By now the narrative is firmly established, especially among those who didn’t think much of globalisation in the first place. The worldwide integration of goods, services and capital, which hit a speed-bump with the global financial crisis, has crashed into the barriers of Covid and the Ukraine war. Governments and businesses have rushed towards protectionism and localisation. There is no more free trade. It’s all geopolitics now.
There’s certainly plenty of rhetoric around to that effect. Before some vaguely conciliatory noises from US President Joe Biden placated him, Emmanuel Macron, his French counterpart, last week claimed the subsidy-laden US Inflation Reduction Act risked “fracturing the west”.
Veterans of transatlantic and intra-European spats down the years — George W Bush’s Iraq war comes to mind — will find this jarringly disproportionate. The battle of Waterloo, the American war of independence, the Protestant Reformation: that really is fracturing the west. A local content provision in US tax credits for electric vehicles is not.
There is a risk here, though. Politicians can get swept along by the gusts of popular feeling that they themselves fanned. Biden talks about co-operating with allies. But his “worker-centred” approach has kept the administration’s trade policy on a path not altogether different from that of Donald Trump. It’s difficult to see Biden or a Democratic successor doing a second-term presidential pivot towards a more open trade policy — as happened when Barack Obama dropped his scepticism of trade agreements after being re-elected in 2012 and pushed for the Trans-Pacific Partnership.
It would have been a long shot just a few years ago that the EU was genuinely claiming to be spending €43bn in subsidies for semiconductor production — the kind of industrial policy Paris has been pushing for decades. But a lot more people in Brussels are French now, or at least they sound like they are.
Yet it’s striking that, even after the Russian invasion, there still isn’t compelling evidence of deglobalisation at either government or corporate level. The European Bank for Reconstruction and Development, based on a survey of European companies taken between May and July this year, found that there was a process of “reshuffling” supply chains to manage risk — as indeed businesses already had done in response to Covid.
Certainly, disruptions were at the top of company executives’ minds: the survey found that supply chains were cited with unusual frequency during earnings calls in the first half of 2022. But companies’ actual reactions didn’t fit the deglobalisation narrative. More than three-quarters of businesses had made at least one change to increase supply chain resilience, but these mainly involved holding higher inventories and diversifying suppliers rather than shrinking back to home markets. Even those dependent on imports from China tended to add more suppliers rather than drop China as a sourcing destination.
There’s a similar picture for governments, at least in their particular responses to Covid and Ukraine. There were well-publicised export restrictions on personal protective equipment during the early months of the pandemic and similar during the international scramble for vaccines. But as Simon Evenett of the monitoring service Global Trade Alert points out, many of those were being unwound by mid-2020. Governments instead embarked on a campaign of import liberalisation in medical supplies including expanding import quotas and cutting tariffs — depending more, not less, on trade. There’s been a similar picture in global food trade since the Russian invasion in February. The trading system is messy and constricted but it hasn’t been suffocated.
There are two very large reasons to be cautious that this openness will persist. One, the US is bent on weaponising trade to degrade China’s technological progress. America’s export controls and the dollar payments system give it a lot of power to drag along reluctant allies.
In a related point, as noted above, politicians’ rhetoric can become a self-fulfilling prophecy. “Relax, it’s just the French sounding off” is a less comforting reassurance from free-traders in Brussels than it used to be. The EU has created a whole array of defensive trade weaponry. It retains discretion over how to use them, but politics may demand frequent deployment.
As Evenett says: “On the current trajectory, policymakers risk talking themselves out of the flawed bastardised global system they inherited into one based on gang warfare.” There’s nothing inevitable about this. Governments have choices. So far, their reactions to Covid and Ukraine have been remarkably moderate. There is no guarantee they will remain so.
alan.beattie@ft.com
Source: Economy - ft.com
