There’s a counsel of doom which has been emerging for a few years and has now been given extra vim by the war in Ukraine. It contends that the post-cold war surge of globalisation which stitched together the advanced and developing economies had a good run, but that the patchwork, increasingly stretched by geopolitical rivalries, is now coming apart into two or three pieces.
Specifically, the argument says, the “splinternet” is breaking the online world into competing digital spheres, partly thanks to three incompatible models of handling data — European privacy-focused regulation, US corporate-driven free-for-all and Chinese state surveillance.
Meanwhile, it goes on, political risk from the US-China strategic conflict is causing companies to reshore or “friendshore” supply chains. Governments, especially since the Russian invasion of Ukraine, are faced with the task of picking economic and strategic sides: either the US-led advanced economies (sometimes with the EU as a somewhat independent pole of alliance) or China.
Nice narrative, but there’s not much evidence to support it. Not only are most standard measures of globalisation — cross-border movement of goods, services, capital, data and people — doing pretty well, but governments are showing that shrewd multipedal manoeuvring can keep their feet in more than one camp.
Take data protection and the alleged fracturing of the digital realm. The EU is convinced it’s setting data rules for the world, exporting the General Data Protection Regulation (GDPR) through the familiar “Brussels Effect”, explicitly contrasting it with US laxity. But a country like Japan under the late Shinzo Abe, by carefully designing safeguards against misuse of personal information, got Brussels to recognise its data protection regime as adequate for data transfer while enthusiastically signing up to US-inspired commitments to free international data flow.
The same is true with goods supply chains. In Brazil, President Jair Bolsonaro values trade with Europe enough to expend considerable effort trying to push through the EU-Mercosur trade deal, attempting (not very convincingly) to acknowledge European environmentalist values regarding the Amazon. At the same time, China buys about three quarters of Brazilian soyabean exports and Bolsonaro is keen not to offend Beijing.
A diplomatic balancing act prevents Brazil from having to choose. Brazil voted for the motion to condemn Russia’s invasion of Ukraine at the UN general assembly, but Bolsonaro made a point of signalling disquiet, and then abstained on the subsequent vote to suspend Russia from the UN human rights council. (Brazil also continues to enjoy the support of the US in its ambition to join the OECD, a rich-country club.)
One of the other emerging market heavyweights, India, seems at first sight to be shifting towards the advanced economies’ camp as its foreign policy relations with China worsen. It has recently signed trade deals with Australia and the UK and is negotiating one with the EU, alongside enhanced military co-operation with the US. But those deals don’t have nearly enough substance to lock India into a decisive trading relationship. And good luck trying to stop Indian prime minister Narendra Modi buying oil from Russia, one of the US-led alliance’s key strategic goals with regard to Ukraine. Like Bolsonaro, Modi is playing a multipolar diplomatic game and so far succeeding.
Many emerging markets are doing similar. Plenty of countries in East Asia aren’t big fans of China and some, such as Vietnam, are picking up good business from multinationals diversifying away from the Chinese economy. But Vietnam’s trading economy is still tied to Asia-Pacific networks in which China is present, reinforced by the Beijing-dominated Regional Comprehensive Economic Partnership.
During the cold war, developing countries could plump for one side or the other and get broad-spectrum alliance benefits: military protection and assistance, political aid, maybe some useful trade links. Even then, though, there was a large non-aligned movement. And none of today’s big players has such a comprehensive offer.
The US has control of the global dollar payments system and the biggest military on earth. But the current phobia of trade deals in Washington limits its ability to reward allies with juicy market access, evidenced by the feebleness of the Indo-Pacific Economic Framework being offered in Asia.
The EU’s a better bet for a meaningful trade deal, assuming you don’t mind it hedged around with increasingly restrictive rules on the environment and labour rights. But it has little unified military capability to underpin a strategic alliance.
China is a big commodities export market, the source of key industrial inputs like rare earths and a provider of infrastructure through the Belt and Road Initiative — assuming you consider that a bonus. But the renminbi isn’t an internationalised currency, and Beijing’s belligerent foreign policy alarms countries in the region.
So far, the fabric of globalisation has proved so densely woven it has resisted attempts at unravelling. Of course, the political divisions between the big trading powers, particularly the US and China, are a constant worry. If tensions over Russia — or Taiwan — escalate, that threat will become acute. But so far, none of those powers have shown themselves strong enough to force countries to choose an exclusive bloc. This is not the cold war. It’s far more interesting than that.
alan.beattie@ft.com
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Source: Economy - ft.com
