Remodeling Globalization

This week, a U.S. Congressional committee pushed the Biden administration to consider banning American tech companies from working with an AI development firm based in the United Arab Emirates—a firm that has contracts with military and state-owned organizations in China.

This move is news, but more fundamentally it’s part of a deeper transition that’s been happening for years now—away from unfettered free trade, through tariffs, domestic subsidies, and, increasingly, national-security policies.

From the outset of Ronald Reagan’s and Margaret Thatcher’s era more than 40 years ago, international commerce had been shaped by greater and greater liberalization, deregulation, and globalization. The fall of communism in Central and Eastern Europe in 1989, and then China’s admission into the World Trade Organization in 2001, helped global trade reach a record high in 2007—just before the Great Recession.

But things have since started moving the other way. In 2018, referring to himself as “Tariff Man,” Donald Trump provoked a trade war between the United States and China. The United Kingdom’s departure from the European Union, meanwhile, upended Britain’s longstanding commercial ties with the continent. In 2020, the Covid-19 pandemic disrupted supply chains worldwide. And in February 2020, after Russia invaded Ukraine, nearly all European countries broke off trade relations with Moscow. Data shows that the world’s 20 wealthiest countries have dramatically increased barriers to trade, including import quotas and subsidies to domestic industries. What’s going on here?

Martin Wolf is the chief economics commentator for the Financial Times and the author of the 2023 book The Crisis of Democratic Capitalism. As Wolf sees it, the world has entered a new era—with the U.S. having decided to abandon globalized free trade and America’s economic power impelling the rest of the world to adopt the new model.

Washington’s strategy, Wolf says, is driven by a mix of economic and security concerns centered on its great-power competition with Beijing. It’s an approach that looks to move supply chains from China to friendlier countries—and to repair the damage done to U.S. industries by China’s rise and by global trade generally. This shift could lead to a decline in global growth, Wolf says—though developing countries could see gains, as they become alternative production locations to China. Still, we can’t entirely yet say how other countries will respond to the new dynamics of global trade—or, more specifically, how China will react to a system intended to damage its economic standing.

Michael Bluhm: It seems a transformation is underway in international trade. How do you see it?

Martin Wolf: We’ve been living in an era of trade characterized by the immensely rapid growth of globalization.

Now, globalization can mean a number of connected but different things—so here, I mean specifically the integration of production across borders. It’s about trade in goods—not so much in commodities or services. And the most important element of that trade in goods is manufacturing.