Foreign affairs commentator Gideon Rachman (@gideonrachman) reminds us, “Globalization is not just about trade and technology. It is also about politics.”[1] He adds, “Political change, above all the collapse of communism, created the conditions for an age of hyperglobalization. Now political change, above all rising nationalism, is threatening the dense network of economic ties built up over the last three decades. The enemies of globalization can be found across the political spectrum, from the nationalist right to the anti-capitalist left, and from the environmental movement to the intelligence services.” Globalization is historically defined as the relatively unfettered flow of goods, services, resources, people, and ideas around the world. Clearly, political policies can (and do) impose roadblocks to all of globalization’s flows.
For decades, many economists pointed to the disastrous protectionist policies of the early twentieth century as one of the main causes of the Great Depression. Rachman points out, “A decade ago, protectionism was still a dirty word in US politics. But the Trump administration started a trade war with China and the Biden administration has kept the tariffs in place. A bipartisan consensus in the US is now pushing for policies to reduce economic dependence on China and to repatriate key industries.” To be fair, the pandemic and the war in Ukraine have demonstrated that reliance on global supply chains can be risky. And the entrenchment of authoritarian governments in China, Russia, and elsewhere does little to reassure people that relying on global supply chains is a good idea. Rachman argues, however, “One possible conclusion to draw is that global economic connections and supply chains are now too intricate to be disentangled. While there may be a will to deglobalize, there is no real way.”
The Changing Face of Globalization
Even if there is no sensible way to “deglobalize,” the nature of globalization has been changing significantly. Economic commentator Martin Wolf (@martinwolf_) has argued on several occasions, ““Globalization is not dead. It may not even be dying. But it is changing.”[2] Wolf cites the work of Richard Baldwin (@BaldwinRE), who argues there have been three waves of opportunities to trade in different ways. Wolf explains, “First, industrialization and the revolution in transport generated opportunities for trade in goods. More recently, new information technologies allowed ‘trade in factories’: it became profitable to move entire factories to where labor was cheap. Today, however, the broadband internet allows ‘trade in offices’: if one can work for one’s employer from home, someone in India can do so, too.” Of course, anyone who has dealt with call centers in other countries understands that time differences and language barriers are a challenge.
Like Rachman, Wolf recognizes that nationalism can also negatively impact this third wave of trade. He explains, “An important difference between the first and second waves, which need movement of objects, and the third, which moves information virtually, is that obstacles to physical trade are far easier to impose than those to virtual trade. It is not impossible to impose the latter, as China shows. But it requires great effort.” Nationalist regimes, like those in China, Russia, and Iran, have demonstrated they are more than willing to make that effort. Despite the linear discussion of these waves, it should be clear that all three of these trade waves are still underway — goods are still moving around the world, companies are still looking to locate factories in locations offering cheap labor, and virtual offices are springing up around the globe.
Gary M. Barraco (@Gary_ecVision), an Assistant Vice President in Product Marketing at e2open, agrees with Rachman that global supply chains are so intertwined that unraveling them will be difficult, if not impossible. He argues, however, that global supply chains increase national vulnerability. He explains, “If we’ve learned anything in the last few years, it’s how vulnerable our supply chains have become in the last five decades. In a global economy, no nation or industry is self‐sufficient. Each is involved at various levels in trade to sell what it produces, acquire what it lacks and produce more efficiently than the competition.”[3] Like Rachman and Wolf, he sees nationalistic trade policies, aimed at decreasing national vulnerabilities, throwing up barriers to globalization. He writes, “De-globalization is evident, too, and it is accelerating through global disruptions like major climate change that has led to extreme weather events, political upheaval triggering protectionist measures, the war in the heartland of Europe, and the pandemic with unseen magnitude and longevity. Almost every major economy is building a ‘trade wall’ along its borders, including the US, EU, UK, and China.”
Like Baldwin, Barraco sees these trade barriers leading to a new era of digital globalization. He explains, “It is critical to be tuned in to the geopolitical changes impacting the direction of global trade and implementing punitive or retaliatory tariffs. Companies should consider how to react to these developments and brace for more changes that might come down the road. To stay ahead, you need up-to-date trade knowledge to pinpoint differences and digital supply chain execution technology to ensure goods cross borders efficiently.” He adds, “To remain competitive in this global trade landscape, innovative companies are implementing digital solutions that leverage probabilistic methodology to identify growth opportunities, boost productivity, enable compliance, and minimize risk. That is a tall order in times like these, where new tariffs, trade wars, and supply chain disruptions force companies to rethink their global strategies.”
The digitalization of globalization and the advancement of other technologies are also contributing to regionalization — or, as some call it, glocalization. I have argued for years that this is the direction globalization is headed. Nationalism has only accelerated the process. Global business columnist Rana Foroohar (@RanaForoohar) isn’t the least bit troubled by this change in direction. She explains, “Emerging markets in Latin America, Africa, and Asia … are building regional production networks for crucial goods. Ultimately, this could create more resilient trade pathways and new development models that aren’t entirely pinned to exporting cheap goods to a handful of rich nations across long transport routes that are becoming more expensive and politically contentious. Nearly everywhere, decentralized technologies and big data are allowing more ‘local for local’ production, something that may also end up being good for the planet.”[4]
Concluding Thoughts
Barraco concludes, “As politicians, economists and consultants continue to predict whether recent supply chain chaos and geopolitical struggles will result in a reversal of globalized sourcing, supply chain leaders are at least weighing the options. Networked, cloud-based supply chain technology and services give companies the ability to see, forecast, act, and advance in the most informed and intelligent manner, optimizing making, moving and selling across the entire value chain when certainty isn’t certain.” Artificial intelligence-powered systems, like the Enterra Global Insights and Decision Superiority System™, can help companies better understand the changing nature of globalization. Change is constant and to think that the nature of globalization would not change is naïve. Nevertheless, there are dangers that must be avoided. Glocalization is not the same as protectionism. No country will ever be entirely self-sufficient and adapting to changing circumstances requires careful thought not stubborn ideology.
Footnotes
[1] Gideon Rachman, “The enemies of globalisation are circling,” Financial Times, 29 August 2022.
[2] Martin Wolf, “Globalisation is not dying, it’s changing,” Financial Times, 13 September 2022.
[3] Gary M. Barraco, “The De-Globalization Of Supply Chains Is Reflected In Trade Policy,” Talking Logistics, 9 August 2022.
[4] Rana Foroohar, “Davos and the new era of deglobalisation,” Financial Times, 22 May 2022.
