Over the past few years, there has been increasing talk of deglobalization. While there is no consensus regarding when this process began, the common assertion is that the post-1945 era of globalization is now over.
Today, the world is witnessing the rise of big power competition, weaponization of interdependence, a US-China trade war, selective decoupling of trade among major global economies, and most importantly, a domestic backlash against globalization in many countries. These phenomena are analytically distinct, and it serves little value to club all of them together. The globalization process is indeed going through profound shifts, but it does not necessarily indicate deglobalization.
A number of scholars and commentators who claim that the globalization era is over essentially make the mistake of conflating globalization as a political ideology and the idea of globalization as a set of economic policies. This piece aims to debunk the myths of the politically constructed idea of globalization and highlight how it has undergone substantive shifts over the past two hundred years.
According to the Peterson Institute for International Economics, globalization is the “growing interdependence of the world’s economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information.” According to Pol Antras, “it means that some markets that cleared at the national level are now clearing at the global level.” Clearing of markets implies the supply of a good or service matches its demand. Consequently, for deglobalization to happen, there should be evidence suggesting that more of these markets are being cleared domestically, but such evidence is rather marginal, or non-existent.
However, this debate over deglobalization raises a more fundamental question about the perceived nature of globalization itself. For most commentators, globalization is not necessarily a purely economic process, which should be advocated because it helps societies achieve other more significant objectives, such as general welfare. For these commentators, the idea of globalization and an unfettered march towards economic openness are no longer just a means towards an end. Instead, it is a political ideology that should be advocated for its own merit.
Interestingly, the path towards the emergence of globalization as a political ideology stems from a combination of myths and realities. “How the history of the free trade project is narrated already does a great deal of work in setting up the lessons that will be taken away about the inevitability and desirability of economic liberalism,” writes Anne Orford. “In this sense, economic history is theory.”
As a consequence, globalization emerged as a political ideology, which has both its followers and detractors. For its followers, it is an end, not merely an instrument to achieve other goals. Its detractors also treat globalization as a political ideology, not simply as a set of economic policies. More significantly, both are just the two sides of the same coin, where their support or opposition is based on a set of myths and realities.
Even the narrative about deglobalization falls into this trap. The political idea of globalization represents a never-ending project of internal and external economic liberalization. Any seeming disruption of that process—such as the US-China trade war or their decoupling—is considered a sign that the globalization process is under siege.
The actual process of globalization, which is more economic in nature, has undergone substantial shifts and transformations over the past two and a half centuries. There is absolutely nothing linear or teleological about it. Taking a quick look at how the pre-World War I era of globalization worked has important lessons for us today. There has always been a vast gulf between its actual mechanics and the political ideology of globalization.
The set of economic policies that helped early developers deliver growth looked nothing like the policies adopted by East Asian states that grew at staggering rates a century later. Hence, as the globalization project undergoes significant changes today, it might be helpful to see these as a part of a long process of evolution, as opposed to the end of an era. Looking at the contemporary global economy, many assumptions about deglobalization make the mistake of looking at globalization as a political ideology, and interpreting any deviation from its ‘deterministic’ trajectory, as an existential moment.
A myth based on a myth
Most accounts of globalization begin with the transformative role of Adam Smith’s ideas and how they eventually helped turn the tide against mercantilism. His ideas were far more nuanced than the single-faceted promotion of the “invisible hand”, “self-interest”, and free trade. We forget how the key reason behind Smith’s advocacy of a liberal trade regime was his opposition to the ‘‘monopolizing spirit” of manufacturers and merchants of the time, not some inherent goodness of free trade. Suppose, Smith’s concerns with mercantilism were to do with how a few monopolies captured all the gains from trade. Then how is that any different from the contemporary critiques of Preferential Trade Agreements (PTAs), where a few superstar multinational firms capture most of the gains from trade?
Similarly, Thomas Malthus’ approach to political economy was premised on theological ideas. Accordingly, the ‘Providence’ acted through ‘general laws,’ and ‘man’ had no business to intervene in their operation. It is these theological ideas that became institutionalized during his time teaching British civil service recruits. Over the years, this Malthusian worldview became the dominant view of thinking among the administrative class, and thus, the bedrock of the doctrine of laissez-faire.
If Smith is seen as the intellectual fountainhead of modern capitalism, then the 1846 repeal of Corn Laws in England is considered the foundational manifestation of the global liberal economic project. However, it is deeply misleading to see the repeal of those protectionist trade laws as a victory of the free trade thought over mercantilism. Orford contends that a combination of three factors drove the repeal: growing ideological opposition to state intervention, aristocratic class giving up some of their privileges to avoid a revolution like in France, and shift in perceptions towards seeing trade as an instrument of growth and progress.
More substantively, our current understanding of globalization stems from a particular and profoundly misleading narrative of how some countries industrialized and globalized from the 1860s to 1914. According to this narrative, in the pre-1914 globalization era, free trade and other liberal economic policies helped countries industrialize and trade with each other. Further, the narrative goes, whichever country adopted these external liberal policies reaped the gains of a globalizing world. Today, there is overwhelming evidence to show that this particular account, is little more than a political construct. Most pre-war era industrialized countries did not adopt a free trade doctrine.
Data on average duties on manufactured products from 1870 to 1913, collected by Paul Bairoch, busts the myth of how free trade led most Western European countries and the US towards industrialization. Only the United Kingdom, Netherlands, Switzerland, Denmark and Belgium consistently practised some degree of free trade during this period. Others, such as Russia, Austria-Hungary, France, Italy, and Spain, flirted with some degree of protectionism and import substitution. The US, however, was consistently protectionist, and its duties ranged from 40-50 per cent in that period. The countries that practised free trade during this period were all European colonies, for reasons that are too obvious to state. The free trade policies were not meant to serve the interests of the domestic population, but of their colonial masters.
Similarly, another myth associated with this era of globalization is to do with economic convergence. While output did grow substantially in that period, the sources of that growth were quite uneven. In large parts of Southern and Eastern Europe – including France, Russia, Italy, and Austria-Hungary – industrial development was “weak and erratic”.
Whether it is Smith’s advocacy of free trade or Malthus’ promotion of theology-centric laissez-faire, it is hard to see them as an outcome of purely economic logic. Nevertheless, we continue to look at those thinkers and their ideas through that misleading rational-economic lens. The story of globalization, as it is told today, is a political story. Through the decades, it has undergone generational tweaking, which aimed to achieve particular political and economic objectives by the stakeholders of the day. But this process, coupled with unambiguous financial gains from openness produced a political ideology.
There is nothing inherently wrong with such an ideology, as long as it does not become the analytical yardstick by which we measure globalization or its retreat.
A new world, like the old one?
Even at the height of the Smoot-Hawley tariffs, when tit-for-tat protectionism had engulfed the global economy, what helped turn the tide, was not solely sound economics. The US Congress’ decision to pass trade negotiating powers to the president, and the introduction of reciprocity, helped create a bloc, which eventually provided political support for American tariff reductions. In terms of global capital flows, foreign direct investments were a feature in the first globalization phase, but were mainly absent in the immediate post-1945 Bretton Woods era.
Thus, unlike the political story of globalization, the actual economic process has never been linear or deterministic. To think globalization is a linear story erodes our understanding of the current state of the global economy. There is clearly that is underway, but to club everything under a blanket notion of deglobalization reproduces a myth-laden political construct.
Shannon K. O’Neil, in her recent book, questions whether globalization is actually global. On the one hand, since 1980, just about two dozen countries have been active participants – whose trade doubled as a percentage of their GDP – in the globalized economy. On the other hand, around ninety countries remained fringe players in the global economy or even deglobalized. While globalization is anything but global, it helps shed light on the future challenges and opportunities of globalization.
Another oft-cited evidence used to put forth the deglobalization narrative is how global trade as a share of the GDP has declined since 2008. Richard Baldwin provides a much more nuanced picture. China’s trade peaked in 2006, while the US and Japan’s peaked in 2011 and 2014. And in economies like India, Italy, and Spain, it still has not peaked. According to Baldwin, the fall in the global trade share can be explained by three factors. First, the rise of China has meant that it now sources a large part of its intermediate goods domestically. Second, most of the low-hanging fruits from the offshoring expansion have now been captured. Third, 60% of this decline is a function of the fall of absolute prices, as the commodity supercycle ended in 2014.
And yet, trade in Other Commercial Services (OCS) – involving trade in intermediate services – has experienced a dramatic expansion over the past few years. Baldwin claims, these intermediate services are the future of globalization. Today, major global economies are not disengaging from the world. On the contrary, they remain deeply interdependent on other economies for capital, intermediates, exports, and technology.
At the same time, there are substantive changes underway. Due to the US-China trade war, the Chinese population has become more suspicious of trade with both the United States, and the world. Additionally, as Chad Bown shows, US imports from China that faced higher tariffs after 2018 have substantially declined. However, imports from China with no change in tariffs have boomed. Similarly, the US-China technology war, has entered a decisive phase, especially in semiconductors. Yet, the larger technology decoupling between the two economies remains piecemeal.
The fundamental imbalances in domestic economies and the global economy at large mean that there will be many more backlashes against the idea of economic openness. But to see each of them as the death knell of globalization is political scaremongering. Globalization is bound to change over time, because this is precisely how it has made it so far.
Srijan Shukla is an M.A. candidate in international relations at New York University and Stern School of Business. Formerly, he was a journalist covering foreign affairs for ThePrint in New Delhi