US-China trade war is distracting the world from globalisation’s many obvious benefits

Rather than the recent wave of nationalist, protectionist impulses, we need reglobalisation and a reaffirmation of the value and benefits that multilateral cooperation has delivered in the past six decades

At a time when deglobalisation, decoupling, de-risking, onshoring and other such narratives are all the rage, my innate contrarianism has flared. What we need instead is “reglobalisation” and a reaffirmation of the value and benefits that globalisation and multilateral cooperation have delivered in the past six decades.

More than a billion people have been lifted out of extreme poverty, according to Ngozi Okonjo-Iweala, director general of the World Trade Organization (WTO). The proportion of the world population living on less than US$1.90 a day fell from 36 per cent in 1990 to 9 per cent in 2018 (although the Covid-19 pandemic has since interrupted the trend).

WTO chief economist Ralph Ossa warned a week ago that if the global economy fragmented into two rival blocs, real incomes worldwide would fall on average by 5.4 per cent. At the same time, Ossa argues that a revival of multilateralism could increase real incomes by 3.2 per cent. His conclusion: “the opportunity cost of foregoing international cooperation and instead moving to geopolitical rivalry is 8.6 per cent”.

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If the benefits of globalisation are so clear-cut, why have so many concluded that we need to put the process in reverse – to replace interdependence with independence, with integration limited to a circle of friendly nations?

Okonjo-Iweala says the “deglobalisers” believe globalisation has exposed economies to excessive risks, resulting in a loss of jobs and rising income inequality both within and between countries. They say the long and complex supply chains that kept the globalised economy humming collapsed spectacularly during the Covid-19 pandemic, exposing unacceptable vulnerabilities and putting millions of lives at risk.

They also say that national security is in jeopardy and that the quest for efficiency has put resiliency at risk. Therefore, we must “de-risk” by bringing jobs home, putting up protective barriers, simplifying and shortening supply chains and providing subsidies while these necessary structural changes take effect. Higher costs and higher barriers to other export markets are a price we have to pay.

Globalisation’s top threat is inequality, not its unravelling

Okonjo-Iweala argues that this narrative is false and harmful but concedes that globalisation “needs to be improved and reimagined”. While the phenomenon of job losses is more directly a result of other causes such as technological innovation, she recognises that globalisation has disrupted labour markets and says the solution is not protection but a concentrated focus on reskilling “left-behind” workforces.

Supply chains did experience chaos in the early months of the pandemic. However, they quickly recovered to show their value in ensuring access worldwide to medicines, medical equipment and vaccines.

The pandemic and Russia’s invasion of Ukraine did reveal vulnerabilities and bottlenecks. Okonjo-Iweala says the answer is to reglobalise rather than deglobalise, focusing on where supply-chain concentrations are putting national and international security at risk, and developing “deeper, deconcentrated and more diversified global supply chains”.

Whatever heat is being generated by those calling for deglobalisation, the data to date shows a negligible response. Ossa says “only a small minority of US firms” have diversified supply chains. The US Department of Commerce reports that total US-China trade reached more than US$690 billion in 2022 – up 24 per cent from 2019.

© Provided by South China Morning Post
Ralph Ossa, chief economist at the World Trade Organization, speaks during a panel at the International Air Transport Association annual general meeting in Istanbul, on June 5. Photo: Bloomberg

Alan Wolff, former deputy director of the WTO and now at the Peterson Institute in Washington, has produced several policy papers in the past month. He warns of the dangers for the global economy because of the failure to recognise the essential value of globalisation and multilateral cooperation.

He argues the main threat to the world trading system is not decoupling but that the two largest trading countries are undermining the multilateral trading system and acting outside existing trade rules. He faults China for refusing to acknowledge the primacy of market forces – as opposed to state influence – in international trade, using targeted subsidies for state-owned enterprises and using tariffs and export restrictions to intimidate or punish trading partners over political disputes.

He faults the US for imposing tariffs, using opaque “national security” threats to justify tariffs and other trade barriers and using subsidies and “Buy America” rules to protect domestic industries. Most seriously, he condemns the US for crippling the WTO’s essential trade dispute settlement mechanisms and turning its back on multilateral trade deals in favour of bilateral deals.

“The two dominant powers are not dividing the world of trade in two,” he says. “They are, however, disrupting the multilateral organisation of trade.”

Wolff’s work points to a number of imperatives: urgent reconstruction of the WTO dispute settlement system, moderation of policies that subsidise localisation, and China acknowledging the fundamental priority of market forces. In short, measures to avoid the multilateral system deteriorating along nationalist lines.

Taking up Okonjo-Iweala’s call to “reimagine” the WTO, I would also like to see the organisation become home to a new, globally empowered competition authority tasked with identifying bottlenecks in supply chains and areas of potentially destabilising market concentration. This could identify the vulnerabilities in supply chains that have recently aroused national security concerns.

None of us can afford to lose the stabilising forces of multilateral cooperation and international trade. As Wolff concludes: “In the first half of the 20th century, humanity discovered how very easy it was to slip from peace into conflict and war, and how difficult it was to recover from the devastation caused by armed conflicts. The lessons need to be recalled.”

David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades