other financial instruments
»ve times as many people are traveling across don’t invest as far away as one would expect
borders compared with four decades ago. It is, given how global their options are, on average
however, misleading to claim that this flow of going no more than the distance between Tokyo
goods and services and people is always global and Singapore. Foreign direct investment tends
in scale. Globalization, as commonly to follow trade. Over half of all cross-border
understood, is mostly a myth; the reality is far »nancing circulates solely within the European
closer to regionalization. When companies, Union. And lending, borrowing, and foreign
supply chains, and individuals go abroad, they direct investment in Asia by Asian banks and
don’t go just anywhere. More often than not, companies is on the rise. People tend to orient
they stay fairly close to home. Consider trade. If their lives regionally, as well. Most people never
long distances didn’t affect international sales, leave their own countries. And for those who do
the typical journey for any given purchase travel abroad, well over half never leave their
would be some 5,300 miles (the average regions. The vast majority of travelers taking
distance between two randomly selected European vacations are European. The same
countries). Instead, half of what is sold abroad goes for people in Asia and North America. Those
travels less than 3,000 miles, not much farther who move permanently abroad also tend to stick
than a flight across the United States, and close to their countries of origin; the majority
certainly not far enough to cross oceans. A don’t leave their immediate region. And although
study by the logistics company DHL and students who venture internationally tend to go
scholars at the NYU Stern School of Business farther than other travelers, 40 percent don’t
concluded, “If one pair of countries is half as leave the geographic area in which they were
distant as another otherwise similar pair of born. Over half the international Åows of goods,
countries, this greater physical proximity alone money, information, and people occurs within
would be expected to increase the merchandise three main regional hubs: Asia, Europe, and
trade between the closer pair by more than North America. The economic rise of China,
three times.” South Korea, Taiwan, and Vietnam began with
regional investments and inputs. Eastern
Companies’ forays abroad have been more Europe’s fast-paced growth came from linking to
regional than global, as well. A study of the western Europe. Between 1993 and 2007,
Fortune Global 500, a list of the world’s largest Mexico’s economy more than doubled in size,
companies, shows that two of every three thanks in large part to the North American Free
dollars of their sales come from their home Trade Agreement (NAFTA), reached in 1993 with
regions. A study of 365 prominent Canada and the United States. The overlooked

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reality of regionalization has implications for more so, over the last 30 years has been the pro
U.S. policy. Although NAFTA was revised in liferation of bilateral and multilateral free-trade
2020—it is now the U.S.- Mexico-Canada agreements, which tend to involve countries in
Agreement (UsMCa)—the North American hub is the same region. European countries turned first
still not as integrated as that of its East Asian to each other for trade. Brazil joined with
and European counter parts. In industries for Argentina, Paraguay, and Uruguay. After
which North American regional supply chains reaching a bilateral trade deal with Israel, the
developed and solidifed, such as vehicles and United States turned to Canada and Mexico and
aerospace, local produc tion maintained its edge. later to ten other nations in the Western
But in other sectors, including electronics and Hemisphere. Asian nations banded together
textiles, North America’s more limited through the free-trade area of the Association of
regionalization led whole industries to move Southeast Asian Nations and later the Regional
wherever regional links provided a leg up. Comprehen sive Economic Partnership (RCEP).
Ideally, the United States would be inking Global arrangements such as the Comprehensive
international trade deals to expand its market and Progressive Agreement for Trans-Pacific
access and pursue its geopolitical aims, such as Partnership (CPTPP), the successor to a pact that
countering China’s rise. That does not appear was engineered by Washington but that the
politically possible at the moment, however. A United States later abandoned, are so far more
more viable policy would be to fortify and tap the exception than the rule. Companies see
the United States’ regional network. That would differences in their bottom lines depending on
allow Washing ton to access a broader swath of their geographic dispersion. Many have gone

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the global marketplace and stave off losing more abroad to boost their earn ings, benefiing from
of its competitive advantage to countries that the cross-country advantages of differential skills
are expand ing their own regional footprints. and wage costs. Yet go too far, and costs begin to
rise again. In 2010, an academic study of 123
WHY REGIONAL TRUMPS GLOBAL- The major U.S. multinationals found that returns on assets
reason networks skew regional is simple: improved as companies expanded internationally
geography matters. Even with massive within their region but declined when they
container ships, moving things across oceans ventured farther from home. The management
still costs time and money. A transatlantic consulting group McKinsey & Company dubs
voyage adds a week to delivery, and a trip this “the globalization penalty,” fnding in a
across the Pacifc Ocean adds a month before survey of 500 multinational corpo rations that
parts or goods show up in U.S. warehouses and earnings diminished as operations spread out. It
factories. That means producers and stores seems the optimal distance for private-sector
need to maintain larger inventories of goods profts is a Goldilocks zone: not too close but not
that come from far away. And it is not only too far.
cargo that can be delayed or lost when trade
takes place over great distances. Even with THE RULE OF THREE- The strength of the
virtually free calls, video, and fle sharing, the regional networks that a country belongs to are
inherent difculty of communicating and therefore particularly important. And in this
coordinat ing across space and time can add to regard, European countries are well situated.
the costs of doing business. Lan guage and Although Brexit and mounting populist
cultural cues vary by country, and these Euroskepticism may make the EU appear fragile,
differences often grow with distance. (This is one the European con tinent is, in fact, the most
reason that a quarter of trade hap pens among integrated region in the world. The deep ties that
countries that share a language.) Legal codes connect its countries are rooted in over a half
and admin istrative norms also tend to be more century of diplomatic bargains that created a
similar the closer countries are, eliminating the single market, a common pass port, and a
need for duplicate teams of lawyers, shared currency. Today, Europeans make things
accountants, and human resources specialists. together and sell to one another, with nearly two-
And the intangible but vital task of fnd ing thirds of EU trade staying within the union.
things in common and building trust and Similarly, internal European investment exceeds
understanding for team work can get harder as that from the rest of the world by 50 percent.
the distance between people grows. Asia is not far behind in its integration.
According to the Asian Development Bank, the
Trade pacts as well tend to be regional. proportion of the region’s trade that takes place
Although the 1990s saw the creation of the internally has risen from 45 percent in 1990 to
World Trade Organization (WTo) and the nearly 60 percent today, surpassing North
expansion of its membership and oversight America and closing in on Europe. Decades of
powers, what has been as important, if not export-oriented development propelled by Asian

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business leaders and backed by bureaucrats seek: in many sectors, skilled (and higher-paid)
tied country after country together through technicians have become far more important
production supply chains. Asian countries than line workers. That shift diminishes the
make things together and increasingly buy from advantages of economies of scale, enabling at
one another: nearly one-third of Asian fnished least some companies to move production closer
goods are sold to consumers in the region. to con sumers without sacrifcing profts. The
North America’s countries have also deepened value of time is growing, too. As consumers
their economic ties to one another. In the wake expect faster de livery and near-immediate
of NAFTA, trade between Canada, Mexico, and gratifcation, the longer lead times for goods
the United States rose fourfold, outpacing that produced by factories thousands of miles away
between those countries and ones outside the can mean lost sales. The popularity of
region. Investment, too, became more regional, customized products also makes mass producing
particularly for Mexico, where since NAFTA’s facilities abroad less relevant than in the past.
signing in 1993, one of every two dollars flowing Moreover, demographic shifts are raising the low
in has come from its neighbors. In particular, wages that once drew so many companies to
North America’s agricultural and advanced- developing countries. In China, the great
manufacturing supply chains expanded and migration that brought over 200 million workers
strengthened over the course of the 1990s, from the hinterlands to manufacturing centers
leading regional commerce to jump by more has largely ended. After de cades of strict family
than a quarter. This integration didn’t last, planning, more workers are now exiting the labor
however; after China’s 2001 accession to the market than entering it. This trend looks set to

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WTO, regional exchanges dwindled, falling from accelerate: the national workforce is expected to
around 47 per cent of the continent’s total trade shrink by 100 million people over the next 20
in 2000 to a low of 39 percent in 2009, before years. Working-age populations are contracting
recovering slightly to around 40 percent by through out much of Asia, limiting labor pools
2018. Still, although North America’s internal and driving up wage rates across electronics and
connections remain signifcantly less robust other supply chains. In Europe, working-age
than those in Asia and Europe, they far outstrip populations are in decline or appear to be
those among the countries of Africa, Latin headed that way. Mil lions of Hungarians,
America, the Middle East, and South Asia— Romanians, and other eastern Europeans have
regions where less than a quarter of trade and headed to their western neighbors in search of
invest ment occurs between neighbors. better pay and op portunities, and an influx of
migrants— and, more recently, refu gees—is only
JUST IN TIME- During the COVID-19 partly replenishing workforces. Another factor
pandemic, border closures and rising transpor curbing globalization is climate change. Extreme
tation costs have prompted companies to weather will increasingly upend logistics as ports
consider bringing produc tion closer to home. flood, rails buckle, and airplanes are more
Governments have suddenly become keen to frequently grounded by storms. Longer sup ply
exercise more control over international supply chains increase these vulnerabilities and
chains for pharmaceu tical and medical potential costs. Mean while, policies designed to
products. At the same time, ongoing slow the planet’s warming by cutting emissions
technological innovation has made it easier for are raising global transportation prices,
the private sector to expand produc tion in incentivizing com panies to manufacture goods
different geographic neighborhoods. Automation, closer to consumer markets.
in particu lar, is making far-flung factories and
supply chains less vital and less proftable than THE POWER OF POLITICS- It’s not just
in the past. As sensors increasingly monitor technological and demographic shifts and
assembly lines and equipment and robots and climate change that will curb globalization and
other forms of mechanization take over many favor more regionalization; political change is
manufacturing processes and tasks, wages playing a role, as well. After decades of opening
make up a smaller part of operating costs. That up to the world economy, many countries are
development has diminished, at least in part, pulling back. The Global Trade Alert, a nonproft
the once strong draw of locations with cheap that tracks and collates trade policies from
labor. New ways of making things, such as 3-D official sources around the world, has calculated
or additive printing, are also changing that since the 2008 global financial crisis, new
manufacturing processes, making small-batch protectionist measures have outpaced
produc tion runs more affordable and reducing liberalizing ones three to one. Meanwhile, the
the need for specialized facto ries. These WTO has been sidelined. It is no longer the
advances lower the numbers of workers that forum to negotiate new trade rules. Its efforts to
companies need and change the skill sets they reshape global trade ended in 2015, when the

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so-called Doha Round of talks sputtered to a importance of cheap wages and the ris ing role of
close. More niche efforts, such as attempts to skilled labor should advantage better-paid U.S.
reduce fshing subsidies in mostly rich nations, workers. A trove of intellectual property and
are struggling. Since 2018, the WTO has been intangible assets, including several of the new
unable to punish countries that break the rules, technologies transforming work and workplaces,
as the United States, under both the Trump and will allow many U.S.-based companies to reap
the Biden administrations, has refused to outsize benefts. Abundant financing means more
approve new judges to its Appellate Body. discoveries, more patents, and more products.
Instead, regional accords have stepped in to The United States also boasts clear laws and
govern international trade. The USMCA regulatory regimes— which is why so many
regulates North America’s trade ties and investors prefer stocks and bonds issued under
arbitrates disputes. In Asia, the RCEP now New York law—and a generally receptive and
governs commercial exchanges among 15 entrepreneurial business environment. For all
countries, removing most tariffs and combining these reasons, the U.S. economy should fare well
rules of origin requirements to favor regional in this next round of globalization. Still,
supply chains. The African Continental Free Washington’s advantages aren’t immutable.
Trade Area agreement aspires to do something Other countries are also investing in education,
similar, replacing a tangle of bilateral rules and research, and development and advancing their
regulations with a single, almost continent-wide own technologies and national corporate
commercial system. Regional accords now set champions. Moreover, the next billion new
the rules for more than half the world’s trade. buyers of cars, clothes, and computers will be in

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Geopolitical tensions threaten to fragment Asia, where middle classes are growing faster
international com merce even further. Economic than in any other region. To tap into this growth,
competition has become a pillar of great-power U.S. multinationals and exporters will need to
rivalry. With industrial policy back in vogue, adapt. To effectively compete, the United States
many countries, including the United States, should pursue reforms at home to take better
are throwing up protection ist barriers. The U.S. care of its people and workers and to prepare
government has identifed semiconductors, them for a more Åuid and volatile economic
large-capacity batteries, pharmaceuticals, and future. This will require expanding safety nets,
dozens of critical minerals as vital to national ensuring labor rights, and improving educational
security and is now implementing pol icies and opportunities that upgrade Americans’ skills.
spending tens of billions of dollars to expand Domestic infrastructure also needs an upgrade
stockpiles, beef up manufacturing capacity at to lower logistical costs that weigh down
home and in friendly nations, and redraw global American-made goods. The $1.2 trillion set aside
supply chains in these designated sectors. Coun in the 2021 Infrastructure Investment and Jobs
tries everywhere are drawing up their own lists, Act to pay for improvements to highways, bridges,
some of them add ing information and data electric grids, and broadband is a good start.
flows, fragmenting cross-border flows of services. More public spending for basic science and
As governments work to reshape the business research and development should follow to usher
environ ment across more industries, they are in cutting-edge scienti»c breakthroughs and
also implicitly or explicitly asking other technologies. In addition to getting its own house
countries to choose sides through export in order, the United States needs a more
controls and other mechanisms. This will strategic approach to trade. One of the country’s
further limit international ties. The push to challenges is the eroding price competitiveness of
reshore critical products and services is its exports in an increasing number of
underway al most everywhere. But what most international markets. The countries to which
countries will fnd is that outside of a few highly the United States enjoys preferred access
sensitive or vital products, companies can’t or account for less than 10 percent of the world’s
won’t bring production back home. Those that GDP, and few of them are among the
try to do so are more likely to go bust as costs fastestgrowing markets. As other countries have
rise and innovation falls. The most probable formed and joined trade accords, the cost of U.S.
scenario is that multinationals will turn away exports has risen in relative terms. Because of
from globalized supply chains in favor of shorter, the RCEP, cars assembled in Japan and South
more duplicative regional ones. Regionalization, Korea no longer face the double-digit tariffs that
not globalization, will set the corporate agenda U.S.-manufactured alternatives still confront in
in the coming decades. the region, and Chinese steel, chemicals, and
machines all face lower levies than options made
AMERICA’S ADVANTAGE- Many of these in the United States.
technological, demographic, and policy shifts
favor the United States. The declining

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In an ideal world, the United States would source parts from many places and complete
pursue a robust and comprehensive trade some tasks and processes in other countries. A
agenda. Joining the CPTPP; restarting negotia regional commercial strategy will also help more
tions over the Transatlantic Trade and work stay on the continent—and thus in the
Investment Partnership, which would have United States. When part of pro duction is
linked the U.S. and eU markets; and revitalizing located in Canada or Mexico, U.S. suppliers are
the WTO would open up more markets to U.S. more likely to keep or gain contracts and remain
goods and services and reinforce more in business than when production moves
transparent, fair, and environmentally friendly overseas. And when orders rise, so do jobs all
ways of doing business. The United States along the supply chain. The Organization for
would also do well to regain its leader ship in Economic Cooperation and Development
international standard-setting bodies, restoring estimates that, on average, nearly 40 per cent of
its traditional role as a rule-maker and not just the value of U.S. imports from Mexico is created
rule-taker. But until the politics of trade change in the United States. For Canada, that fgure is
in the United States, none of that is likely to just over 25 percent. Conversely, U.S. input into
occur. In the meantime, Washington can beneft imports from the rest of the world averages just
by turning to its neighbors. Canada and Mexico 4.4 percent, reflecting how few U.S.-based
have preferred access to many global markets suppliers are part of the global production
where the United States pays full fare. Their process. To enhance North America’s
respective portfolios of free-trade agreements regionalization, the continent needs to improve
each cover some 1.5 bil lion consumers, its linking infrastructure. This means adding

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representing nearly 60 percent of global gDP. land cross ings, upgrading thoroughfares that
Feeding into Canadian or Mexican lead to and away from the bor der, expanding
manufacturing supply chains can give U.S. rail lines and depots, and investing in people and
producers and parts makers preferential access technology to staff and to support ports of entry.
to the world’s consum ers, which they currently With faster con nections and lower logistical
lack on their own. For instance, Mexican made costs, manufacturers in North Amer ica can
cars sold in Europe dodge the ten percent tariff make products that are more globally
U.S.-made models face, lowering the sticker competitive. As parts and components move
price by some $3,000 on a Ford Fo cus and by between the three countries, work ers must be
over $4,000 on an Audi Q5, a savings that able to follow. More and easier legal work-based
makes it hard for U.S. carmakers to compete. migra tion paths are needed to make the region
The opposite is true for U.S.-based parts as a whole more productive, and they will require
makers: Mexican plants can source up to 40 transferable credentials, licenses, and diplomas;
percent of their Europe-bound models from business visas; and longer-term migration
suppliers in countries that are not part of the avenues. Greater coordi nation in education and
bargain. That means imported Mexican-made training can help address gaps in skill and
cars sold in France or Germany also keep U.S. improve work environments to ensure that North
factories humming. In today’s more regionally America’s popula tion growth, already a bright
focused world, exports are more com petitive spot for the region, continues. Educational
when countries make them together. Much of exchanges, language learning, and cross-border
Germany’s touted international commercial apprenticeships and skill development programs
success has resulted from its regional can all help build a continental workforce better
manufacturing ties. By seeding plants and able to entice new businesses and investment.
operations throughout eastern Europe, Stiffening migration barriers will just lead more
Germany’s private companies—the famed Mittel frms to go elsewhere. And as the U.S.
stand—have bolstered the country’s government rolls out industrial policies to in
manufacturing base and created jobs at home crease the resilience of and access to a host of
as their products have thrived on global critical supply chains, its neighbors can help.
markets. China’s spectacular rise and export Geographic diversifcation can offset the risks
dynamism similarly has depended largely on its that natural disasters and accidents pose to
incorporation into regional supply chains. If the stockpiles and production capacity. Regional
United States wants to help its companies manufacturing can lower the public financial
replicate these successes, it also needs a burden of subsidies, as goods are more likely to
regional approach. Regionalization brings attain a higher quality at lower cost when
competitive advantages that a single country, drawing on a cross-border network of suppliers.
even one as large and wealthy as the United North America’s regional trade has recovered,
States, cannot match on its own. To make albeit slightly, from a 2009 nadir of just 39 cents
products as good, affordable, and fast as the of every dollar thanks to expanding textile,
competition, U.S. companies need to be able to machinery, and produce supply chains. But no

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North American leader is prioritizing a
continental commercial future. Mexico is turn
ing inward, with energy and natural resource
nationalism threatening its manufacturing base.
Canada is looking to diversify its international
commercial ties by reaping the beneft of trade
deals with the United Kingdom (UK) and the
European Union (EU) and in Asia as a member
of the CPTPP. And the Biden administration is
guided by another repeated but
unsubstantiated refrain, that NAFTA and other
trade agreements hurt, rather than help, U.S.
workers. That is misguided: most of the studies
trashing NAFTA don’t calculate the better-paid
export-oriented jobs gained as a result of more
favorable terms in the United States’ two biggest
export markets; nor do they consider how lower
North American production costs kept
industries, such as auto manufactur ing, alive
and even allowed them to thrive in the face of
global price competition from vehicles

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manufactured in other, rival regional hubs.
Through integration, a more competitive North TOPICS INCLUDED:
American economy is possible. Three decades of
freer trade, the existence of so phisticated 1. THE MYTH OF THE GLOBAL (By Shannon K.
supply chains in specifc sectors, and O’Neil, August 2022)
widespread cross-border ties between 2. GLOBALIZATION ISN’T DEAD (By Ian
communities and workers due to the movement Bremmer, October 2022)
of tens of millions of people could be energized 3. THE END OF GLOBALIZATION? (By Adam S.
and expanded. But deeper, more sustainable Posen, March 2022)
regionalization will also re quire a change in 4. THE HIDDEN THREAT TO GLOBALIZATION
mindset. It will require recognizing that the (By Niccolo W. Bonifai, Irfan Nooruddin, and
United States’ middle and working class would Nita Rudra, December 2021)
prosper more from engage ment in the global 5. DEGLOBALIZATION IS NOT INEVITABLE
economy than they would from a retreat to the (By Pascal Lamy and Nicolas Köhler-Suzuki,
domestic market. Americans could gain more June 2022)
jobs, profts, and financial security if their 6. GLOBALIZATION’S COMING GOLDEN AGE
country decided to take what is on offer: a slice (By Harold James, June 2021)
of a large and growing economic pie. (By 7. GLOBALIZATION’S WRONG TURN (By Dani
Shannon K. O’Neil, August 2022) Rodrik, July 2019)
8. CHAINED TO GLOBALIZATION (By Henry
Farrell and Abraham L. Newman, February
2020)
9. THE MYTH OF THE GLOBAL (By Shannon K.
O’Neil, August 2022)

Compiled & Edited by Aamir Mahar

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