Decline of globalisation will make our planet less prosperous and more unliveable

The unfolding trade, tech and cold wars between the US, China and their allies risk eroding the international rules-based architecture
Without a system for connection and exchange, economies will shrink, cooperation will wither and global crises will mount

William R. RhodesandStuart P.M. Mackintosh

Published: 1:30am, 14 Nov, 2022

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When world powers and their economies clash, driven by national ideological differences and geopolitical goals, cooperation and coordination withers and trade – reliant on common norms, openness and engagement – shrinks. Economies shrink too, as supply chains strain and break, and sanctions block the transfer of goods and goodwill.

The severe and potentially long-lasting historical clash between a dominant United States and a rising China is complicated and made worse by the war launched by Russia in Ukraine. Taken together, these events risk the end of globalisation, the shrivelling of trade flows and a slowing of economic growth, as costs and tariffs rise, and companies’ forecasts and plans stall.

Much of what world leaders need to achieve requires collective action, coordination and agreement, not discord and dispute. Yet, today, the outlines of a trade, tech and cold war are visible.

A trade war is under way. Strains between the US and China have been growing for years, with US presidential candidates and Congress viewing China as a competitor at best and a hostile opponent at worst. Former US president Donald Trump centred his industrial policy on the protection of US workers, raising tariffs on US$200 billion of Chinese goods and cutting off Chinese firms.

President Joe Biden has maintained the Trump stance and strengthened it. The war in Ukraine has only added to this dynamic, with hundreds of sanctions implemented, and states picking opposing camps or uneasy neutrality.

Global trade has withered, affected by an American shift away from a defence of free trade. Trump shockingly refused to sign normal boilerplate language supporting the “rules based international order” at the 2018 G7 summit, and his team heralded “America first” as their driving goal in place of support for an international system the US helped build.

Germany’s former chancellor Angela Merkel (centre) speaks to former US president Donald Trump (seated right) during the G7 Leaders Summit in Quebec, Canada, on June 9, 2018. Photo: German Federal Government via AP

Biden, domestically focused, has not pursued any free trade deals, allowing the required trade negotiating authority to lapse. Meanwhile, the pandemic and war have made trade tensions far worse, with supply chains breaking, or being recast in distorted ways.

As a result, global trade as a percentage of global GDP has dropped precipitously from 61 per cent in 2008 (before the worst of the global financial crisis), to stand at 52 per cent in 2022. Faced with this backsliding, the World Trade Organization is moribund, its raison d’être now questioned.

A tech war is under way. American policymakers see the rise of China as a national security threat, and are cutting off its access to advanced IT markets, while recent restrictions aim to close off chip manufacturing technology controlled by the US and its allies. Biden has strengthened these sanctions. Congress has passed a US$50 billion investment plan to speed chip manufacturing investments in the US.

The goal is clear: to slow China’s advance and maintain US and allies’ lead in key tech and the digital future. America is pressing for countries to pick a side. No cooperative collaborative alternative is offered.

A new cold war is beginning. America and its allies are facing off against China and its backers, including a diminished, angry, belligerent Russia. States are trying to play one giant off against another. Saudi Arabia leans one way, then another. India balances precariously in between. Still others, like Germany, and Türkiye, are unsure of where they stand.

The geopolitical and economic effects of this ongoing clash are unpredictable and alarming for investors, citizens and societies.

The tragedy of this unfolding triple threat of trade, tech and cold wars between the US, China and their allies, with most emerging countries caught in the middle, is that the intractable systemic problems we face are global. They require and demand cooperative coordinated responses between rivals.

Climate change affects us all. The American West is scorching and burning. China also faces huge climate change challenges. The dangers are clear for all to see. The solutions must be national and local, but they must also be global and cross-border. Yet, with tensions rising, we do not expect breakthroughs at COP27, despite a just transition being desperately needed.

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Or consider the debt crises among lower-income countries across the globe. As the US dollar strengthens, interest rates and repayments denominated in dollars rise. Resolving this requires agreement with the International Monetary Fund, and among public and private creditors.

Yet this time – unlike in the 1980s (in Latin America) or 1990s (in East Asia) – no multilateral public- and private-sector solution has been successfully crafted. The poor in these countries will be the ones who pay the rising cost for the failure of the framework designed by the G20, IMF and World Bank, which is not delivering results under strain.

When the eagle, dragon, and Russian bear clash, a great many others suffer, solutions become almost impossible, and common problems mount rather than get addressed.

Why the US and China must urgently return to climate cooperation

We should all lament the decline of globalisation, the erosion of the agreed rules-based international architecture. If this is allowed to play out over the next decade, our planetary future will be hotter, more unliveable, shrunken and less prosperous.

The exit routes from this downward deglobalisation cycle have yet to become visible. But world leaders, CEOS and voters, left or right, capitalist or communist, should be searching urgently for better national and global diplomatic and economic solutions.

William R. Rhodes, is president and CEO of William R. Rhodes Global Advisors LLC, and a former chairman of Citibank. Stuart P.M. Mackintosh is executive director of The Group of Thirty