Shifting tides of globalisation

Efforts are being made in many countries to “reshore”, “friend-shore” or even completely decouple supply chains but results have been mixed at best and come at great cost. Whatever the political or economic motivation, to what extent is deglobalisation even possible and can its benefits ever outweigh its disruptive effects?  

By Darryl Lupton

The collapse of the Roman empire in the mid-first millennium CE resulted in an early form of deglobalisation. Trade networks were severely disrupted leading to a decline in economic integration and wealth in previously connected regions. The Dark Ages followed. The United States (US) is the current global leader but nevertheless a declining power in an ever more multi-polar world. In a bid to reclaim its ebbing economic might and manufacturing capability, successive US administrations have appeared to reject the free-trade system their predecessors set up post World War II and instead imposed trade tariffs on their foremost economic and geopolitical competitor, China. This merited a reciprocal response and the world witnessed the start of a trade war between the two largest global economies. Two years later the Covid crisis emerged and subsequent lockdowns began exacerbating trade flows and disrupting supply chains.

The shift from the US and China being competitors on the global stage to a relationship more akin to geopolitical rivals began after the Global Financial Crisis (GFC) of 2007-2008. This rivalry has steadily intensified and talk of economic ‘decoupling’ from China actually preceded the Covid epidemic. The February 2022 Russian invasion of Ukraine has further economically dislocated the world with the ensuing Western-led sanctions that have somewhat isolated Russia. Does this mean that the world is in a process of deglobalisation? Maybe regionalisation or economic fragmenting are better descriptors? Is it even possible to “unmake the omelette” of globalisation without crippling the world’s economy? How about Taiwan’s economic position in these precarious times? China is militarily more threatening than ever and Taiwan’s champion, the US, is looking less reliable under the imminent Trump presidency. This article will examine what precipitated this global economic shift and likely scenarios that may play out. Finally, an overview of Taiwan’s part as a key player in future technology in this global drama will be addressed.

There are trade documents from the Indus Valley Civilisation (3300-1300 BCE) and these ‘stamp seals’ have been found in ancient Mesopotamia. The Bronze Age, around this time (3000 BCE), also necessitated the trade of copper and tin. The Silk Road stretched from Xian in China to Rome in the Mediterranean starting a century before Christ. Europe also had the Amber Road and Hanseatic League among other networks. Clearly, trade has been connecting regions since early human civilisation and created interdependence through the flow of capital, goods and people. In more modern times this reliance on mutual trade benefits was supposed to ensure peace in the early 20th century. Complicated alliance systems, among many other reasons, thwarted this theory and “the war to end all wars” began in Flanders fields. The interwar period was marked by protectionism, capital controls and trade blocs that encouraged trade wars. The result: the deadliest war in human history. Post WWII, the US created world stability through the Bretton Woods system with institutions that ensured peace and regulated economic trade and relations. Nevertheless, the Cold War began soon after between the mostly democratic and capitalist West and the communist bloc of China and the Soviet Union. It was only when China opened up economically to the world in 1978 and followed by the collapse of the Soviet Union in 1991, that true modern globalisation started. With modern transport, communications and technology facilitating connectivity, the world has never been so entwined and interdependent.

In the Global South there are strong opponents of globalisation as there are in America’s Rust Belt. Yet, for China it has clearly lifted almost the entire population out of poverty in 40 years and ensured that it is second only to the US in the number of ultra-high net worth individuals. In fact, this inverse industrialisation connection was highlighted by Joseph Stiglitz: the American middle class was the loser of globalisation whereas China’s large emerging middle class has had superior purchasing power parity to Americans since 2015. This helps explain how populist leaders like Donald Trump get elected with promises to restore American industrial power and manufacturing jobs.

Facts on the grounds of deserted factories backed by economic data and statistics from economists like 2024 Nobel laureate Daron Acemoglu clearly illustrate how the US lost millions of jobs to China, especially since it joined the World Trade Organisation (WTO) in 2001. In truth, US production and manufacturing power started declining from the 1970s when cheaper foreign labour markets supplanted American workers. This is a natural cycle in economics as capital flows to cheaper means of production and lower labour costs. In turn, the more advanced economy then moves up the value chain of production and to more capital-intensive sectors like services, technology and finance. Unfortunately, many of the laid off workers in the US couldn’t transition to other jobs or industries and they remained unemployed or, due to increased competition in existing jobs, salaries decreased and blue-collar workers ended up poorer overall.

The Inflation Reduction Act (IRA) is an initiative under the Biden Administration to create jobs in the clean energy sector. In 2023, jobs in clean energy grew at more than double the rate (4.9%) of the rest of the economy, according to the US Department of Energy. Furthermore, the 2022 CHIPS Act is aimed at boosting US capability to produce advanced computer chips locally and increase the US domestic supply chain. Construction jobs have been boosted significantly to build fabrication plants (fabs) and facilities for production plus research and development (R&D) facilities. However, there will be technically skilled workers needed in these new jobs, so how will blue-collar workers be accommodated?

President-elect Trump was in part re-elected by promising to re-industrialise America and provide jobs in manufacturing that were previously lost to countries like China. As in his first term as president, Trump will use tariffs as a tool to accomplish this goal. The problem is that economic data indicate that this tactic had mixed success last time. As a matter of fact, economists have calculated that whereas the tariffs may have saved jobs in for example the steel and aluminium industries, they cost more jobs in downstream related sectors due to higher import costs. If this economic measure is reapplied, which seems guaranteed, then the result is likely to be inflation. It was Covid stimulus measures by the government that stoked inflation and these higher prices that were a major factor in Trump being elected. It will be interesting to see how these conflicting economic forces are balanced by the new administration. Furthermore, in a rebuttal to proposed tariffs, 23 Nobel laureates, including several economists, signed a letter expressing their concerns about the potential negative impacts of tariffs on the US economy. They argued that tariffs could lead to higher prices for consumers, reduced economic growth, and job losses. The letter highlighted the importance of free trade and the potential benefits of reducing trade barriers. Bluntly put, trying to extricate the US from the global economy is almost impossible if the goal is to be autarkic, that is economically self-sufficient and independent in most economic areas with minimal reliance on international trade.